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Unpaid invoice, debtor "starting the process" with insolvency practictioners

Discussion in 'General Business Forum' started by willst, Jan 13, 2021.

  1. willst

    willst UKBF Newcomer Free Member

    5 0
    Hi all, similarly to another thread on the forum this morning, I'm seeking some advice regarding recovery of a debt. It seems that the debtor is now looking into the option of insolvency, but whether or not that process has formally begun is not clear to me, and I'm wondering if there is any action we can take now to increase our chances of recovering the debt. This is all very new to me so please excuse any naivety with regards the insolvency process. I understand that it may well be a lost cause and a lesson learned, but I'd like to understand the process better and if there are any steps we ought to take.

    The background is that we, a limited company, supplied a customer, also a limited company (albeit it seems a spin-off limited company incorporated in November 2020) with perishable stock for an event they were putting on last month. The event was very poorly received on day one, so they decided not to continue with it.

    I will outline some of the relevant parts of the correspondence we received - although I have taken care to redact and re-word parts to remove specific or identifiable details:

    "Due to closing the event down after one day of opening and the mass of refunds, plus other invoices owed, we have had to put [Debtor] LTD into administration. We are currently seeking advice from insolvency practitioners and starting the process with them. This means we are unable to use money in the company account to pay invoices owed and can therefore add you to our creditors list for them to deal with you. I doubt there will be much left after this process to pay out to suppliers."

    I then asked for some clarification and received the below:

    "Our initial contact with the insolvency practitioners was on 18th December 2020 explaining our situation. On the 21st December a full run down of accounts, money owed, incoming and what had already been spent was detailed with them. We were then advised not to settle invoices or any other payments (including refunds) from that point on. Our accountant also advised us of this on the 18th December. We have not been processing refunds ourselves, however customers have been doing Chargebacks and Credit Card disputes to obtain a full refund. We did not have the £[xx]k in tickets sales money up to that point to offer full refunds to customers and also paying invoices from suppliers, which is why we advised customers to go this route.

    We are seeking advice from [XX] at [insolvency firm], with the view for them to take control of everything. We are still in the early stages with them, with Christmas and New Year closures this put a hold on all movement forward. They are currently seeking advice from their solicitors as to how and what we can/cant do with the money in the company bank account. No formal paperwork or agreements have been set in place as yet, however the framework and all account transparency is in place.

    I had every intention of paying your invoice, however I simply had not got around to doing so.. much the same with other contractors and suppliers. The site still has equipment there as we’ve been unable to pay for it to be removed. We had a steady flow of tickets sales money coming in everyday ranging from £xk - £xk, so money was readily available to pay for everything. There is currently £xxk in the company account, this would have been closer to £xxk if it wasn’t for Chargebacks. We have paid out around £xxk on other contractors and suppliers up until talking to [insolvency firm], however after the first night everything stopped from a payment point of view.


    If I could settle all invoices (which with ‘cash in the bank' I can) I would, but since speaking with [insolvency firm], I (we) are now accountable to them and the law. There are also other suppliers who we have outstanding amounts with, as well as you guys."

    To me, it doesn't seem that their reason for going into insolvency is particularly legitimate, and I'm not sure how much truth there is in the "accountable to them and the law" part (though, again, my knowledge is lacking in the area). One final bit of info - the debt they owe is a fairly small fraction of the cash that they have told us above that they have in the bank.

    I am not sure of the next steps to take so would really appreciate any thoughts or advice.
     
    Posted: Jan 13, 2021 By: willst Member since: Jan 13, 2021
    #1
  2. Frank the Insurance guy

    Frank the Insurance guy UKBF Regular Full Member

    148 26
    How does the timing of the event compare to the contact with the IP on 18th December?
    Odd that a company set up in November needs an Insolvency Practitioner after 1 month?
    If there is an indication of wrongdoing you could pursue the director personally for your loss.

    I have known a supplier successfully sue a director following failure of the company on the basis that they knew at the time of the order that the business would fold and not be able to pay the debt!
     
    Posted: Jan 13, 2021 By: Frank the Insurance guy Member since: Oct 28, 2020
    #2
  3. Mark T Jones

    Mark T Jones UKBF Big Shot Free Member

    5,200 2,094
    What sums are involved?

    if I'm honest, I'd suggest you are f**ked though a MCOL claim might tempt them to pay you off. (if they are actually dealing with an Ip, they won't be allowed to)
     
    Posted: Jan 13, 2021 By: Mark T Jones Member since: Nov 4, 2015
    #3
  4. willst

    willst UKBF Newcomer Free Member

    5 0
    Thanks for the replies.


