If your company doesn’t pay its liabilities on time, its creditors can pressure the company to do so. Ignoring the problem will only see the situation worsen,and the pressure is likely to increase, potentially leading to longer-lasting financial issues.In the worst case, it can also lead to the company’s closure.
Fortunately, taking the appropriate action quickly and decisively will put you in a better position to save the company.
How creditors can pressure your company
Depending on who the creditor is and the amount outstanding, they could have several options to recover what your company owes.
- Repayment reminders
Initially, creditors may send your company informal reminders to repay what it owes. These can come as telephone calls, letters, and emails.
While creditors are within their rights to request payment in this way, it’s important to distinguish between reasonable creditor pressure and when it becomes harassment.
Harassment includes:- Contacting you at your personal address or outside of working hours
- Threatening language
- Breaking data protection laws to obtain your personal information
- Contacting you via your personal social media
- Threatening to take legal action outside of their powers, including involving the police
You can report a creditor if you experience this type of harassment.
- Statutory demands and County Court Judgments (CCJs)
Ignoring informal repayment reminders means your creditors can issue formal recovery action. They can issue a Statutory Demand or a County Court Judgment (CCJ). CCJs must be addressed within the timeframe specified in the judgment, otherwise they will remain on the company’s credit file for six years, making it harder to obtain further financial arrangements. Creditors can also utilise debt collectors and High Court Enforcement Officers (HCEOs, or bailiffs) to visit your company’s premises and attempt to recover funds or assets equivalent to the value of the debts. - Forcing the company into compulsory liquidation
If you continue to ignore the action listed aboveand you owe at least £750, creditors can apply for a winding-up petition.Once advertised in the London Gazette, other creditors can add their claims to the petition, and once the company’s bank becomes aware, they will freeze the company’s account. This makes trading impossible and forces the company to close through compulsory liquidation.
How to stop creditor pressure and reduce its potential impact
As the company’s director, you should always be aware of the company’s financial position, including whether it is solvent or insolvent. Acting as soon as you’re aware of anyissue can put you in a better position to alleviate the company’s debts.
- Informal arrangements with creditors
Informing the creditors that you might struggle to repay an upcoming bill before it falls due can put you in a better position than if you just let it go unpaid, even if it won’t necessarily negate your responsibilities to repay it. - Formal repayment arrangements
Speaking to a licensed and regulated insolvency practitioner as soon as you’re aware that the company is insolvent is your best course of action. They can advise you on the best option based on your circumstances and have the licenses required to carry out the appropriate recovery or closure process.
If your company’s business model would be viable if not for its debts, the insolvency practitioner may put the company into a Company Voluntary Arrangement (CVA), a formal repayment arrangement that allows the company to repay a portion of its unsecured debts at an affordable, monthly amount. The arrangement allows the company to continue trading while it repays its agreed amount, usually over five years, with any remaining unsecured debt written off upon its conclusion.
- Restructuring the company back to a profitable state
If the company is struggling with creditor pressure and repayment won’t be feasible, the insolvency practitioner may suggest the company enter administration.During this time, the insolvency practitioner will investigate the company’s position and make the necessary changes to return it to a profitable state. The company is protected from creditor pressure for the process’s duration. Administration is best suited to companies where its assets could be realised and the proceeds distributed to creditors, or if it would achieve a better outcome than if it were to go straight into liquidation. - Closure through voluntary liquidation
If creditor pressure against the company is so great that continuing to trade isn’t feasible, you can close the company via a Creditors Voluntary Liquidation (CVL). Doing so stops creditor pressure against the company and prevents further legal action from being filed while the insolvency practitioner closes the company in an orderly manner. If you’ve acted in the company’s best interests in your time as director, you should be able to move on and start a new company. Depending on your circumstances, it may be possible to purchase assets from the old company at market value to use in a new venture, though whether this is viable depends on your circumstances. Your insolvency practitioner can help you understand whether it’s possible.
Summary
As a company director, you should always be aware of the company’s solvent position and act as soon as you’re aware of any insolvency. Insolvent companies are often pressured by creditors to repay. This pressure can start as reminders but can escalate to more formal demands and judgments that will harm your credit rating if left unaddressed, and your creditors can even try to force your company into compulsory liquidation. By taking advice from a licensed and regulated insolvency practitioner as soon as you’re aware of any debt, you’re acting in the company’s best interests, and they will advise you on the most suitable way forward.
