Dealing with creditor pressure as Government withdraws Covid support

Now that the suspension of winding up petitions and statutory demands is coming to an end, it is anticipated that there will be an increase in creditor enforcement action. This has historically been the point at which, for many companies and individuals, they realise that they need to seek advice from a licensed insolvency practitioner. The withdrawal of the remaining Government support will potentially result in an upturn in the need for businesses to seek the right advice.

Threats of legal action

Whilst winding up petitions and statutory demands have been difficult to enforce over the past eighteen months, there has still been the opportunity to obtain county court judgments, albeit without the ability to enforce them if they remained unpaid. This will end at the end of September and business owners should be mindful that if an outstanding CCJ remains unsatisfied (either in whole or in part) by the end of September, then there is a risk that the CCJ can be enforced. This can either be by a High Court Enforcement Officer (HCEO) obtaining a warrant to take control of your goods, or it can result in a winding up petition being issued for non-payment of the debt.

From 1 October 2021, this situation is likely to become more of an issue for many businesses.

Creditor pressure can take many different forms

Creditors will be looking to take action to improve their own position with your account if you have outstanding payments. This may be in the form of trying to recover their goods (where the supplier claims to retain the title), taking control of goods (HMRC is particularly keen on this one) or trying to hamper your trading activities (such as a haulier claiming a lien over your stock that they have in their possession until you pay them in full).

Your bank may also start to reduce the amount of working capital you have available; for example, they might tell you that they are going to reduce your overdraft limit (either on a staged basis or just in one go) or, where there is an invoice finance facility in place, they may look at limiting the amount you can draw down.

You should note that if you have outstanding payments to creditors (e.g. suppliers) and are unable to meet these payments as and when they fall due, this is one of the indicators for insolvency. At this point, as a director, your duties will be to all stakeholders, not just the shareholders, and you need to ensure that everyone is treated equally.

Protection from creditors

If any of these issues sound familiar, then you will be pleased to know that there are steps that you can take to manage the position, starting with seeking advice from a licensed insolvency practitioner.

Depending upon the severity of the creditor pressure and the reason(s) for the predicament in which you now find your business, there are different options available to you. A moratorium can be obtained if there is a possibility of a turnaround of the company, which offers protection to the business whilst the turnaround is being effected.

A Company Voluntary Arrangement (“CVA”) can be used to rescue the business if the company needs to compromise its debts but if the rescue is being hampered by extreme creditor pressure, then an Administration appointment has an automatic moratorium, offering additional protection for the assets.

Seek advice sooner rather than later

If creditor pressure is starting to increase, make sure that you seek advice sooner rather than later – whilst there are lots of different options available, the more pressure there is on the business, the less time you may have to facilitate a turnaround, which reduces the options available to your business.

If you would like further information about the above, please contact our Restructuring and Insolvency team who will be able to assist you further.