Legal/Finance
Andrew Shipp, of Gardner leader, explains how best to act when your company is having trouble recovering its debts from other businesses.
My company is owed money by a company who I think are in financial difficulties. What can I do?
This is becoming a more and more frequent occurrence with the current economic trend. In order to maximise cash flow, it is important to act fast.
There are two main options available to you. You can issue court proceedings against the debtor, which can be a slow process depending on the amount in dispute. The alternative is to serve a Statutory Demand on the debtor.
This option is only available where the amount owed is more than £750. If the debtor fails to pay the amount owed within 21 days of receiving the demand, you can apply to the court to wind the company up.
Which process is more straight forward?
If there is no dispute over the amount due, then either process could be dealt with quickly. If you can get a county court judgment without any delays, then this method is likely to cause fewer headaches.
However, if the debtor contests some or all of the amount sought, then it is likely to take at least six months to bring the matter to trial, by which time, the debtor may no longer be trading. The Statutory Demand can be straight forward, but if the debtor does not respond, you will need to apply to wind the company up. The obvious downside is the cost of doing so, with the court fee alone being nearly £900.
Is there a risk I won’t get the money from the debtor?
The phrase ‘you can’t get blood from a stone’ applies here.
If the debtor does not have any money, then your judgment or unsatisfied statutory demand are likely to be worthless.
It may therefore be worth carrying some enquiries as to the company’s financial position before taking any legal action, as you may be throwing good money after bad.
I’ve obtained judgment but the debtor won’t pay. What should I do?
You can seek to enforce the judgment through the court. The most appropriate method would be to either instruct bailiffs to attend the debtor’s premises, or to apply to wind the company up.
I’ve found out the company is in liquidation. What do I do next?
You must contact the liquidator as soon as possible to advise them of your interest.
If the insolvent company has any assets, these will be dealt with by the liquidator and if any money is left once the preferential creditors, such as the tax man or mortgage company, have been paid, you will hopefully recover some of the monies due to you.
Is there any way I can recover the money from one of the directors of the company?
In most circumstances, the answer to this is no. However, directors can be guilty of wrongful trading, when he or she continues trading and enters into new contracts, when they know that the company has no hope of paying for them. In such circumstances, it may be possible to pursue an action against the director personally.
How can I protect my company in the future?
If you have any doubts about the company’s financial position, before entering into a contract, it is always worth carrying out due diligence first. Credit reference organisations can provide you with an overview of the company’s credit score. Alternatively, you should consider asking the directors of the company to enter into personal guarantees. If the company cannot or will not pay the debt, you can pursue the guarantor instead.
For more information please contact Gardner Leader on (01635) 50 80 80 or visit www.gardner-leader.co.uk
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