What steps can your creditors take and what can you do to prevent it?
If your company has debts it cannot pay and the pressure from your creditors (those you owe money to) is building, you’ll understandably be anxious about the action they can take against you. Some creditors, such as HMRC, have a powerful range of enforcement measures at their disposal and can act quickly if they think you are deliberately avoiding paying what you owe.
Here we look at the escalatory steps your creditors can take, from payment demands and threats of legal action to petitioning the court to wind up your business.
If you miss a scheduled payment to a supplier, HMRC or some other creditor, the first contact is likely to be a polite email or phone call reminding you the payment is due and asking you to make it as soon as possible. If you continue not to pay, you can expect to receive a more forceful payment demand and for the creditor to add interest to the debt.
What can I do?
At this stage, you should communicate with your creditors, explain your situation clearly and give them a realistic timeframe of when you’ll be able to make the payment. You might be surprised by how understanding they will be. If you owe money to HMRC, contact them to make a Time to Pay (TTP) Arrangement to pay what you owe in instalments.
County Court Summons
If you continue to ignore a creditor or do not stick to a payment agreement, they may choose to take legal action. A County Court Summons is the first stage of that process. It is a formal payment demand that sets out how much you owe.
What can I do?
Once you receive the summons, you have 14 days to respond by either disputing the debt or making the payment. If you do neither, a County Court Judgment could be issued against you. If you cannot afford to pay in full, contact the creditor to try and make an informal payment arrangement.
County Court Judgment (CCJ)
Now the pressure is ramping up. If the debt is valid and you do not pay what you owe, a County Court Judgment will be issued against you. You then have 30 days to challenge the CCJ or pay up before it is registered with the credit agencies. If you don’t, the CCJ will show on your company’s credit file for six years, making it more difficult and expensive to secure credit in the future.
Importantly, having a CCJ issued against your business acts as proof that your company is insolvent. That allows your creditors to take even more serious action against you.
What can I do?
The first step is to check that the CCJ is accurate. If there are any errors, you can apply for it to be set aside by the court. If the details on the CCJ are correct and you do not dispute the debt, make the payment if you can. If you’re not in a position to pay the debt in full, contact the creditor to try and make a payment plan.
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If you do not pay the debt or stick to the terms of a payment plan, your creditor can choose to take enforcement action against you. They will commence action by sending you a Notice of Enforcement requesting you to pay the debt within seven days.
If you don’t pay, they can appoint a bailiff to enter your business premises and make a Controlled Goods Agreement. That’s an inventory of the assets they can seize to cover the debt. They will also try to make a payment plan with you. If you refuse to sign the Controlled Goods Agreement or do not stick to the terms of a payment plan, the bailiff can seize company assets and sell them at auction to recover the debt.
What can I do?
If your business is financially viable and you want to save it, it’s still worth trying to make a deal with the creditor if you can. If you don’t make a deal, losing company assets and equipment could be the beginning of the end for your business.
A Statutory Demand is the next step in what is now a serious situation. The CCJ has the effect of proving the debt in law - the Statutory Demand goes further by making a formal demand for that debt to be paid. You now have 18 days to challenge the demand or 21 days to pay the debt in full or reach a repayment agreement.
What can I do?
You can challenge a Statutory Demand, but only if you have genuine grounds for doing so. If you cannot pay the debt in full, get advice from an insolvency practitioner immediately. They will help you understand your options, such as proposing a Company Voluntary Arrangement (CVA) to repay what you owe over time or putting the company into Administration. Alternatively, if the business is no longer viable, the best approach could be to close it down voluntarily via a Creditors’ Voluntary Liquidation (CVL).
Winding Up Petition
If you do not pay or successfully challenge a Statutory Demand, a creditor can issue a Winding Up Petition against your business. This is something a creditor will only do as a last resort once they have exhausted all other options.
Once you receive a Winding Up Petition, you have just seven days to pay what you owe. If you don’t, the petition will be advertised in the Gazette and made public. The company’s bank accounts will then usually be frozen and it will become very difficult to pay the debt or continue to trade. A date for the court hearing will be set, typically eight to 10 weeks after you receive the petition. At the hearing, the likelihood is that the court will grant a Winding Up Order and the company will be forced into Compulsory Liquidation.
What can I do?
You have to act quickly and decisively if you want to save your business. It’s worth trying to raise the money to pay the debt using emergency funding. If funding isn’t immediately available, you could ask the court to grant an adjournment to give you more time to make the payment.
If you cannot pay what you owe, entering into a Company Voluntary Arrangement could be an option. At this point, however, your creditors might be unwilling to accept a payment plan. In that case, you could explore whether Administration or Pre-Pack Administration is viable. If the business is no longer profitable and has no realistic prospect of recovery, a Creditors’ Voluntary Liquidation can lead to a better outcome than being forced into Compulsory Liquidation by the court.
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If your business is struggling with unmanageable debts and creditors are threatening to take action against you, our licensed insolvency practitioners can help. Contact us today for a free consultation or to arrange a meeting at one of our nationwide network of offices. We can help you understand your options and take the right steps to protect your business.
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