Dealing with Repayment Reminders or Creditor Harassment
If your business can’t pay its debts when they fall due, you may find repayment reminders arriving from your creditors. While unpleasant to receive, creditors are within their right to chase your business for what it owes. However, it is important to differentiate the difference between whether they’re using reasonable repayment reminders or if they cross the line into creditor harassment and how you should deal with both.
Creditor pressure and reminders
No one likes getting a reminder to repay a debt that the business can’t afford, but creditors can pursue debtors for owed monies. As part of these recovery efforts, you may receive reminders via letters and phone calls. Usually, these reminders would only come through business-related communication lines, to your business address, and within working hours. If you’re a sole trader, where you and your business lack the separation provided by a limited company, this can be harder to differentiate. Even so, reminders should only come at reasonable hours and intervals.
Even if you want to throw out these reminders or delete your messages, ignoring them can prompt creditors to escalate their recovery efforts. In addition, formal notices, like Statutory Demands and even County Court Judgements (CCJs) could be filed against your business – the latter harming your credit file if not dealt with promptly.
The most severe debt recovery action
What could happen next depends on how you’ve incorporated the business. As sole traders lack separation from their business, creditors can force you into bankruptcy if you owe more than £5,000. While bankruptcy can clear your debt within a year, your credit rating suffers heavily, and it may restrict your ability to work depending on your industry.
For limited companies, the most severe way creditors can reclaim what’s owed is different. While stories of companies going ‘bankrupt’ are rife, this doesn’t apply in the UK, where bankruptcy only applies to individuals. If a limited company cannot repay its debts, its creditors can force it into compulsory liquidation by filing a winding-up petition. This freezes the company’s bank accounts, making trading impossible, and unless the company can obtain a validation order, it will have to close.
The actions listed above fall under reasonable repayment reminders and related actions. Creditor harassment, by contrast, can start as reminders, but often increases in intensity or frequency to instil fear and panic in the recipients.
Creditor harassment can include, but is not limited to:
- Reminders coming at unsociable hours or contacting you multiple times per day.
- Reminders through personal, non-business channels (like social media).
- Imply bailiffs or debt collectors can perform actions they cannot.
- Threats to involve police – in the UK, it is not a crime to have unpayable debts.
- Attempts to make you take out further lines of credit to repay your debt to them.
- Threatening or aggressive language in reminders.
If you’re subjected to this inappropriate behaviour, you can raise a complaint with the creditor or notify the financial ombudsman that the creditor has been harassing you.
What to do if your business can’t pay its debts
Even if your creditors have used inappropriate, harassing tactics, not repaying the debt out of spite can further worsen your position. Therefore, you should act as soon as you become aware that your business cannot repay its debts. Which course of action you should take depends on the volume of debt and how you’ve set up the business. Speak to a licensed and regulated insolvency practitioner who can advise you of the best way forward based on your circumstances.
If you’ve incorporated the business in a limited company and the core business would be viable were it not for its burdensome debts, you can repay through a formal, legally binding repayment arrangement. The most common of these, a Company Voluntary Arrangement (CVA), allows companies to repay a portion of their unsecured debts in monthly instalments at a tailored, affordable rate.
Similarly, self-employed sole traders without a separate limited company can explore an Individual Voluntary Arrangement (IVA), which offers similar benefits to a CVA.
If the company requires more substantial changes to return to profitability, you can explore administration. This process involves a licensed insolvency practitioner overseeing the company while implementing the changes necessary to make it appealing to potential buyers. Even when the company has no future, you can close it voluntarily through a Creditors Voluntary Liquidation (CVL). This closes the company in an orderly manner, drawing a line under the unaffordable debts and allowing you, as director, to walk away.
While receiving reminders to repay your business debts are seldom pleasant, they in themselves are not harassment. Creditors cross the line between repayment reminders and harassment when they resort to threatening language, empty threats of action they cannot legally enforce, and contact you outside of working or reasonable hours. If you find this happening, you can complain either directly to the creditor or the financial ombudsmen. You should then speak to a licensed insolvency practitioner to discuss your options and find the solution best suited for your company.