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Avoiding Insolvency And Managing The Risk Of Bad Debt FAQs

Jan 11, 2024 Rory Traynor Updated On: January 25, 2024
Avoiding Insolvency And Managing The Risk Of Bad Debt FAQs

Red Flag Alert recently had the pleasure of hosting the insolvency expert Julie Palmer of Begbies Traynor for our monthly webinar. Julie and Richard West, our MD, brought their experience and expertise to discuss how to avoid insolvency and manage the risk of bad debt.

The webinar proved to be extremely popular and we were unable to answer all your questions in the time we had. Below we have compiled some of the most asked questions and their answers.

What are the different jurisdictions for corporate insolvency in the UK?

The UK is made of three separate judiciaries: England & Wales, Scotland, and Northern Ireland.

Insolvency is a devolved function in Northern Ireland, though legislation is closely aligned with the rest of the UK.

Scotland shares the same corporate insolvency law as England & Wales but has a separate legal system which interacts with these laws in a slightly different way.

What are the different strategies for recovering money from an insolvent debtor?

If your debtor has already declared insolvency or has been given a winding-up order then there is very little you can do, unfortunately. The insolvency practitioner, or official receiver, managing the insolvency proceedings will distribute any funds recovered according to the hierarchy of debtors as set out in the relevant legal framework. This often leaves unsecured creditors with little to none of their debts recovered.

If the insolvency practitioner feels that the company would still be viable after a restructuring of debts then they may approach its debtors to do this under a Company Voluntary Arrangement. This is a formalised agreement between the insolvent company and its debtors to repay monies owed over a fixed period. This may involve writing off a portion of the debt owed to you, reducing any interest on said debt, extending the repayment period, or all three.

Should you suspect a debtor is insolvent and they are delinquent in payment there are several options. If you wish to follow the formal process, this would involve: sending demand for payments, submitting a CCJ if payment is not forthcoming, and finally submitting a winding up petition.

There is also the option of speaking to your debtor before doing this to see if there is an agreement you can come to that would aid you in recovering your debt.

Will we continue to see an increase in insolvency rates in 2024?

It is unlikely that we will see a drop in insolvency rates in 2024. They are predicted to remain high through 2024.

This is largely because tough trading conditions and macroeconomic pressures as set to remain, and the zombie firms that are bloating the economy are yet to fail in earnest. The Centre for Economics and Business Research has pointed to the cost of living crisis as also being a key factor in keeping insolvency rates high.

What could cause insolvency rates to drop?

There are many well-documented macroeconomic pressures facing businesses, e.g. inflation, high-interest rates, high energy costs, etc., that have contributed to the high insolvency rates in the post-

COVID world. Any significant easing of one or all of these would likely contribute to a reduction in insolvencies.

A significant step to a meaningful reduction in insolvency rates is for the large number of zombie companies in the UK economy to fail.

What is a Zombie company and why are they bad for the economy?

Zombie companies are named as such because they are ‘nearly dead’ and are viewed to lurch around the economy in the manner that their namesakes are often portrayed in cinema. Zombie companies are doing just enough to survive but are teetering on the edge of insolvency, are often kept alive by government grants or loans, and make no positive moves to grow their business.

Currently, there are higher than average numbers of zombie firms as government support through COVID has kept many firms that would have failed during that time artificially ‘alive’.

Zombie companies actually hurt the economy as they siphon business away from well-run companies that have the potential to grow and strengthen their sector and the economy as a whole.

Red Flag Alert gives you the tools and insights you need to effectively manage your credit and bad debt risk as well as meet your AML compliance requirements, and find healthy, growing, and creditworthy companies to do business with.

Our platform includes:

· Detailed and easy-to-understand reports on all UK businesses and over 350 million international companies

· Live data feeds and unadvertised petitions

· Customisable monitoring list; create monitoring lists where you choose the alerts and can share with others at your company

· Seamless CRM integration; including automatic data cleanses and enrichment

· Fully compliant and digital AML and enhanced due diligence check suite that takes just 30 seconds of staff time to send out

Get a free trial and start protecting your business today!

Published by Rory Traynor January 11, 2024

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