How to restructure debt and obtain security
Why should I consider restructuring debt?
Sometimes your clients may encounter financial problems and this may lead to them being unable to pay an instalment or invoice on time. If they are simply suffering from a temporary cash flow problem, waiting for this to be resolved may be easier and less costly than going to court. But if the debt is significant and they can only afford to pay part of it immediately, restructuring the repayments will often provide a satisfactory solution for both parties. It will allow you to maintain your own cash flow and avoid legal fees or the headache of a long drawn out dispute.
How can I restructure debt?
When trying to restructure debt, the first thing to do will be to discuss possible repayment schedules and come to an agreement with your client. You should then set out this agreement in writing, using a variety of methods, such as a letter accepting a proposal to to clear debt, a debt compromise agreement or an extension of debt repayment dates. If you are willing to accept goods from your client in place of monetary payment - either in whole or part - you can alternatively use an Assumption of Debt in Exchange for Goods Agreement. There are various tools at your disposal in the form of agreements, which are often far more effective in achieving your goal - being paid what you are owed - compared to taking legal action.
How can I obtain more security to back up any agreements?
If you feel unsure about the financial position of your client going forward and are wary of allowing them to pay their debts later or through a suitable compromise agreement, it’s possible to gain additional security through a variety of means. You can seek a personal guarantee or indemnity from a company director which would essentially make that director personally liable for any debts specified in the relevant agreement. Obviously if the director is in a precarious financial position themselves, or a sole trader, this may not give you any additional security. It’s also possible to obtain guarantees and/or indemnities from parent companies, if they exist, which may potentially give you more security.
Generally in connection with restructuring of debt and debt collection, you should consider whether the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 applies in a particular case to prohibit you from taking any step to seek payment from a debtor.
A variety of documents which may help with restructuring debt and obtaining security can be downloaded from our Business Documents Folder.