What to do if your customers are failing? How do you protect yourself?

Are You Affected By A Customer Failing?

Posted: 6th March 2018

Here’s some advice, and help on how to get your money back and how the system works.

In light of this week’s news that toy giant, Toys R Us, and electrical retailer, Maplin have both gone into administration, we thought it would be helpful to put together some explanatory notes and tips on what you can do should you be affected by similar events.

What does administration mean? 

If a company goes into administration it means that an insolvency practitioner (IP) has been called in to run operations, getting what monies it can for the creditors. It will do this by collecting debts and selling assets. During an interim period, the company that has gone into administration will sometimes continue to operate whilst the creditors utilise its assets during the cash recovery process.

What does liquidation mean?
A company in liquidation means the liquidation process will collecting debts and sell off all assets before dissolving the company completely.

How do I find out if the company, or person, is insolvent?
If you believe one of your customers has gone bankrupt, into administration, or liquidation, then you can find this out via a number of sources...

  • Companies House – if the business is a limited company
  • online on the Individual Insolvency Register – if they are a sole trader
  • or via the Insolvency Enquiry Line – calling 0300 678 0015, or emailing insolvency.enquiryline@insolvency.gsi.gov.uk.

How do I find out who the IP is?
Once a company has gone into administration or liquidation, the appointed IP’s details will be on the said company’s website.

How will the IP know I am owed money?
You will need to complete a proof of debt template – this informs the IP of who you are, what your relationship to the said company is, how much you are owed and what for. 

Usually, the IP will contact you, asking you to do this. If however you do not hear from them, and they will be very busy being contacted by many businesses such as yourself, then contact them as soon as possible. 

After you have registered, you will be issued a report that estimates the assets and liabilities of the insolvent company.

Will I get my money back?
From the assets that have been sold the monies raises are distributed between the creditors (your business will become a creditor because you are owed money). However, this is done by priority – so in the first instance, monies go to secured creditors (those who lent said company money against assets), followed by insolvency practitioners (the IP selling the assets – this is how they get paid), then employees, followed by unsecured creditors (this is most likely where your businesses fits in), interest on payable debts and lastly, the shareholders.

However, just because you are owed money does not mean you will be guaranteed reimbursement.   It will depend on whether the value of the debts and assets sale are enough to pay off all the creditors. 

Do also bear in mind, that administration can be very complicated and drawn out.  It is not unusual for creditors to have to wait months, even years, to receive payment for any outstanding monies owed.  

As an unsecured creditor unfortunately you take low priority in the dividing of any monies owed by the failed business. This means that more often than not, only a limited percentage of the outstanding debt will be paid. 

Protect Your Business

Of course, the best way to deal with this is not to take the risk in the first place.  Bad Debt Protection is your answer...