Increasing business debt will cause more winding up petitions Debt collection strategies such as the issuing of winding up petitions are likely to be more widely used as the number of companies in financial difficulty continues to increase into 2010 and 2011.
As the number of companies in financial trouble continues its expected increase into 2010 it is to be expected that debt collection strategies such as winding up petitions will increase as well.
It looks increasingly likely that the UK economy will come out of recession during the final quarter of 2009. However, according to insolvency firm Begbies Traynor, 134000 UK companies are showing signs of being in financial trouble and they believe that business insolvencies will continue to rise for up to two years after the economy stops shrinking.
Credit information provider Creditsafe have a recent survey that backs up this idea. The survey has suggested that the number of companies who are suffering with late payments and bad debts are on the increase. 91% of the businesses surveyed saw an increase in bad debts during the past 12 months. Nearly 10% had bad debts equal to 20% of their annual profits.
Hand in hand with the rise in the number of companies in financial difficulty, will be the increasing number of businesses trying to recover their bad debts. Different strategies to collect outstanding balances will be used, however it is likely that the issuing of winding up petitions will form a large part of these.
Over the past year to eighteen months, the use of winding up petitions as a debt collection tool has become much more prevalent. If a winding up order is issued against a company, this has very serious implications for the business. Perhaps the most serious of these is the fact that the company's bank account will be frozen making continued trade extremely difficult.
Many creditors are fully aware of the impact that issuing a winding up petition will have on a business. They therefore expect that if they pursue this action, the debt they are collecting will be paid swiftly. With such a powerful lever at their disposal, it is inevitable that the number of winding up petitions issued will be on the increase.
Before considering a winding up petition the creditor must demonstrate that they have exhausted all other options. If they are unable to show that such efforts have been made, it is likely that the court will not grant their application for a winding up petition. The cost of issuing a petition could be up to GBP2500 (including the cost of the statutory demand). As such, this action will not to be undertaken lightly.
It is important that companies be aware that if they do face a winding up petition they must take swift action.
If your business does receive a statutory demand for payment or a winding up petition you must get advice from an insolvency expert as soon as possible. Such an action can be successfully defended if it has been raised in error. Alternatively, a repayment plan can be negotiated with the creditor or a business rescue solution such as a Company Voluntary Arrangement or Pre-Pack Administration introduced. The most important message is that you must not ignore this type of action. Doing nothing could very easily lead to your company being wound up.
What happens to the directors if a company is wound up?
Once a company is being wound up a Liquidator will be appointed. The liquidator will undertake an investigation into the conduct of the directors to see whether they have knowingly allowed the business to trade while insolvent thus making the creditor's position worse. If this is the case, a director may face being disqualified and held personally liable for the company's debts. As a Director we look at the options you have.
What will having a County Court Judgement do to my company
If a county court judgement remains unpaid, this could lead to more serious action being taken against the business. We look at the impact and what you can do.
Company debt restructure to improve cash flow
Ensuring that enough cash is available to maintain their business must be a priority for companies. Those that do it well will survive. Those that do not are likely to fall. As such identifying problems and implement solutions which may require a radical restructuring of debt must be a priority. We discuss some of the solutions available.
