Debt Recovery and Covid-19.

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As the UK has moved out of lockdown and businesses have returned to work, we have seen an increase in new enquiries and instructions illustrating that maximising debt collection to assist cash flow has become a priority.  The pandemic has presented businesses with exceptional circumstances that could not be foreseen, and most are facing some form of financial hardship. The common theme we are seeing is that creditors need more help, advice and guidance during this uncertain period to ensure they are using the most effective debt recovery strategy.

The Government has acknowledged the disruption to businesses across the UK and has reacted with sympathy.  It has implemented many schemes to assist struggling businesses to assist with the temporary financial distress faced including tax relief, cash grants and the eat out to help out scheme.

Whilst it is important that creditors respect Government advice it is essential that debt recovery procedures continue so that businesses are able to ensure continued cash flow. Whilst the Government has expressed sympathy and support for businesses, they have also made clear that contractual commitments should be met where possible.

Can I collect my debt as usual? Yes, but communication is key!

There are two types of debtors, those who cannot pay and those who do not want to pay.  It is important to acknowledge that some debtors are unable to pay their debts in full and must take all steps open to them to maintain cashflow for their business to survive. In contrast, creditors must protect their own cashflow by trying to recover debts.  In some instances, there will be no option but to accept payment by way of instalments and to work with those that cannot afford to pay. Naturally, the position of the debtor’s business will change over time, ideally to one where they can increase the instalments. Where possible it is a good idea to have open and ongoing dialogue so you can understand their position and you can also check accounts at Companies House and utilise credit checks.

My customer is ignoring my requests for payment, what can I do?

It is surprising the amount of times we have been told that requests for payment are just being ignored. If this is the case, then it can be assumed that the creditor does not want to pay for reasons other than cashflow shortage.

When efforts have been exhausted, the debt should be placed into debt recovery. You will often find at that stage that the escalation will prompt payment or open up lines of communication to enable you to understand any reasons behind non-payment.  We have found that a letter advising of our instruction to be very successful in receiving payment and responses.  Typically, we would send a letter of claim but many clients are mindful of the current situation and are cautious and keen to show empathy and preserve relationships where possible. We have received an increased demand for a letter to be sent prior to a formal letter of claim advising of our instruction and requesting the business contacts us regarding payment of the outstanding debt or to explain their financial position.

Legal Advice/Action

In some instances, you may be left with no option but to pursue legal action to recover your debt.  It is essential you preserve your own cashflow and keep yourself at the top of the list for payments.  In most instances, your business will not have anticipated being in the position to offer a line of credit and would have expected payment of invoices in 14-30 days.

So, what next?  You will need to send a letter of claim which is a demand for payment within 14 days.  Should payment not be received, and the business still fails to engage with you then the next step is to issue proceedings at court.  The courts are very much business as usual although they too have faced many challenges during the pandemic to include having to adjourn hearings or holding them remotely as opposed to in person.

Once proceedings are issued, the business is at risk of having a County Court Judgment registered against it.  You will often find that once proceedings are issued, payment is received, or contact will be made to explain why payment has not been forthcoming. 

If payment is not made or contact to reach an amicable agreement or a formal defence filed at court, you can request Judgment.  The benefit of this is that this may give you the opportunity to obtain security of the debt which will improve your recovery prospects or the option to commence enforcement action which will make your debt a priority.  You can find details of enforcement options once a County Court Judgment has been obtained here.

Emergency Legislation came into force on the 26 June 2020 in the form of the Corporate Insolvency and Governance Act 2020 (“CIGA”) to support continued trading through the crisis. Amongst other things the Bill provides:-

  • A moratorium to give companies breathing space from their creditors by prohibiting creditors from filing statutory demands and winding up petitions for Covid-19 debts
  • A new restructuring plan for companies in financial distress
  • Temporarily remove the threat of director personal liability

The current restrictions in respect of Winding up Petitions come to an end on the 30 September 2020, we would be surprised to see the temporary restrictions relating to Winding up Petitions extended but it is possible.  Assuming it is not extended we anticipate a spike in instructions to issue Winding up Petitions on companies that have failed to engage and are insolvent due to not being able to pay their debts as and when they fall due.

We are always available to discuss any concerns you have with individual cases or your general portfolio approach.  You can contact Penny Daisley on 01727 738246 or is powered by Debenhams Ottaway solicitors and offers a fixed and capped fee structure to ensure certainty of costs or recovery on a no recovery, no fee basis.  It is backed by a full team of dispute resolution and insolvency solicitors so there is nothing we cannot handle.