05 Apr 2022
by Menzies

Trading with a familiar face

Menzies LLP Creditor Services team look at what you should be doing when dealing with a company that has had previous insolvencies.

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Dealing with a company with past insolvencies

You have been dealing with a customer that has now ceased to trade and they owe you money. You are then approached by the same directors who have setup a new company and this new company wants to trade with you.

Ask the right questions

What has happened? Ask questions and do your own research:

  • Check Companies House to check old company status; is it active or in an insolvency process?
  • Is it in Liquidation or is it in Administration & a pre-packaged sale has occurred?
  • Find out about what happened to the assets; were they sold to the new company or were they just taken by the new company?
  • Is the new company going to pay old company debts?
  • Is the new company sustainable or will it eventually end up like the old company?

These types of questions are important to ask in order to avoid that potential second loss to your firm.

Company Voluntary Arrangement (“CVA”)

If you are being provided with information to continue trading with this new company, then does the information make sense? If the information all sounds very positive for the new company, then why was a Company Voluntary Arrangement (CVA) not considered?

A CVA proposal must be “Fit, Fair & Feasible” and is reported on by an insolvency Practitioner at a stage whilst they are in the role as Nominee, prior to the Company Voluntary Arrangement (CVA) coming into force.

Fit – fit for purpose

Fair – fair to the creditors compared to other insolvency routes

Feasible – the CVA is likely to succeed or be sustainable

Even if a Company Voluntary Arrangement (CVA) was not appropriate, you should be looking at the new company asking whether it is feasible. If it is simply a carbon copy of the old company, is it too going to fail meaning you are at risk of losing out again?

What you must consider about the past insolvent company before trading

  • Do you need to trade on with this new company?
  • Consider using Retention of Title claims on your Terms & Conditions.
  • Can you obtain a Personal Guarantee?
  • Consider increasing your prices.
  • Consider cash on delivery.
  • Consider short payment terms.

Finally, make sure you complete a proof of debt to claim the money you are owed from the old company as there may be a return to creditors in that insolvency .