What steps can your creditors take and what can you do to prevent it?

If your company owes money it can’t pay and your creditors (those you owe money to) are putting pressure on you, you’ll understandably be worried about what they might do. 

Certain creditors, like HMRC, have strong enforcement powers and can act fast if they believe you’re avoiding paying what you owe.

Here, we examine the escalating actions your creditors can take, starting from payment demands and legal threats to petitioning the court to close your business down.


1. County Court Summons

If you persist in ignoring a creditor or fail to adhere to a payment agreement, they may opt to pursue legal action. A County Court Summons marks the initial stage of this process. It represents a formal payment demand specifying the amount you owe.

What can I do?

Upon receiving the summons, you have 14 days to respond by either contesting the debt or making the payment. 

Failing to do either may result in a County Court Judgment being issued against you. If full payment is not feasible, reach out to the creditor to explore the possibility of an informal payment arrangement.


2. Late payment demands

If you fail to make a scheduled payment to a supplier, HMRC, or another creditor, the initial contact is likely to be a polite email or phone call reminding you that the payment is due and requesting you to make it promptly. If you persist in not paying, you can anticipate receiving a stronger payment demand, and the creditor may add interest to the debt.

What can I do? 

At this point, it’s crucial to communicate with your creditors, clearly explain your situation, and provide them with a realistic timeframe for when you’ll be able to make the payment. 

You might be pleasantly surprised by how understanding they can be. If you owe money to HMRC, get in touch with them to arrange a Time to Pay (TTP) agreement to settle what you owe in instalments.


3. Enforcement action

If you fail to settle the debt or adhere to the terms of a payment plan, your creditor can decide to pursue enforcement action against you. They will initiate this by sending you a Notice of Enforcement, requiring you to settle the debt within seven days.

If payment isn’t made, they can appoint a bailiff to enter your business premises and establish a Controlled Goods Agreement. This document lists the assets they can seize to settle the debt. They’ll also endeavour to negotiate a payment plan with you.

If you decline to sign the Controlled Goods Agreement or fail to adhere to the terms of a payment plan, the bailiff has the authority to seize company assets and sell them at auction to recoup the debt.

What can I do?

If your business is financially viable and you aim to save it, it’s advisable to attempt to negotiate a deal with the creditor if possible. Failing to reach an agreement could mark the start of the decline of your business, potentially resulting in the loss of company assets and equipment.


4. Statutory Demand

A Statutory Demand represents the subsequent stage in what has become a grave situation. While the County Court Judgment (CCJ) legally establishes the debt, the Statutory Demand goes a step further by formally demanding payment of that debt. At this point, you have 18 days to contest the demand or 21 days to settle the debt in full or come to a repayment arrangement.

What can I do?

You can contest a Statutory Demand, but only if you have valid reasons for doing so. If you’re unable to settle the debt entirely, seek guidance from an insolvency practitioner without delay. 

They will assist you in understanding your alternatives, such as suggesting a Company Voluntary Arrangement (CVA) to repay the debt gradually or placing the company into Administration. Alternatively, if the business is no longer sustainable, the most appropriate course of action might be to voluntarily close it through a Creditors’ Voluntary Liquidation (CVL).


5. County Court Judgment (CCJ)

The pressure is increasing now. If the debt is confirmed valid and you fail to settle what you owe, a County Court Judgment (CCJ) will be issued against you. 

Following this, you have 30 days to dispute the CCJ or settle the amount before it gets recorded with credit agencies. Failure to act will result in the CCJ appearing on your company’s credit record for six years, making it tougher and costlier to obtain credit in the future.

It’s crucial to note that having a County Court Judgment (CCJ) issued against your business serves as evidence that your company is insolvent. This enables your creditors to take even more significant actions against you.

What can I do?

The initial step is to verify the accuracy of the County Court Judgment (CCJ). If there are any inaccuracies, you can request for them to be set aside by the court. 

If the details on the CCJ are correct and you don’t contest the debt, attempt to make the payment if possible. If you’re unable to pay the debt in full, get in touch with the creditor to explore the option of establishing a payment plan.


6. Winding Up Petition

If you fail to pay or effectively challenge a Statutory Demand, a creditor can file a Winding Up Petition against your business. This is a step a creditor will take only as a final option after exploring all other avenues.

Upon receiving a Winding Up Petition, you have a mere seven days to settle the outstanding amount. Failure to do so will result in the petition being advertised in the Gazette and made public. Subsequently, the company’s bank accounts typically get frozen, making it extremely challenging to settle the debt or sustain trading operations.

Following the receipt of the petition, a court hearing date will be scheduled, usually within eight to 10 weeks. During the hearing, it’s probable that the court will approve a Winding Up Order, compelling the company into Compulsory Liquidation.

What can I do?

If you aim to rescue your business, swift and resolute action is essential. It’s worthwhile exploring options to raise funds urgently to settle the debt, such as emergency funding. 

If immediate funding isn’t accessible, you could petition the court for an adjournment to extend the deadline, providing you with additional time to make the payment.

If you’re unable to settle the debt, entering into a Company Voluntary Arrangement could be a potential solution. However, at this juncture, your creditors might be hesitant to agree to a payment plan. In such circumstances, you could investigate the feasibility of Administration or Pre-Pack Administration as alternatives.

If the business is no longer viable and there’s little chance of recovery, opting for a Creditors’ Voluntary Liquidation could result in a more favourable outcome compared to being compelled into Compulsory Liquidation by the court.


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Seek Professional Help!

If your business is struggling with overwhelming debts and creditors are looming with potential actions, our licensed insolvency practitioners are here to assist. Reach out today for a complimentary consultation or to schedule a meeting at one of our offices nationwide. We can guide you in comprehending your options and taking the necessary measures to safeguard your business.

Senior Partner at Vanguard Insolvency Practitioners | Website | + posts

I am an insolvency professional with a distinguished career specialising in commercial insolvency, adeptly navigating Creditors Voluntary Liquidation, Company Voluntary Arrangements, and Company Administrations. With a comprehensive understanding of insolvency laws and an unwavering commitment to ethical practices.