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Insolvent clients and debt recovery

Responding to Debtors Insolvency

Establishing facts of insolvency 

If you are made aware of the insolvency of a client, it’s first important to discover the facts. Get in touch with your client and find out what has happened. If they are indeed insolvent, they may attempt to negotiate a Company Voluntary Arrangement (CVA) which essentially means that you and other creditors will agree to permit flexibility in debt payments in order to allow the company to continue trading and possibly resolve its financial problems. If the company has minimal assets, enabling it to work its way out of its situation may provide the best opportunity of recovering any money owed. Alternatives to a CVA include going into administration, where an administrator working on behalf of the creditors takes over the running of the business, or liquidation which basically ends the company and redistributes its assets amongst creditors.

How do I register as a creditor?

A Proof of Debt can be used to register as a creditor and make a claim for any money you are owed when one of your clients goes into liquidation. You will generally be asked by the official receiver to complete and return a Proof of Debt by a specific date. You will then be sent a report outlining the debts and assets being used to pay the creditors, along with any share to which you may be entitled. Where relevant, you can also send a Notification of Reservation of Title to the receiver which asserts the title (and repossession right) in goods previously sold to your client for which you have not received payment. This can be particularly useful in cases where you offered trade credit in conjunction with a retention of title clause.

How else can I recover debts from an insolvent company?

If you do not receive any payment following a liquidation process - or you believe the amount which you do receive is unfair - you can challenge the decision of the liquidator. Alternatively, if you obtained a guarantee or indemnity from a company director, a parent company or another third party, you will be able to enforce this. Separately, a liquidator may set aside any transaction if its intent was to evade certain creditors (eg. if assets have been transferred at undervalue or preferential payments have been made to other creditors).

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