As part of Farmers Weekly’s Business Clinic, experts tackle readers’ most tricky business questions. Peter Cusick from Thrings, shares his advice.
Q: I am a farmer and also provide contracting services (such as combining and spraying) to other farmers. A local business has gone into administration and owes me £5,000 for services. What happens next? Will I get any money? How can I avoid this happening again?
A: Administration is a court-led process which normally lasts a year.
The purpose is to appoint a licenced insolvency practitioner (an officer of the court) to propose options to conduct the business of the company or realise its assets.
The objectives are either the rescue of the company, or a better realisation of assets for the benefit of creditors as a whole, or if not possible, a better realisation for secured creditors or preferential creditors.
During the administration, no party may enforce claims or commence or continue to pursue proceedings without permission of the administrator or the court.
The process is flexible. The administrators take control in place of the directors. They may sell the assets or business quickly or trade to consider options to meet the objectives.
After a few weeks, a report and statement of proposals of the administrator will be issued to creditors.
Unless it is unlikely that there will be a distribution to unsecured creditors, a meeting of creditors will be called to consider and vote on the proposals, including on how the administrator will be paid from the assets of the company.
In due course the administration will end. That may mean a return of control to the directors (if the company is solvent) and a rescue of the company (often through a company voluntary arrangement) has occurred.
Alternatively, there may be a voluntary liquidation to realise further assets and/or pay dividends to unsecured creditors, or if there will be no dividends to unsecured creditors, the company will be dissolved.
When providing services on credit there are few options to protect yourself from debtor insolvency. There may be limited information on which to assess creditworthiness.
Unlike when supplying goods, you cannot contractually retain title to what you supply until you have been paid.
The best way to limit exposure to credit risk is to limit the credit you provide, invoice quickly and maintain good control of services and payment.
Ensure a formal process is in place and then monitor customers’ public credit ratings where available.
Guarantees or advance payment may be an option and if there is mutual trading, ensure you have contractual set off arrangements in your terms and conditions of supply.
Consider credit insurance – while adding cost, it may provide some protection.
Stop supplies if payment stops or at least require payment up front until older debts are paid. Also when setting prices, factor in the risk that you may not always get paid.
Finally, when you have concerns, act quickly; ask difficult questions of your customer.
Seek advice early and actively pursue claims. If you are first to claim and do so effectively, you may be paid before other creditors and before any formal insolvency process is commenced.
The information provided in these articles does not constitute definitive professional advice and is provided for general information purposes only.
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