How can I protect my business from a debtor which is in financial distress or insolvency?
How can I protect my business from a debtor which is in financial distress or insolvency?

The following Commercial guidance note provides comprehensive and up to date legal information covering:

  • How can I protect my business from a debtor which is in financial distress or insolvency?
  • Spotting the warning signs
  • Contractual options
  • Debt recovery options
  • Creditor considerations in an insolvency

Spotting the warning signs

General trade creditors are usually the last to know if a company is struggling as it not always easy to evaluate whether the finance director's assurance that 'the cheque is in the post' is in fact a true statement or masking a much bigger problem. Practice Note: How to identify a company in financial difficulty helps you identify some of the typical warning signs which creditors should be alert to.

The trading partner's accounts are also a useful tool for a creditor to examine if a creditor is able to access them. Accounts are a simple list of assets and liabilities with the resulting balancing figure at the bottom of the page being a minus or (hopefully) a plus.

In failing businesses you often find that directors are unable to understand and react to the financial information being provided by the in-house accountant, whereas in a strong company the directors will be fully conversant with their financial information. Practice Note: The warning signs of financial difficulty in a company's accounts is a guide on what to look for in a company’s accounts when assessing its financial position; and the warning signs that may indicate financial difficulty in, or potential insolvency of, a company.

Contractual options

The longer a creditor continues to trade with a company in