Your company can experience creditor pressure if it doesn’t repay its bills on time. Whether down to forgetfulness or the company’s finances being in a poor state, it can be stressful and, if left unaddressed, can result in further damage to your company and a worsening of its financial standing. In the worst-case scenario, it could even lead to the company’s closure.
So, what can happen if your company is under pressure from creditors, and how can you deal with it?
Creditor Pressure to Repay
If your company doesn’t repay its liabilities within the time specified in the arrangement, the creditor is allowed to pursue your company to repay.
Depending on who the creditor is and the amount of debt you owe, this pursuit for repayment could take several forms.
- Informal reminders
The first instances of creditor pressure can come as telephone calls, emails, or letters to your company’s address and during working hours.
Creditors are within their rights to do this if your company owes them money. However, it’s important that their actions don’t cross the line into harassment. Harassment could include the following:
- Using threatening language.
- Contacting you outside of working hours, at your personal address, or via social media.
- Obtaining your personal information by breaking data protection laws.
- Threatening to involve the police or taking legal action that they cannot legally enforce.
- Formal demands and judgments
While these reminders are unpleasant to receive, you should resist the temptation to ignore them. Your creditors may take this as either an inability to repay or a refusal to do so. They can then issue more formal debt recovery action. This could come as Statutory Demands and County Court Judgments (CCJs). Ignore these, and they can have serious consequences. CCJs have a limited time in which they can be repaid. Surpass this timeframe, and the judgment stays on the company’s credit file for six years, making it harder to get credit going forward.
Additionally, creditors could employ debt collectors and even send bailiffs to your company, who will attempt to collect either funds or assets equivalent to the value of the debts.
- Winding up the company through compulsory liquidation
If you owe at least £750, your creditors can apply for the most severe form of debt recovery: a winding-up petition. These are advertised in the London Gazette, with other creditors able to add their claims. Once noticed by the company’s bank, its accounts will freeze, making trading impossible and forcing the company into compulsory liquidation.
Stopping creditor pressure
While the above can sound scary, if you act quickly, there are ways to alleviate the pressure on your company.
- Informal negotiations with the creditors
While going cap-in-hand to your creditors can feel humiliating, if you know that your company has an upcoming bill that it’ll struggle to repay, advising your creditors of the situation beforehand may stand you in better stead than if you fail to make a repayment. Similarly, if a repayment arrangement’s terms are no longer viable for your company, you could speak to your creditors and see if they’re willing to amend it.
- Formal repayment arrangements
If your company is insolvent, you should speak to a licensed and regulated insolvency practitioner as soon as possible. These professionals can give your company free, impartial, confidential advice. The earlier you contact them, the more options you’re likely to have to alleviate your issues.
If your company has a viable business model but is struggling to repay its unaffordable liabilities, one of those options could be a Company Voluntary Arrangement (CVA). This is a formal repayment arrangement which allows the company to repay an affordable portion of its unsecured debts at a tailored, monthly rate. The company continues trading for the arrangement’s duration, which is usually around five years. Upon its conclusion, any remaining unsecured debt is written off.
- Formal restructuring
Administration can be a viable option if the company is struggling with creditor pressure and repayment isn’t a feasible way of resolving the issue. The process allows the insolvency practitioner to look into the company’s financial position while ringfencing it from additional creditor pressure. The process is best suited to companies with assets that could be realised with the proceeds distributed to creditors, and it would achieve a better outcome than if the company was liquidated. - Formal liquidation
If continuing to trade isn’t feasible and creditor pressure is becoming unmanageable, it might be best to voluntarily close the company. Entering a Creditors Voluntary Liquidation (CVL) prevents creditors from pursuing further legal action and closes the company in an orderly, formal process. If you’ve fulfilled your directorial duties and acted in the best interest of the insolvent company and its creditors, you can walk away from the company and start afresh.
You’re likely to feel creditor pressure if your company owes any amount of money to creditors. This could come as written reminders by email, post, or telephone calls, but if ignored, these can escalate to Statutory Demands and County Court Judgments. In the worst case, those creditors could issue a winding-up petition and force the company into compulsory liquidation. Your best course of action if your company is struggling to repay its debts is to speak to a licensed and regulated insolvency practitioner. They can advise you of the best way forward for your company, be that repaying its debt in instalments, restructuring back to a profitable state, or closing and walking away.
Disclaimer: This article is for informational purposes only and does not constitute legal, financial, or professional advice. Laws and regulations regarding creditor actions and insolvency may vary, and outcomes depend on individual circumstances. Readers facing creditor pressure or financial difficulties should seek guidance from a licensed insolvency practitioner or qualified financial professional to explore the best course of action for their specific situation.
Published by Stephanie M.
