Due to the recent crisis of the COVID-19 outbreak businesses are naturally focusing on cash and we are seeing an increased tightening of credit control. COVID-19 has caused enhanced credit risk and an influx of new instructions to commence actions to recover debtors, directors or begin insolvency proceedings.
There has been much discussion surrounding help for businesses but at this stage nothing is definitive. At present, it remains critical that a business deals with its current bad debtors and limits cashflow implications as much as possible.
There are many concerns that, giving debtors time to pay may simply result in the debtor’s cash being used elsewhere leaving the creditor, who might otherwise have been able to secure payment out of pocket.
Whilst creditors are naturally sympathetic to the COVID-19 crisis we have heard of some reports where debtors may be using it as an excuse not to pay even when they are in a financial position to do so.
As a result of the current circumstances it is likely that there will be an increase in the subject of Winding up Petitions, where companies become unable to pay their debts as and when they fall due. The Courts have not indicated that they will be unwilling to make Winding up Orders due to the disruption caused to a business and its cashflow affected by COVID-19.
However, it is possible that the Government may impose a suspension at some point where they will be unwilling to make such an Order. On the 18th March 2020, the Winding Up Petition list was adjourned by HMRC and we expect to see more adjournments of petitions in due course.
Despite this, we still expect to see a surge in demand for Winding up Petitions. This is because upon the issue of a Winding up Petition, any transactions made post-petition are void unless validated by the Court.
The relevant dates are – the date on which the petition was issued to the date o which the Winding up Order has been made.
This means any payments made by a business during this period, any disposal of company shares or property, any payments to directors and sale of any Company assets can be declared void.
A subsequently appointed liquidator or the Official Receiver would then be able to reverse those transactions allowing the company’s financial position to be made as though those transactions did not occur. The creditors would be paid equally under the ‘Pari Passu’ rule that applies to Insolvencies.
This would mean that even if Winding up Petitions are adjourned repeatedly and/or a suspension is introduced the realisation for creditors may be greater than if no steps had been taken to open insolvency proceedings and/or they had been delayed.
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9930, 0330 236 9938 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com
This article is for information and interest only. It is not a substitute for full professional advice, which will take in to account the specific and individual circumstances. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.
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