Insolvency Procedure for Companies in light of Covid-19

Many companies are facing financial challenges following measures introduced by the Government to close ‘un-essential’ businesses, and are seeing a huge shift towards working from home. Whilst these measures are required, what happens when a company is unable to discharge its debts as and when they fall due? Here we have a look at some of the key considerations for both the creditor and the debtor.

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Creditor

I am owed money from a Company but they have not paid, what can I do?

In the first instance it is necessary to ascertain whether the debt is disputed by the debtor or not. If the debt is disputed, a creditor should see whether the dispute can be resolved and may seek resolution through alternative dispute methods such as mediation. If the debt is disputed and no resolution can be reached, then a claim may be issued for the recovery of the debt in the county court and the debtor would have the opportunity to agree that the debt is due and payable, or to defend the proceedings.

Alternatively, if the debt is not disputed, creditors may consider serving a Statutory Demand on the debtor company which would allow the debtor company 21 days in which to make payment of the debt. Should payment not be made, and where the debt is not disputed following service, the failure to pay can be used as good evidence to a Winding Up Petition to evidence that the debtor company is unable to pay its debts as they fall due.

A creditor may issue a Winding-Up petition, where the debt of a company is £750.00 or above. However, this often a last resort where other legal methods have been unable to recover outstanding debt. As an aside, for a personal debt, the minimum debt is higher for bankruptcy proceedings to be issued, being £5000.00.

Should I issue a Winding Up Petition?

It would be advisable to ensure that a creditor has exhausted other methods of recovery of a debt before resorting to issuing a Winding Up Petition. There is a court deposit fee of £1,600 and a filing fee of £280.00 which would need to be paid upfront. A solicitor can prepare the Winding Up Petition which is then served by a process server on the company. The creditor would also need to notify the London Gazette who will publish a notification. This allow other creditors to join the petition, and also puts Banks on notice of the company’s status.

Are the Courts hearing petitions in light of COVID-19?

The court began postponing winding up petitions in March 2020 with adjournments of 12-19 weeks for those petitions already listed. Therefore, where a creditor is contemplating a Winding Up petition, they should be mindful of the delay in proceedings.

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Debtor

I am unable to pay a creditor, what can I do?

Where a company can see that there may be difficulty in paying its debts as they fall due, it would be advisable for the company speak with the creditor directly to make them aware of the issues which the company is facing, and to see whether an alternative arrangement can be made. This may include the negotiation of a payment plan or a deferral of payments. Creditors may seek some form of security if payment will be deferred or spread over a longer period of time.

The Government have introduced the Coronavirus Business Interruption Scheme which small to medium business are encouraged to access where required, and which may aid cashflow and assist in repaying creditors. More information about the scheme can be found here.

I have received a Winding Up Petition, what should I do?

A Winding-Up Petition should be acted upon quickly.

If the debtor agrees that the sums which are being claimed are outstanding, then it would be advisable to contact the creditor and seek to agree a payment plan where payment cannot be made immediately or consider entering into a Company Voluntary Arrangement (CVA). Alternatively, the Company may apply to be placed into Administration whereby an Insolvency Practitioner would sell off the company assets to pay off the debt.

If the debt is disputed, the creditor should be notified immediately. It may be necessary to obtain an urgent injunction to prevent the petition from being advertised in the London Gazette or to accept an undertaking not to do so, to allow the parties time to attempt to resolve the dispute.

If the debtor does not take action, then the Winding Up Petition will be advertised in the London Gazette. At this stage lenders (i.e. banks), other creditors and HMRC will become aware of the status of the company which may result in bank accounts being frozen to prevent the movement of assets.

It is essential that companies act quickly and seek professional advice should they receive a Winding up Petition.

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O’Donnell Solicitors are here to advise you on Debt Recovery and Insolvency matters. Contact us on 01457 761 320, or contact Giselle Williams on giselle@odonnellsolitors.co.uk or Suzzanne Gardener on suzzanne@odonnellsolicitors.co.uk