“Now is the time to get your affairs in order” – Nick Harvey’s advice to SMEs

The British business landscape for SMEs is changing by the day at the moment, as the Coronavirus pandemic plays out across the world. Many companies have swiftly adapted and pivoted their business models and production lines in order to survive, whilst those who were struggling before the crisis are facing worrying times and an increasingly uncertain future.

As we continue to work remotely and keep up to date with the continual issuing of new Government guidance, Escalate have been focusing on trying to help as many SMEs as possible.

Escalate Co-founder Nick Harvey has been busy taking part in several webinars aimed at advising SMEs, the most recent one being with our partner firm Pimento (an independent network of marketing agencies and consultants). We’ve set out Nick’s responses to some of the most commonly asked questions that were sent in by SMEs below:

Government changes to winding-up petitions 

Q: We’ve just received a winding up petition from a supplier, but we aren’t in a position to pay the debt right now. Are the debts reactive, or can we ride this one out for a while?

The current environment is all about working out the competing interests between pre-Covid-19 debts, and those companies who have hit the skids as a result of Covid-19.

If you’ve got a winding up petition, changes to the insolvency rules are imminent, which will effectively create a moratorium of 3 months around winding up petitions being presented/progressed. The platform will be there for businesses to kick the can down the road and delay things, but the challenge is really on the lawyers to demonstrate to courts that this was a pre-existing condition, as opposed to the debt having arisen specifically from this mess.

Differentiating between pre-existing debt, vs debt incurred as a result of Covid-19

Q: How will courts differentiate between existing debt prior to Covid-19 vs as a result of it, and will these cases be treated differently?

A comfort blanket is being given to SMEs to sort their affairs out and work through this challenging period, giving them time to come to informal arrangements with creditors or create a (CVA) Company Voluntary Agreement. The end result will be that they either come to an orderly winding up, or come out the other side.

The courts will be looking to try and give forbearance and tolerance to those businesses. For pre-Covid-19 conditions of indebtedness, the courts should not be giving tolerance in those circumstances, and the lawyers will earn their crust by demonstrating the difference such that those debtors trying to exploit the current situation to mask pre-existing indebtedness are prevented from doing so.

Q: Are courts still active and open for business? 

Yes they are – there’s a triage in place to deal with emergency hearings and applications but doors are not closed by any means. There will be administrative delays, but courts are open for business, and are doing all they can to keep things moving – e.g. remote hearings on Zoom for instance.

What to do when calls and emails go unanswered 

Q: We are chasing down payment and finding it really hard to get a return on our calls and emails. Many claim to be out of office. What can we do in this situation to get a response? 

Undoubtedly the current circumstances are challenging for SMEs – there is now a platform for certain debtors to exploit and kick the can down the road.

The key message here is not to give up. Now is the time to get your affairs in order and try to do all that is within your power and control to improve your cashflow.

My advice sounds simplistic, but would be to call at different times, on different numbers, using all contact points available to you. Bear in mind that whilst you might be receiving out of office activated messages, it doesn’t mean the messages aren’t getting through.

You can still instruct a Process Server (an appointed Person who serves Court Orders and legal documents) if necessary; they can still go ahead and serve legal letters.

Above all, start building the story that this is a pre-Covid-19 problem, rather than one that’s been created by the fallout from it. Don’t sit back and fester and think that there’s nothing that can be done about it.

Identify those accounts that are delinquent and start getting communications going backwards and forwards. If you can do that, once your house is in order, if it does reach the court stage you have a better chance of getting ahead of the game and ahead of other creditors.

That old adage of those who jump the highest and shout the loudest get paid first, is invariably true.

Client debt that’s on a payment plan 

Q: We have a client debt that’s on a payment plan, but suspect that the business isn’t going to make it. How can we secure our debt?

There are two possible routes here, depending on the specific circumstances such as the size of the debt and if there is a default on the payment plan or not.

If there’s no default, there’s nothing to stop you approaching the debtor and asking them to secure that debt or ask for security to underpin the payment plan – if you don’t ask, you don’t get.

If there is a default, firstly, move quickly. Issue a court claim and get a judgment or charging order behind it for security.

Alternatively, you can go down the road of a winding up petition. Whilst there is a moratorium soon to be in place, the pressure of this might give rise to a voluntary offer of security to secure your debt. Personal or cross company guarantees might also be an option, rather than physical security.

If your business has been affected by any of the issues raised, or if you need some advice on tackling a commercial dispute or late payment, please get in touch with us or one of our partner firms.