Many companies have suffered substantial financial hardship since March 2020. In recent weeks there has been significant talk of economic recovery. Although it is anticipated that businesses will resume regular trading activity in the coming weeks, there are many companies that have accrued substantial debts.
Throughout the pandemic the government has attempted to introduce preventative measures to protect companies from the devastating economic impact of Covid-19. One of the key legislative provisions implemented by the government is the Corporate Insolvency and Governance Act 2020.
The Act provides a safety net for companies that have become or are at risk of becoming insolvent as a direct result of Covid-19. Companies may benefit from the protection of a moratorium which will prevent creditors from enforcing statutory demands or petitioning for the winding up of a company. These provisions will cease to apply as of 31 March 2021.
Debt recovery is a process by which a creditor realises monies owed to them by a debtor. Creditors and debtors may be individuals or companies. This article focuses on corporate recipients of a statutory demand.
A statutory demand is a formal written request for a debt to be repaid. The debtor will have 21 days from the date of service to settle the debt. If the debtor ignores the demand or is unable to pay the debt, the creditor will likely rely on non-payment as evidence of the debtor being cashflow insolvent and issue a winding up petition.
A debt will be deemed settled once the debtor makes full payment or enters an agreed payment plan with the creditor. This agreement may be a deferral or reduction of the debt.
Another consideration is that once a debt falls due, it will often incur penalties or interest subject to provisions such as the Late Payment of Commercial Debts (Interest) Act 1998 and The County Courts (Interest on Judgment Debts) Order 1991.
Alternatively, the debtor may apply for an injunction preventing the creditor from presenting a winding up petition within 18 days from the date of service of the statutory demand. To do this, the debtor must:
- Prove that there is a genuine dispute as to the value or the existence of the debt;
- Issue a counterclaim that is of equal or greater value than the debt itself;
- Demonstrate that the company has a reasonable excuse for not paying the debt claimed in the demand; or
- Present some other compelling legal argument, such as jurisdiction or the debt being time barred.
Another option for a corporate recipient of a statutory demand is to challenge the winding up petition after it has been issued. In many circumstances, this will be a very risky stance to take. The implications of a winding up order can be devastating for a company.
Once the court has issued a winding up order, there is nothing that can be done to stop the company from being completely liquidated. An Official Receiver will be appointed to take full control of the company’s financial affairs.
An Official Receiver may also investigate all actions taken by the directors during the time the company was trading insolvent. If the Official Receiver identifies wrongful trading, then the directors of the company may also become personally liable for some of the company’s debts.
If you have received a statutory demand it is imperative that you obtain legal advice promptly. At Carter Bond Solicitor we have a wealth of experience in assisting companies that have been served with statutory demands or winding up petitions.
For more information, please contact one of our specialist solicitors. We will be happy to discuss your case further and guide you through the next steps.