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Managing Creditors and Creditor Insolvency

Creditors & Insolvency

How do I manage exposure to creditors?

When you’re facing insolvency, it’s important to act quickly to protect your business interests and your reputation. But even before you get into difficulties, you can manage your exposure to creditors by agreeing to a set of terms and conditions right at the outset of a business relationship. Not only do terms and conditions help to avoid potential disputes - as both parties know where they stand and are aware of their rights and obligations - but if a disagreement does arise at some point down the line, having a document which can be referred to is often an excellent way of resolving matters.

It will take some time to build up a mutual sense of trust so ensure that you set out any expectations or intentions at the beginning. But also work on maintaining your relationship with creditors, always keeping them in the loop. If you get into financial difficulties it often makes sense to let all the relevant parties know and see if you can find some kind of compromise agreement. Legal action can be extremely costly both in terms of time and money so it’s best avoided if at all possible. If you’re facing a winding up application, this should be dealt with immediately as the consequences can lead to liquidation.

How do I deal with insolvency?

As soon as your business gets into trouble you should consider various ways of reducing the possible danger of insolvency. Trying to trade your way out of financial difficulties - especially if you’re essentially already insolvent - can be very risky. If you’re a company director you need to take even greater care as, in certain circumstances, you can be held personally liable for business debts or even face potential disqualification.

Try and find a new source of financing or see if you can persuade your creditors or suppliers to restructure debt repayment agreements or extend payment deadlines. Failing that you may need to consider initiating voluntary liquidation proceedings or face having a creditor bringing these against you to try and recover their debt. However, the survival of your business will generally be their best chance of getting paid so you’ll often be able to reach a compromise. Remember to never favour specific creditors and always aim to protect their interests in order to avoid being held personally liable for debts or even disqualified.

Debtor protection legislation

You should consider whether the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 will apply in certain cases to assist you by prohibiting your creditor from taking any step seeking payment from you.

A variety of documents which may help businesses dealing with creditors during insolvency can be downloaded from our Corporate and Business Document Folders. Click on any relevant templates in the list, below, for further information.


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