Over the next couple of weeks I’ll be looking at Creditors rights.
What they can do to keep on top of their credit checks and what restrictions are placed on Directors who continue acting without making changes.
This week I’ll be exploring what Rights Creditors actually have.
For businesses large or small in respect of trying to get their debtors to comply with their needs.
… and should these needs be part of a Final Demand Process?
Although not widely explored due to the cost of investigating and taking action, Creditors have the facility to issue a warning to the Directors.
As contained within certain provisions of the Companies Act 2006, in which they have a duty of care to keep creditors aware of their financial circumstances.
In reality, however, Directors could position themselves in requesting creditors to download the last set of uploaded accounts.
This could be argued somewhat, as the last set of accounts are historical.
There could be an unseen game changer.
- Maybe since sales have been mad
- they could have lost a key client
- or won a key contract
Whatever the reason maybe, if this becomes a cashflow issue, or you have your Customer point blank refusing to clear their debt, you could remind them of their fiduciary duty under the Act, via a custom made demand letter.
As a creditor, if Officers (Directors) of a company do not react in the way that you expect them to act, would it be prudent to request the Secretary of State, or the Official Receiver to persuade them about breaching their fiduciary duties?
In the light of disgruntled creditors, under the notion of investigations conducted by them in respect of the Companies Disqualification Directors Act 1986 (CDDA).
However, at the time of writing they are likely to be inundated with these kind of requests.
Therefore, if an external Insolvency Practitioner has to be instructed, by the appointment of the Courts, then it’s likely to cost to put together a Creditor Committee.
So what can creditors do in the event of taking on a debtor who has a previous bad payment or social media history to avoid falling into the same pitfalls?
If at all possible, obtain extra security from them (depending on the value of your transaction).
A Personal Guarantee from an Officer of the Company in the Event that they will clear the debt from their personal pocket.
It depends on the circumstances, and would be prevalent on the type of product/service being offered to your End Customer.
Consequently, signing a Personal Guarantee, comes with its own sets of rules and regulations which the signatory cannot be found to be in breach of, in stake of his/her personal assets.
A much more strengthened deposit up front (if this can be afforded).
A Shorter Payment Term if at all possible, over a shorter period of time.
For more information on what to do about bad customer, get in touch using this link.
In Part 2 I’ll be investigate the effects of the CDDA on Directors who have performed badly.