Initial actions
Pre-formal insolvency
When it is clear that a business may be entering into a formal insolvency procedure or has already the following action should be considered:
Ensure the customer is on stop;
Exploit any bargaining position (e.g. if a sole supplier);
Exert any rights the creditor has (e.g. if landlord consider distraining, or if supplier exert reservation of title clause in contract - take legal advice);
Seek professional advice;
Whether the supplier has any interest in acquiring the business pre or post formal insolvency.
Following formal insolvency
Insolvency Practitioners usually have to advertise their appointment or pending appointment and notify all known creditors. However sometimes records within the entity they are advising are inaccurate and creditors may be missed off. Practitioners also get a 28 day window to advise creditors of the appointment in the case of certain procedures.
For this reason it is important for a business to have adequate credit control procedures so that any issues are identified swiftly.
Once it has been established that a practitioner has been appointed try to find out what their intentions are; i.e. whether they intend to sell the business as a going concern or piece meal and whether the business is continuing to trade under their supervision.
The Creditor should consider whether they have a potential Reservation of Title Claim (also known as Retention of Title or R.O.T.). It is important that legal advice is obtained as ROT is a complex area. In the first stages however the main priority is to identify possible stock supplied by the business so it is normally necessary to send a representative to site.
If the practitioner is continuing the business then they may require ongoing support from suppliers. This may present an opportunity to increase prices or exert pressure to come to an agreement over any ROT claim. In some circumstances it may be possible to get the practitioner to pay the amount owed if the supplier provides something vital to the continuity of the business. However suppliers should exercise caution in using their position as a Practitioner trading the business needs to be able to justify why that was done. A practitioner may therefore decide not to trade at all if suppliers try to take advantage of their position. This could result in creditors getting less return as it may not be possible to sell the business for as much money.
