Managing a trading relationship with a business in financial difficulty
Managing a trading relationship with a business in financial difficulty

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

  • Managing a trading relationship with a business in financial difficulty
  • Spotting the warning signs
  • Contractual options
  • Termination of contracts generally
  • Insolvency events as termination events
  • Review and re-negotiation of contractual terms
  • Retention of title rights
  • Debt recovery options
  • Statutory demands
  • Winding-up petitions
  • More...

This Practice Note outlines the considerations for a creditor which has been trading with a business partner which owes it money or is in financial distress or insolvency. It identifies the contractual options, commercial options, steps for debt-collection and advice on protecting its position as a creditor in an insolvency process.

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.

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.

Contractual options

The longer a creditor continues to trade with a company in financial difficulty, the more the creditor risks:

  1. not being able to recover money, goods or services from it, or

  1. investing its time and resource with a business partner

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