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Insolvency: Business Protection

28/01/2009

The credit crunch is creating pressure on a number of businesses. Those connected with the housing and construction industries have been hit particularly hard by a downturn in the housing market and the difficulties our lenders are currently facing.

It is crucial that businesses keep on top of their finances and in particular that they are not unduly lenient to their debtors. In these difficult times, it is often the creditor who acts quickest and shouts the loudest that is paid first. Slow and inefficient attempts to recover outstanding monies from debtors, creates a significant risk. Once a debtor becomes insolvent, ie it enters liquidation, unsecured creditors will rank equally.

Acting on behalf of creditors, we have noticed an increase in the number of companies and individuals becoming insolvent. Companies are more frequently entering liquidation, administration and company voluntary arrangements. Individuals are increasingly becoming bankrupt and entering individual voluntary arrangements.

Each case turns on its circumstances but swift and aggressive action is becoming a necessity in today’s climate. It is essential that the appropriate legal action is taken for the particular dispute or debt. Where the monies due are undisputed, it may be appropriate to threaten to petition for the winding up of the company or the bankruptcy of an individual. If there is a dispute over the sum due, thought needs to be given to issuing court proceedings or engaging in alternative dispute resolution.

As well as issuing court proceedings, creditors should consider alternative methods of recovery. For example, a creditor with a retention of title clause in their terms and conditions may be able to physically recover goods supplied by them to the debtor. Alternatively, where the monies due are in respect of rent, it may be possible to use the common law remedy of distress (shortly to be replaced by Commercial Rent Arrears Recovery).

For further information on any of the above please contact our Litigation team.