How Do You Recover a Debt Due from a Company and the Impact of Covid-19?

posted by KeithDaniel

During the current climate it is more important than ever for companies to ensure that invoices and debts are paid on time so as to protect the financial standing of their business during difficult times.

There are numerous ways you can seek to recover monies due from a company. However, Covid-19 and legislation introduced as a consequence of the current pandemic have affected the more frequently used debt recovery options.

We will consider the main routes for debt recovery and the impact Covid-19 is having on their effectiveness.

  • Statutory Demand

A statutory demand is a written demand to a debtor for payment in a specified frm. Ordinarily, if a debtor does not make payment (or have the demand set aside) within 21 days, the creditor can present a petition for the winding up of the debtor. In more normal times this can be a cost effective, quick way to encourage payment from a debtor.

However, under the new Corporate Insolvency and Governance Act 2020 (“the Act”) any statutory demands issued between 1 March 2020 and 30 September 2020 are automatically void regardless of the debtor company’s financial position. The Act was enacted quicker than it otherwise would have been in order to support struggling businesses with the impact of Covid-19. As a result, statutory demands are not currently a debt recovery route available to creditors. There is also scope for this measure to be extended to a later date.

  • Winding Up Petition

A winding up petition is a legal notice issued at court by a creditor in order to petition the court to put an insolvent company into compulsory liquidation i.e. close down the debtor company. If the court orders the winding up then an official receiver will be appointed to liquidate the assets of the company in order to pay creditors. Again, this can be an effective way to recover a debt due relatively as quite often a debtor company will make payment before the petition is heard by the court.

Similarly to the temporary provisions relating to statutory demands, there is a provision in the Act which prevents a winding up order being made if a company’s precarious financial position has arisen as a result of Covid-19. This provision is in force between 1 March 2020 and 30 September 2020. As a result, its likely to be difficult for a creditor to enforce its debt via this route. It also remains to be seen whether this period will be extended, further preventing recovery of debts via this route.

  • Court Proceedings

A creditor can still issue court proceedings in order to recover a debt. There are various steps, (including the exchange of pre-action correspondence) that should be taken before proceedings are issued. This form of debt recovery is not affected by the Act. However, as you would expect, the courts are suffering backlog of cases and delays as a result of shutdowns and remote working during lockdown. Whilst Courts are largely back to operating at full capacity and proceedings remain an effective route to debt recovery, you can expect at least a several month period (likely at least 12 months) before a claim reaches trial if the claim is disputed. Provided the claim is successful you would then need to enforce any judgment obtained in order to receive payment from the debtor.

  • Alternative Dispute Resolution

Given the delays and restrictions to the usual debt recovery routes arising from Covid-19, creditors ought to be considering alternative debt recovery routes. A cost effective and quick way to recover monies due can be for a creditor to encourage debtor to meet, discuss the debt due and attempt to reach an agreement. This can be facilitated (often more effectively) via solicitors, and/or with the assistance of a mediator. A mediator is an independent third party, who is brought in by the parties not to enforce a decision in the way a court would, but to assist the parties in reaching an agreement over a debt or dispute.

We advise on all methods of debt recovery and provide and effective and user friendly service. Contact us on dispute@berrysmith.com or 02920 345511 for further details.