Member Article

No hiding place for bad debtors as Winding Up Petitions increase

BUSINESSES hoping that debt issues will be overlooked amid the growing concern over the cost of living crisis have been warned that there will be no hiding place when HMRC and other creditors begin to look at overdue bills.

And the biggest fear facing many companies will be that the Winding Up Petition which was put on hold throughout the two years of the pandemic is now back and once again being used as a major tool for debt recovery.

A Winding Up Petition is a legal action than can be taken by a creditor against any company that owes it money subject to certain limits.

“There has been a definite increase in HMRC activity in issuing winding up petitions,” said Danielle Shore, of Sheffield business turnaround and insolvency practice Graywoods.

“We are aware of companies who are not paying their debts and who are waiting until they are chased but they should know that the chase is about to begin and their options are running out, especially if they have entered into unrealistic or simply un-payable time to pay arrangements.”

Both HMRC and other creditors, she added, were now increasingly conscious of the difference between debtors who couldn’t pay or wouldn’t pay.

“They are looking at their own balance sheets and realising that they have to take a more proactive approach and not just allow bad debt to roll on as this has a negative impact on their ability to pay their own debts,” she said, adding that a debt of even as little as £750 could set in motion the legal procedure that leads ultimately to liquidation.

“Creditors are now understanding that being supportive of their customers is costing them dearly and that the longer a debt remains outstanding, the greater the risk to their finances.

“It was inevitable that as the economy emerges from the pandemic the Winding Up Petition would come back into play, as a means of debt recovery.

“Returning the system to its pre-pandemic form will enable companies to pursue debts and therefore to realise money, especially if those debts can be paid by the debtor who has been hiding behind the pandemic changes.

“At the same time, of course, there will be companies who are trying their very best to move forward and who are juggling creditors and cash flow who could find that a Winding Up Petition against them is the final straw, especially when other creditors attach to the petition and compound the problem.

“Most creditors will, I hope, continue to work with companies who are demonstrating that they are trying to clear their debts.

“Some companies, though, may well have been using the shield of restrictions on Winding Up Petitions to manage their cashflow, with no intention of resolving their liabilities and they are the ones who really should be worried because the return of the petition will put an incredible pressure on cash flow.

“The sensible thing for both creditors and debtors to do is seek proper advice on the most sensible way forward.

“By acting now, exploring the full range of options and simply talking about it, you might find there is a way to navigate the crisis successfully.”

This was posted in Bdaily's Members' News section by John Highfield .