What Can a Creditor Do if I Can’t Pay Them?

Unable to pay creditors

If the day comes that you don’t have enough money to pay your suppliers you’ll want to know what actions they can take. We take a look at some of them that can be potentially used below.

In some cases legal action can be sought by creditors through the County Court or High Court. However, these matters are civil rather than criminal, and it is unlikely that you will need to attend the hearings unless you contest the amount. Having said this, you should still be aware of the consequences of late creditor payments.

Before we go further, we should state here that if a company cannot pay its debts as and when they fall due, it is insolvent and should consider closure or restructuring.

The Benefits of Restructuring Your Business

The measures that can be taken by creditors have been listed below; these are in order of severity. If you are looking for further understanding of court processes, or are unsure of where to turn, Forbes Burton can identify your best options quickly and free of charge.

Before any of the actions listed below take place you should receive notice of what the creditor is intending, also detailing the overdue amount and where payment should be sent.

1. Summons to the county court

A County Court Summons will allow you 14 days to respond before the case goes to court. Making a part or full payment will at least delay the hearing.

Alternatively, if you contest the amount or any of the information on the claim form is incorrect, then you can defend the claim.

In this case, you would need to return the claim form and attend the court hearing to present your evidence – it is possible to request an extra 14 days to respond.

2. CCJ (county court judgement)

If your response isn’t submitted within the accepted time frame, a County Court Judgement (CCJ) will be automatically granted against the company – this is often called a default judgement.

At this point it is official that the company is insolvent, and it will have a negative effect on the company’s credit rating, although paying the amount within 30 days can negate this somewhat.

More action from creditors may follow, as it is likely that they will be informed of the Judgement…

3. Enforcement notice

A notice of enforcement informs you of the actions which will be taken if no payment is received within 7 clear days of the letter. This could warn of any of the following;

(1) Warrant from a bailiff

Enforcement agents, usually known as bailiffs, can be sent to collect a debt on the creditor’s behalf. They are instructed to collect payment and remove assets to the value of the debt if all else fails.

However, agents have to follow strict rules, and residential properties can never be entered forcibly. Business premises can be entered in certain circumstances, but it is very unusual because bailiffs are required to bring the matter to the director’s attention.

This means that they are most likely to visit during opening hours or try another address before forcing entry. Furthermore, specific court orders must be sought.

If you are struggling with bailiff action, read more information on how to deal with bailiffs here.

You should be aware that once an enforcement agent has been instructed, their costs will be added to the company’s debt, so the goods that they look to remove will be to the value of the full amount. Also, additional costs will be added at each stage of their dealings; these fees are broken down in detail in our bailiff guide – follow the link above.

(2) Charging Order

If your company doesn’t keep to the terms of a court order, this is one of your creditor’s options. If you have a mortgage on, or own your business premises, it could be at risk of a charging order.

Once granted, the creditor can’t sell the premises, but the order secures the value of their debt to this asset.

Once a charging order has been made, the creditor can apply to the court for another order to force you to sell your home; this is called an order for sale.

(3) Stat Demand

A Statutory Demand is a demand for payment – this is usually followed by a winding-up petition, which once granted, will result in the company being forced into liquidation.

If your company has received a statutory demand, you have a 21 day period in which to pay the debt.

In cases where you are unable to do so, now would be the time to look into Liquidating your company voluntarily. If the company is viable, it is possible to re-start with little interruption to the business, as long as you start the process early enough.

4. Winding up petition

This petition can be used for debts above £750, although in practice it is more often used for debts above £3,000 as this is the cost to the creditor of following the petition through to completion.

If the company goes into liquidation this way, the Official Receiver will be in charge of the process – they will go through the company dealings meticulously and be looking for anything that the director should have done differently.

To avoid this scrutiny, appointing a liquidator yourself before it gets to this point is the often the least stressful option. If you are in this position, you are not alone – get in touch today to discuss your options.

If the debt is personally guaranteed

Of course if any company debts are personally guaranteed, the creditors will hold you personally responsible at the point where the company has defaulted on the payments.

This could mean that your personal assets are at risk, and they have the option of issuing an AoE (Attachment of Earnings), which would instruct you employer to deduct repayments from your wages.

Once the personal guarantee document has been signed, the debts need to be paid, unless you declare yourself bankrupt.

However, if you were to liquidate your company and are entitled to a director’s redundancy payment, then this could potentially be used to offset the debt; find out if you are entitled to a redundancy here.

Next steps – get a free, no-obligation consultation

If your business is struggling, why not call us on 0800 975 0380 or email [email protected] today to take advantage of a free consultation with one of our insolvency experts.

We will be able to discuss the options available to you and determine the most appropriate step for your company. With offices across the UK, you’re never far away from expert and confidential advice.