With many businesses struggling financially as a result of the coronavirus, creditors are being encouraged to work with debtors and show forbearance to agree mutually acceptable payment arrangements. The pandemic has disrupted businesses and placed them under financial pressure. Maximising debt collection will be many businesses’ priority to secure their interest but also as a source of much-needed cash flow.
It may be a concern that seeking to recover debts will cause reputational damage to a creditor’s business, especially during the COVID-19 lockdown where many of their debtors are under significant pressure.
While the issue is sensitive, many debtors are willing to work with their creditors to reach amicable solutions and avoid legal action.
Communication is key and working together will help parties find potential solutions that enable business continuity for both sides in the future.
Creditors should try to avoid alarming debtors when contacting them, as this risks a breakdown in communications. They should also make sure they have up to date contact details – i.e. email addresses and telephone numbers for their debtors. It would be wise for businesses to adapt letters to encourage customers to make contact where they have been affected by the pandemic.
Communication will also enable creditors to assess which debtors are genuinely facing financial difficulty and those who may simply be refusing to pay.
Creditors can look to agree on payment arrangements with debtors if applicable.
These should be monitored, as circumstances may change and a different approach might be more beneficial for both sides if the arrangements no longer reflect a debtors’ ability to pay.
If there are any concerns about the debtor’s ability to repay, obtaining professional advice early reduces the risk of expensive and time-consuming litigation in the future.
Where the debtor’s insolvency risk is high and collection actions are delayed, recovery of any outstanding debts becomes impossible. However, commencing legal proceedings gives creditors the opportunity to obtain forms of security, which could significantly increase chances of recovery if debtors are placed into insolvency in the future.
The courts remain open for business and are still dealing with claims – virtually in some cases, or via appropriately socially distanced in-person methods where necessary.
If a creditor obtains a County Court or High Court Judgment, there are various methods of enforcement available. Enforcement officers are still seeking to collect and can start to attend residential properties again from 24th August. Parties can still make applications for charging orders, and other third-party orders. Finally, parties can also make use of the insolvency process, where appropriate, as normal.
The future for debt recovery
The government is showing sympathy and support for struggling businesses, and it is right that creditors should respect government guidance to try to come to solutions with debtors.
However, many creditors will have their own cash flow issues resulting from the COVID-19 lockdown, and the government has also intimated that parties should try to meet their contractual obligations to keep payments flowing through the supply chain.
Hopefully, the difficult financial situation caused by the COVID-19 lockdown will soon start to ease as the UK begins to return to work but, in the meantime, knowing what practical options are available and applying the right debt recovery methods at the right time is more important than ever.