What to do if your company can’t pay its suppliers or creditors
When your company is experiencing financial challenges, you may find your creditors begin to pile the pressure on you once you start to miss payments that are due. This pressure may take the form of letters, emails, and telephone calls, through to a pause on further supply until you bring your account up to date.
In many cases of supplier pressure, non-payment comes down to not being able to pay rather than not wanting to pay.
So what can you do if your company simply does not have the money to ensure creditors are paid on time?
How to deal with creditors when you cannot repay them?
How to deal with creditors when you cannot repay them?
If your company is dealing with financial and/or operational challenges which are causing you severe cash flow issues, it is highly advisable that you open up the lines of communication and explain the situation to your suppliers and other creditors.
Many businesses will have experienced cash flow problems at some point, and your suppliers may be more willing than you think to enter into negotiations or give you additional time to pay what you owe.
If it has reached the stage where your creditors’ patience is wearing thin, you may need to consider entering into a more formal solution to solve the issue.
What action can creditors take over non-payment?
Not being able to pay your suppliers or other creditors such as your landlord, HMRC, or finance provider, is something which needs to be taken extremely seriously. While a one-off missed payment may be tolerated, repeated instances of this is likely to cause tension and see the pressure on you increase.
A creditor ultimately has the power to close down your company and force it into liquidation should you repeatedly refuse to repay your debts, therefore ignoring the problem is simply not an option.
This is done via a Winding Up Petition, a court document which is served on a limited company after they fail to keep up with their payments to suppliers and/or other creditors. Once a Winding Up Petition has been issued, the company has a limited amount of time to settle the matter with the petitioning creditor; failure to do this will see the court issue a Winding Up Order which will force the company into Compulsory Liquidation.
Once a Winding Up Order has been made, there is nothing that can be done to save the company from liquidation. Therefore, directors must ensure they take swift action once the Winding Up Petition is served on them if they want to save their company from closure. This can be done by speaking to a licensed insolvency practitioner for help and advice.
What are the options for a company in debt to creditors and suppliers?
What are the options for a company in debt to creditors and suppliers?
If you have debts to creditors you know your business is unable to repay, there are a number of formal insolvency processes which have been designed to help companies in exactly this position. The option which is most appropriate for you and your company will depend on a number of factors including the amount of debt your company has and its ability to repay. The most common solutions include:
- Company Voluntary Arrangement (CVA) – A Company Voluntary Arrangement acts as a formal repayment plan entered into by an indebted company and its creditors. You can include a number of different creditors in a CVA not just the one that has issued the Winding Up Petition against your company.
A CVA typically lasts for between 3-5 years, during which time your company will be required to make a series of pre-agreed monthly repayments towards its creditors. Some unaffordable debt will typically be written off as part of the process. In order to enter into a CVA, your company must be seen as viable as a trading entity going forwards and any proposed CVA must be given consent by creditors in order to become legally-binding.
- Administration – Company administration offers an insolvent company the opportunity to consider its options for restructuring free from creditor pressure and threats of legal action.
As part of the administration process a licensed insolvency practitioner will be appointed to oversee the administration, and they will determine the best course of action for the company. This may involve a sale of the business to a connected or unconnected party, a large-scale reorganisation of the company’s structure, finances, and operations, or even an orderly closure of the company if it is judged to be beyond rescue.
- Creditors’ Voluntary Liquidation (CVL) – A Creditors’ Voluntary Liquidation is a director-initiated closure process which can be used to bring a distressed company to an orderly end. A CVL will be considered when the business is seen as being beyond rescue, as a way to ensure outstanding creditors are treated fairly while also helping company directors/shareholders adhere to their legal obligations now the company is insolvent.
While liquidation may not be the preferred outcome, sometimes this is the best solution for all involved when a company becomes insolvent. Voluntary liquidation allows for creditors to recover as much of the money they are owed as possible, while also shielding them from incurring further losses.
How Scotland Liquidators can help
How Scotland Liquidators can help
If you are experiencing pressure from suppliers or other creditors due to non-payment of company debts, you should make it a priority to seek expert help and advice.
At Scotland Liquidators, our team of licensed insolvency practitioners are here to talk you through your options and recommend the best course of action. Whether this ultimately involves closing your company or embarking on an ambitious process of internal restructuring and reorganisation, we will be with you every step of the way.
Take the first step towards resolving creditor pressure by contacting the Scotland Liquidators team today.