    The first (and as it turns out, only) day of the event was 17th December...

    It seems the owners already run an established events company for small-scale events (weddings etc.) and supposedly the new company was created for bigger events such as this.

    The debt to us is low four figures - we're a small company so it's not insignificant, but by no means the end of the world. I know we are probably best just moving on and saving the time & energy, however the whole thing smells a little fishy so a) the principled part of me doesn't want to let it lie (!) and b) I'd like to understand our position for any future issues that might arise of a similar nature.

    Thanks for the tip on the MCOL claim, not something I was aware of so I will look into that.
     
    Posted: Jan 13, 2021 By: willst Member since: Jan 13, 2021
    #4
  5. Mark T Jones

    Mark T Jones UKBF Big Shot Free Member

    5,200 2,094
    Principles come at a price - in this case time & money.

    From my reading, it appears to be the case that they set up an SPV for a spurious project, the project failed taking the business with it.

    That might be deemed incompetent, which isn't illegal. There might even be wrongdoing, but the chances of getting anything to stick are slim and will take time & money.

    Re future issues - the best advice I can give is to have a solid end-to-end credit control process, because this stuff is going to happen a lot in the next 2 years.
     
    Posted: Jan 13, 2021 By: Mark T Jones Member since: Nov 4, 2015
    #5
  6. Newchodge

    Newchodge UKBF Big Shot Free Member

    14,906 4,021
    Nottingham was always stupid for putting on their Christmas fair.
     
    Posted: Jan 13, 2021 By: Newchodge Member since: Nov 8, 2012
    #6
  7. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,653 478
    If the Creditor is insolvent then they are correct in telling you it is illegal to prefer one creditor over another.

    Assuming it is a 'small' debt then your only real option (assuming you have no security or guarantee in place) is to apply to Court for a CCJ, which will take time and cost money.

    Then if you are awarded an order in your favour the options will be:

    1) to pay further costs instruction Court Enforcement Officers to recover goods to the value of the CCJ plus costs
    2) (If the debt is over £750) to issue a winding up petition against the Company.
    3) Apply to Court for an order of security against the Company's assets

    I'm afraid all of this will be academic if the Company enters a formal insolvency process.

    You may wish to post your question under the insolvency section of the forum for more answers.
     
    Posted: Jan 13, 2021 By: Lisa Thomas Member since: Apr 20, 2015
    #7
  8. willst

    willst UKBF Newcomer Free Member

    5 0
    Thank you all for the replies & advice.
     
    Posted: Jan 13, 2021 By: willst Member since: Jan 13, 2021
    #8
  9. Mr D

    Mr D UKBF Legend Free Member

    26,286 3,218
    If it had been one of hundreds it would have been controlled easier. As it was the only one, thousands of people turned up apparently.
    And yet some claim people can be trusted with their own decision making.
     
    Posted: Jan 13, 2021 By: Mr D Member since: Feb 12, 2017
    #9
  10. Big G

    Big G UKBF Regular Free Member

    480 138
    This does not sound right at all to me. Have you actually received any communication from the insolvency practitioner that they have referred to? If they had appointed an Insolvency Practitioner to take the company through the liquidation process then they should have contacted all creditors by now to inform them of this. You have said that the debtor company is looking in to the option of insolvency and have claimed that they are seeking advice from an Insolvency Practitioner. This does not mean that they have started the process and they have actually told you in writing that the company does have the funds to pay all invoices but, for some reason, they claim the advice given to them is not to pay creditors. If the company has the funds in the bank to pay invoices it is not in an insolvent position and I doubt an Insolvency Practitioner would advise them that it is.
    They are also not legally accountable to the Insolvency Practitioner until the IP is formerly appointed by them and then voted in by creditors too.
    I'd strongly suggest that you force their hand with this matter and stop listening to them telling you "we have your money but are not allowed to pay it".
    Happy to help if you require any assistance but one thing I would suggest is that you act quickly on it.
    Best of luck!
     
    Posted: Jan 14, 2021 By: Big G Member since: Dec 15, 2010
    #10
  11. willst

    willst UKBF Newcomer Free Member

    5 0
    Thank you - this was essentially my gut-feeling take on the situation. I agree that it seems entirely strange and wrong that they've informed us they're not going to (and not allowed to) pay if they're merely looking at the option of insolvency and have cash sitting in the bank.

