It can be argued that by restricting the filing of statutory demands and winding up petitions for Covid-19-realted debts, the Government has targeted all industry sectors with a blunt instrument.

Covid-19 did not adversely affect every business in Britain. Indeed, many continued to operate throughout the lockdown period, and some of them thrived.

We need to be careful because any business can avoid paying debts simply by claiming to have been affected by the pandemic, which is not easy to disprove.

The restrictions on statutory demands and winding-up petitions end on 30 September. This should provide creditors with more than enough time to organise their finances.

However, Parliament has the right to extend this provision of the new Corporate Insolvency and Governance Act. This would be an obvious mistake and only encourage businesses to stop paying each other, which would be disastrous.

Greater burden on taxpayers

Any additional strain on already fragile economy would surely lead to an increase in company collapses and unemployment. In turn, this would place a greater burden on the Exchequer, and ultimately taxpayers.

There is a ripple effect when a company goes bust, so the primary objective is to stop them from collapsing. Unemployment fractures households because parents can no longer afford necessities and other things for their children.

Additionally, the small businesses that rely on that household suffer too. There is a perfect storm brewing and it is just a matter of time before small businesses start going under.

While there is logic in the Government’s decision to limit the enforcement of statutory demands and winding-up petitions, the danger is in leaving the restriction in place for too long, which would be counterproductive.

The post Why statutory demands and petitions are essential first appeared on Company Debt Recovery.

The government wishes to help stimulate cash flow in smaller business and encourage them to thrive and grow. It is estimated that at any one time more than £26bn is owed to small businesses from larger firms. Anna Soulby believes that this severely limits business growth and ties up the company’s cash flow. It also potentially can lead to more expenditure, such as legal costs, in order to recover money which is owed.

The initiative to come to this decision has been spearheaded by the Federation of Small Businesses, who in 2014 carried out a survey among their 200,000 members and found that more than 51% had experienced late payment problems in the past 12 months.

Peter Murray from the firm Insolvency & Law, which assists small businesses recover money from large firms had the following to say on why small businesses extend payment terms with larger firms and the dangers of doing so… “Smaller businesses are keen to grow their turnover and larger customers provide that opportunity. However, due to competitive forces smaller firms enter into extending credit terms to larger customers that are usually unfavourable to the supplier. Also, larger customers exert what they believe is their divine right to take twice as long to pay their smaller suppliers. In essence it is the smaller suppliers that are fuelling the growth of larger companies by involuntarily bank rolling them with 90 and 120 days credit terms, sometimes even longer.”

Ms Soulby believes that this new role should create an even playing field between big firms and smaller suppliers. “The small business commissioner will tackle the imbalance of bargaining power between small suppliers and large customers, and encourage them to get round the table and sort out disputes at a fraction of the cost of going to court.” She stated.

“It will also provide advice, investigate complaints and see where further action is needed to clamp down on unfair practices,”

The Small Business Commissioner will have the authority to reinforce existing payment agreements between suppliers and
if necessary publicly name and shame the transgressors.

Unfortunately the new commissioner would not have any legal authority to force the larger firms to pay out to their creditors, which has been viewed with skepticism by some members of the Federation of Small Businesses, including Liesl Smith who is the Head of Communications:
“The new role must have influence and credibility. It also needs to be resourced properly otherwise the role will lose integrity among the business community.” She said when speaking to the BBC earlier this month.

Peter Murray believes that it could be a case of all bark and no bite for the new commissioner “It is difficult to comprehend how having such a Commissioner will bring about any real, beneficial change unless statutory powers is given to the Commissioner. Those powers would be to impose fines on large companies who pay their smaller suppliers late and take other advantage such as disputing what they owe on dodgy grounds, as a means to prevaricate over their debts.”

Contact Insolvency & Law for any business debt issues- we will advise you on the correct course of action to take and help ensure that your business is protected from adverse Insolvency proceedings- 0207 504 1300

Photo Credits:
www.independent.co.uk
www.exeterdaily.co.uk

The post Small Business Commissioner to help firms recover billions of pounds from late payments first appeared on Company Debt Recovery.

Just over 70% of small, medium and large UK construction firms write off an average of £10,000 per year. Often firms have to write off the debt completely, settle with a significantly smaller payment or wait prolonged periods of time for full payment. This is all whilst the debtor either carries on trading as normal or ends up entering into a statutory insolvency procedure and leaving its creditors in the wind.

Peter Murray whose firm, Insolvency & Law, specialise in presenting winding up petitions and statutory demands upon debtors in the construction and contracting industry had the following to say:
“Sadly these figures are unsurprising. A significant amount of my clients are in the construction or contracting industry and some have almost lost their businesses and livelihoods through bad debt and companies prevaricating on payments for finished jobs.”

“A recent client of ours was waiting for over 2 years before we managed to intervene and advise them on presenting a winding up petition.”

Helen Wheeler who is in charge of the construction finance sector of Bibby Financial Services spoke on the repercussions to the creditors of the unpaid debts:

“Many of the businesses we speak with have suffered bad debt which have significantly hindered their ability to pay workers and suppliers. In many instances these bad debts have forced viable business to enter into insolvency.”

Peter Murray believes that often times the larger contractors who hire the smaller firms for jobs are the causes for a majority of the issues which subcontractors face:

“I have heard rumours from some of our clients who have been in very precarious circumstances because of a large contractor, that they will create disputes specifically to delay payments time and time again. This is a common tactic used and it has a detrimental effect on the subcontractor’s cash flow.”

One of Insolvency & Laws clients, Warburton Building Contractors, recently was involved in a dispute over a retention fee with a large contractor. Paul Burt, the company CFO, spoke openly on common issues that they have faced:

“In the construction industry we suffer a lot with retentions being held at the end of projects and it becomes very difficult to get that money for up to a year after the project is finished. “

“You find yourself up against big organisations and you end up scrambling around to find out who can certify the outstanding money. Very often they pass you around to different people in the organisation and then when you finally think you are getting somewhere they create a dispute so that they don’t have to pay you”

Paul Burt of Warburton contacted Peter Murray at Insolvency & Law when he was faced with a difficult debtor who was refusing to pay their significant retention fee:

“We worked for a contractor and completed a project of approximately £1million. We then came to the end of the defects liability period and we had been chasing the retention fee for about 6 months and we had lots of promises of payment. Unfortunately none of those promises were fulfilled and we needed to find an expert who could help us get our money in.”

Peter went about advising Paul and Warburton that the best way to handle the situation was to present the client with a winding up petition as the company was clearly insolvent.

Fortunately for Warburton, once the petition was presented the client decided to pay the debt.

“Presenting a winding up petition is the most affective route we advise clients to take here at Insolvency & Law” stated Peter.

“If a company is cannot pay an invoice as and when the invoice falls due, then that company is considered insolvent according to the Section 123 Insolvency Act 1986. If they wish to prove that they are not insolvent then they must pay their creditors or risk having their bank accounts frozen and potentially losing it all.”

Paul Burt was very happy with the service he received from Insolvency & Law and recommends their services on to other construction and contracting firms.
“Peter really seemed to understand what we needed and offered us a cost effective solution to get our money in.”

“Having used solicitors in the past, Insolvency & Law provided a much more efficient and cost effective solution. Peter’s expertise was very helpful and we will continue to use their services as and when we need to”

*Images Via http://www.dailymail.co.uk/home/index.html& http://uk.reuters.com/article/uk-britain-construction-idUKBRE8BD0A920121214

The post The UK construction industry writes off £2bn annually of bad debt first appeared on Company Debt Recovery.