Dear…
Insolvency proceedings against company for unpaid debts.
Further to your request about advice on recovering unpaid debts from a company debtor I have
drafted this letter which details all the options available to you if the company is solvent but is just
failing to pay as well as if they are insolvent.
1. Introduction
Very often when a company is failing to pay the debts it owes is because it is experiencing cash flow
problems. This does not mean that the company is necessarily insolvent but just that for the time
being their liquid assets that they usually use for debts is tied up else where or it could even be that
some of their own debtors have failed to pay and this has resulted in a temporary shortage of cash.
I would urge you to consider your options very carefully. Even if the company does turn out to be
insolvent, often the informal procedures entered into voluntarily with the company can get you a
better cash return than the formal insolvency procedures which often result in the winding up of the
company.
2. What is insolvency?
A company is deemed to be insolvent when:
It is unable to pay its debts as and when they fall due.
if the company’s liabilities outweigh its assets.
if a creditor takes any steps to enforce their rights against the company, which is returned
unsatisfied.
if a statutory demand is served on your company and the debt is not satisfied or secured to
the creditors’ satisfaction, or legitimately disputed within 21 days.
3. Other options for recovering any payment due.
The majority of insolvency situations result in liquidation in which case all the creditors to that
company need to be paid off. The company is unlikely to have enough money even when all the
assets are collected in and sold to pay all of its creditors and so considering other options is vital.
These options are also usually the cheapest and least complex options available.
Negotiate
It is always worth trying to negotiate with your debtor to see if they are willing to try and make any
payments or at the very least get to the route of why they cannot pay and come to a solution that
works for both you and the company. Often an informal arrangement is more likely to be adhered to
because it will have much more favourable terms that the original loan agreement had for the
debtor.
Company Voluntary arrangement.
A company voluntary arrangement is a formal binding agreement whereby you as a creditor would
agree to forgo or wait for part of your debt. It could also just be a binding agreement that the debtor
will pay less for a certain period of time in order to help them recover their financial situation and
continue to trade, so you have better prospects of a full repayment.
These arrangements often require the support of any creditor who could appoint a receiver or
liquidator so that no other creditor can start insolvency proceedings that jeopardise the success of
the agreement.
Insolvency proceedings against company for unpaid debts.
Further to your request about advice on recovering unpaid debts from a company debtor I have
drafted this letter which details all the options available to you if the company is solvent but is just
failing to pay as well as if they are insolvent.
1. Introduction
Very often when a company is failing to pay the debts it owes is because it is experiencing cash flow
problems. This does not mean that the company is necessarily insolvent but just that for the time
being their liquid assets that they usually use for debts is tied up else where or it could even be that
some of their own debtors have failed to pay and this has resulted in a temporary shortage of cash.
I would urge you to consider your options very carefully. Even if the company does turn out to be
insolvent, often the informal procedures entered into voluntarily with the company can get you a
better cash return than the formal insolvency procedures which often result in the winding up of the
company.
2. What is insolvency?
A company is deemed to be insolvent when:
It is unable to pay its debts as and when they fall due.
if the company’s liabilities outweigh its assets.
if a creditor takes any steps to enforce their rights against the company, which is returned
unsatisfied.
if a statutory demand is served on your company and the debt is not satisfied or secured to
the creditors’ satisfaction, or legitimately disputed within 21 days.
3. Other options for recovering any payment due.
The majority of insolvency situations result in liquidation in which case all the creditors to that
company need to be paid off. The company is unlikely to have enough money even when all the
assets are collected in and sold to pay all of its creditors and so considering other options is vital.
These options are also usually the cheapest and least complex options available.
Negotiate
It is always worth trying to negotiate with your debtor to see if they are willing to try and make any
payments or at the very least get to the route of why they cannot pay and come to a solution that
works for both you and the company. Often an informal arrangement is more likely to be adhered to
because it will have much more favourable terms that the original loan agreement had for the
debtor.
Company Voluntary arrangement.
A company voluntary arrangement is a formal binding agreement whereby you as a creditor would
agree to forgo or wait for part of your debt. It could also just be a binding agreement that the debtor
will pay less for a certain period of time in order to help them recover their financial situation and
continue to trade, so you have better prospects of a full repayment.
These arrangements often require the support of any creditor who could appoint a receiver or
liquidator so that no other creditor can start insolvency proceedings that jeopardise the success of
the agreement.
