Debt collection: What happens when a company goes insolvent?

Here’s our guide to what happens when a company goes insolvent

If a client of yours goes insolvent, it will most likely be a worrying and stressful time. There are steps you can take independently in an attempt to recoup what you are owed.

Which actions you take depend on how much you are owed as well as the time you can spare. Invoice insurance cover provides you with a dedicated team that look after proceedings on your behalf, but if you don’t have invoice insurance then this post will prove useful. Here we explore what you can do single-handedly to collect your debts without the backup of invoice insurance:

Company Voluntary Arrangement (CVA)

This is an option for those of you who are open to negotiating with your debtor. You can agree on a reduced amount that they are able to pay as opposed to the total outstanding debt. Coming to a CVA means that you won’t be able to pursue any legal action. In return, you get guaranteed monthly payments that slowly replenishes the amount they owe.

Do note that no further charges or interest can be added once a CVA has been agreed between you and your debtor. It depends on the circumstances, but CVA’s can lead to you retrieving more money than opting for the route of liquidation.

Creditors Voluntary Liquidation (CVL)

When a company cannot meet its financial obligations, the directors may pursue this option. As you are one of their creditors, you are entitled to attend a vote on the terms of the CVL, during which you’ll have the opportunity to ask the directors some questions.

Their ideas, and answers should you pose queries, will be summarised in a Statement of Affairs. You can then determine whether or not you agree to the terms of voluntary liquidation they’ve outlined. It is the role of an Insolvency Practitioner to oversee the affairs, and be aware that they have a legal obligation to put creditors first. However a downside to this process is that often companies sell things quickly resulting in a reduced share price, which will have a knock-on effect for you.

Taking control of goods

Known formerly as ‘walking possession’, goods that equal the amount you are owed can be seized and sold at auction with bailiff intervention. This requires officially proving the funds you are owed.

Compulsory winding up

This is typically the last resort as it takes the most time and resources. It involves the closure of the debtor company and means that yourself and other creditors will be paid once the company’s assets are released. Current fees for this stand at £280 for court costs and £1250 for the winding-up petition.

Only opt for winding up if you have a minimum £750 debt. Otherwise it simply won’t be worth it. You have to prove that an undisputed debt for this minimum value exists before you can move forward with this option. Unpaid debt can be proved by issuing of a 21-day Statutory Demand for Payment.

If the company does not respond to this demand within the allocated time, it’s interpreted as proof that the debt does indeed exist, and streamlines the process for you. Once the court has granted the order, a liquidator will be assigned to the company and the winding up process will be commence.

Registering as a creditor in compulsory winding-up procedures

Another business may have already petitioned for your client to be wound up. If this is the case you need to notify the Insolvency Practitioner and register as a creditor. You’ll fill out a Proof of Debt form and have access to creditor meetings and keep up with any advancements in the case. But you won’t be guaranteed any money. Progress will depend on how proceedings go. Remember that if the company has no assets, you will not get your money back.

After exploring what can be done when a client faces insolvency, you may want to reconsider the benefits of invoice insurance.

Invoice insurance offers you protection from bad debt, makes sure you are paid every time and allows you to grow your business with confidence.

You won’t have to go through the above steps as you’ll have one of our credit specialists taking care of proceedings for you.

We’d be delighted if you get an invoice insurance quote for by clicking the link below – it’s a simple process and won’t take long.