The first sign that a business is struggling could be as simple as a late payment or a request for longer payment terms. It could also indicate that the company is about to enter insolvency.
In some instances, you may be left with an unpaid invoice and feel powerless to do much about it. However, seeking advice from an Insolvency Practitioner (IP) could provide insight into what has happened within the business, and potentially recover some of the money owed.
An IP is appointed as the ‘office holder’ when a company enters administration or liquidation, with one of their roles being to investigate the demise of the company and the directors’ conduct. Whilst the outcome of the investigation is confidential, it could give rise to potential claims and a recovery for the insolvent estate.
It is not unusual for IPs to find some evidence of misconduct by former directors of the insolvent business. For example, literally hundreds of directors have faced sanctions for ‘COVID fraud’ for abuse of the pandemic financial support schemes. Other examples of misconduct include deliberate attempts to ‘hide or dispose of assets’ to avoid paying creditors or to put certain creditors in a better position than others.
In the majority of cases, claims are pursued through the civil courts. There are a number of reasons for this, including that there is a lower burden of proof, so the claim is more likely to achieve a successful outcome. However, where evidence of criminal activity is found, claims against the individual involved can be brought through the criminal justice system.
Office holders may be subject to time constraints for pursuing these types of claims. For example, the Limitation Act 1980 sets out a time frame for bringing claims, which usually starts from the date the company entered administration or liquidation. In cases where there is evidence of fraud or deliberate concealment, the limitation period may be extended or removed altogether.
When faced with a customer struggling to pay outstanding invoices, it is important to be proactive and take prompt action to recover any money owed.
The investigations carried out by IPs can bring rewards for creditors and it can be fruitful to seek advice when there is potential wrong-doing. In many instances, businesses should err on the side of taking action rather than doing nothing, as there is often an opportunity to recover some of the monies owed. If evidence of fraud or misconduct is found, they will also be doing their bit to bring those responsible for wrong-doing to justice.
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