If your company owes a creditor money, you should pay it within the time agreed. Failing to repay on time, either out of forgetfulness or a financial inability to do so, puts unnecessary strain on your company’s finances and can prompt creditors to put pressure on the company through formal judgments and demands. In the worst case, creditors could force the company into compulsory liquidation.
So, what can you do if your company’s creditors are pressuring you to repay an unaffordable debt?
How can creditors pursue a company to repay?
Regardless of how a company accrued its debts, if the company doesn’t repay in the specified time, creditors can pursue the company for repayment. Depending on the nature of the debt and who it’s owed to, they can go about this in several ways.
Repayment reminders.
Your creditors are likely to start by sending repayment reminders and warnings, which can be via telephone, email, or post. If the debt relates to a company, the creditors should only contact you during working hours and not at your personal address or via social media. Doing so would count as harassment, as would:
- Threatening language.
- Breaking data protection laws to gain personal information.
- Threatening legal action that they cannot enforce, such as involving the police.
Demands and judgments.
If you ignore these initial repayment reminders, the company’s creditors can opt for more formal demands. They could issue a Statutory Demand or a County Court Judgment (CCJ). The latter of these can have serious implications if not addressed within the time specified in the judgment, remaining on the company’s credit file for six years and making it harder to get credit during that time. Debt collectors and even bailiffs could visit the company’s premises to collect money, and sometimes assets, to pay off the debt.
Compulsory liquidation.
Continuing to trade and ignoring this action from creditors can lead to them applying for a winding-up petition. They can do this via the court if they’re owed at least £750. The company’s bank accounts are frozen once the bank becomes aware, and additional creditors can add their claims. If unchallenged, a winding-up petition can force the company into compulsory liquidation.
How to stop creditor pressure
If your company is struggling with creditor pressure over debts it can’t repay, burying your head in the sand and hoping that the problem will go away will only make things worse. Take decisive action to secure the outcome best for your company.
Speak to the creditors.
If you know your company can’t repay its upcoming bills, it might be worth contacting its creditors. If given enough notice, they may allow you to delay repayment or alter the arrangement. Creditors may appreciate being told in advance as opposed to not receiving the payment and having to chase the company.
Explore formal repayment arrangements.
Once you realise that your company is insolvent, speak to a licensed and regulated insolvency practitioner for dedicated, impartial advice. Depending on your company’s circumstances, they may recommend consolidating all its unsecured debts into a single, formal repayment arrangement. This can be achieved through a Company Voluntary Arrangement (CVA), which allows the company to continue trading while repaying what it can afford. These arrangements last around five years, with the company paying the tailored amount monthly, and with any remaining unsecured debt written off upon its conclusion.
Consider restructuring.
If the company is struggling with severe creditor pressure, more substantial restructuring through an administration may be a better way forward. Putting a company into administration allows a licensed and regulated insolvency practitioner to investigate the company’s financial position while protected from creditor pressure. Administration may be the best course of action if the company has assets that could be distributed to creditors, it’ll achieve a better outcome than through liquidation, or if there’s a possibility of rescuing the company as a going concern.
Closing the company.
If creditor pressure is threatening to close the company and the debts are of such a level that continuing to trade isn’t feasible, the best way forward could involve closing the company down. Directors can do this via a Creditors Voluntary Liquidation (CVL). Entering a CVL stops further legal action from creditors, closes the company through an orderly, formal process, and allows you to walk away from the company and start afresh if you’ve fulfilled your directorial duties.
To summarise
If a limited company owes a creditor money, those creditors can pursue the company to repay that debt. This pressure can start as reminders and escalate to Statutory Demands and County Court Judgments if not addressed. Creditors could even issue a winding-up petition, forcing the company into compulsory liquidation. To stop the effects of creditor pressure, take advice from a licensed and regulated insolvency practitioner. Depending on your company’s circumstances, it may have several options. These could include repaying the debts in affordable instalments via a Company Voluntary Arrangement (CVA), restructuring the company via administration, or closing the company via a Creditors Voluntary Liquidation (CVL).
Laila Azzahra is a professional writer and blogger that loves to write about technology, business, entertainment, science, and health.