    We have not received any communication from any insolvency practitioner, so I suspect that the formal process hasn't begun.

    Having read into the MCOL process and in particular the 'pre-action conduct' guidance, I have emailed to say that we will not be letting it lie and will be giving them until Tuesday to pay the debt before sending a letter of action & submitting an MCOL claim.

    Re a couple of other replies above, this has nothing to do with Nottingham :)
     
    Posted: Jan 14, 2021 By: willst Member since: Jan 13, 2021
    #11
  12. Lisa Thomas

    Lisa Thomas UKBF Enthusiast Free Member

    3,653 478
    If the Company is insolvent it is illegal for the Directors to prefer one creditor over another. That is the advice any IP should give them and it sounds like they have.

    There are risks that the Directors can be pursued personally for repayment by any IP appointed if they do not act on that advice and commit illegal preferences.

    Creditors can also be perused for repayment by the IP.
     
    Posted: Jan 14, 2021 By: Lisa Thomas Member since: Apr 20, 2015
    #12
  13. Newchodge

    Newchodge UKBF Big Shot Free Member

    14,906 4,021
    Perhaps they have the funds to pay all invoices but not to pay all creditors as they have to refund customers for unuseable tickets. That would make them insolvent, wouldn't it?
     
    Posted: Jan 14, 2021 By: Newchodge Member since: Nov 8, 2012
    #13
  14. willst

    willst UKBF Newcomer Free Member

    5 0
    Who officially determines whether they are insolvent, though? If they haven't formally started the insolvency process, isn't it currently only on their word that they are insolvent?
     
    Posted: Jan 14, 2021 By: willst Member since: Jan 13, 2021
    #14
  15. Big G

    Big G UKBF Regular Free Member

    480 138
    Technically insolvent is determined when a company or individual's debts outweigh their funds & assets.

    So yes, they could be technically insolvent but if they are then they should have commenced the insolvency process and appointed the IP immediately. They should not be responding telling you that they are seeking advice and that they have the money but are not allowed to pay it.

    As they have already supplied you with the details of the IP, I suggest that you try giving them a call to ask if they are actually appointed. If not then proceed with your recovery process without wasting any further time.
     
    Posted: Jan 14, 2021 By: Big G Member since: Dec 15, 2010
    #15
  16. Mark T Jones

    Mark T Jones UKBF Big Shot Free Member

    5,200 2,094
    True. But what should happen and what does happen are seldom the same

    As a pure guess, I'd say they have taken advice, which was to go for insolvency & are dithering over actually doing it.

    and the OP should continue to chase until they have evidence that IP has been appointed
     
    Posted: Jan 14, 2021 By: Mark T Jones Member since: Nov 4, 2015
    #16
  17. Big G

    Big G UKBF Regular Free Member

    480 138
    Agree with all of this Mark.
     
    Posted: Jan 14, 2021 By: Big G Member since: Dec 15, 2010
    #17
  18. Lucan Unlordly

    Lucan Unlordly UKBF Ace Free Member

    1,767 317
    In terms of notification of insolvency, don't forget the Royal Mail are struggling to deliver at the moment. In some areas they are still waiting for Christmas cards!
     
    Posted: Jan 14, 2021 By: Lucan Unlordly Member since: Feb 24, 2009
    #18
  19. Mr D

    Mr D UKBF Legend Free Member

    26,286 3,218
    You can try figuring out if your company is insolvent. Perhaps takes a few day.
    Then book professional advice from an IP - perhaps the following week they come round. Then perhaps it sinks in.
    If the business is going through formal insolvency, great. Things should be done right and creditors are kept up to date by the IP.
    Perhaps months or even years later everything is resolved and payments are made.

    Or perhaps an IP is not used and a more informal method done.
     
    Posted: Jan 14, 2021 By: Mr D Member since: Feb 12, 2017
    #19
  20. Mr D

    Mr D UKBF Legend Free Member

    26,286 3,218
    Yes, rather strange that.
    With hundreds of sales across the country I had one guy in Kent complain a birthday present took 5 days to arrive and one french customer complaining the Christmas item ordered on the 21st has not arrived. Other stuff is being delivered usually fairly quick compared to October. Average is 3 days and yes am aware of the royal mail list.
    Perhaps the problem is particular streets rather than areas?
     
    Posted: Jan 14, 2021 By: Mr D Member since: Feb 12, 2017
    #20