Debtors and Creditors: What to do next

Category: Asset & Debt Recovery, Dispute Resolution

Earlier this year, the Government announced widespread measures in reaction to the spread of Coronavirus, including putting very strict limits on activities such as socialising and business opening.

Now, only a few days on from these announcements, and following mass closures of businesses and a freeze in activity, the economic effects are already starting to bite. The Government has announced a raft of measures to protect businesses, including business loans and a moratorium on commercial tenant evictions (see our article on this). However, debtors and creditors of businesses are understandably still very concerned about the short and long term impacts a prolonged period of economic inactivity will have on them.

Whether you are a creditor of a debtor, there are practical steps worth considering that may assist in both the short and longer term. Below are a few such pointers that you should consider when planning what to do next.

Considerations for Debtors

We have written about financial considerations the parties should consider in more detail. You can find this here.

Financial Distress

As a checklist, we think these are the basics you should be considering if you find yourself in financial hardship at this time:

  • Check the contract terms. It may be that you can take advantage of the contract terms already there, without necessarily needing to renegotiate – for example from a force majeure clause (see our article on this), a dispute resolution clause, or provisions on matters such as security or set-off. We will gladly provide a contract “health check” and risk assessment for you if this is the case.
  • Stay in touch. This is whether the creditor is a lender, a landlord, or other party to whom you are indebted. You may be in a position to renegotiate or extend present terms, so keep in regular contact with the creditor to see if this is possible.
  • Check your insurance policy. It may be the case that you have some protection from an existing policy, for example business interruption or credit protection cover. Carefully check the policy wording (or if you prefer get us to do this for you), or contact your insurer.
  • Consider alternative sources of support. As mentioned above, the Government has announced a whole raft of measures to help businesses in this time. This includes the aforementioned moratorium on evictions of commercial tenants, but also the Government has announced £330bn in loans and a further £20bn in aid, as well as several other measures that may affect your business specifically. These are certainly worth investigating sooner rather than later.
Coronavirus Resource Hub

If the name of the game is to stay afloat at this time, then going through the above checklist before doing anything more severe could help you see it through. However, if this crisis is taking the ultimate toll, please get in touch to see how we can assist you in dealing with closure of your business.  

Considerations for Creditors

It is understandable that creditors will want to aid cash flow by calling in all possible debts at this time. However, reaching straight for a statutory demand to serve on a debtor may not always yield the best commercial result. Creditors will of course know best the position they are in, however from our experience we believe it is certainly worth stepping back to consider whether renegotiation of terms with the debtor (or commercial tenant) may be more effective in the long term. In the majority of cases our clients’ preference is to maintain their commercial relationships and, to this end, we see great advantage in the parties being in open and honest in discussions about their situation.

However, we also recognise that you may need to act quickly on occasion in order to protect your interests from a particular debtor. If this is required, please get in touch with us to discuss what to do next.

Commercial Dispute Resolution

We can assist you

If you recognise yourself in this article and would like some guidance as to what to do next, please get in touch. Our Commercial Dispute Resolution team is available to help clients. Please either call Jamie Carr on 01752 827014 or email the team here [email protected].