Heavy-handed debt recovery ‘will push some East firms under’

Chancellor of the Exchequer, Rishi Sunak outside 11 Downing Street, London, before heading to the Ho

Measures introduced by chancellor Rishi Sunak which made it difficult to launch winding-up petitions are coming to an end - Credit: Stefan Rousseau/PA

A rush by creditors to call in debts as the lid comes off taking action against companies in arrears could push some companies over the edge, East of England insolvency experts fear.

Alistair Bacon, regional chairman of the trade association for insolvency professionals R3, said with pandemic-driven government bans on key debt enforcement actions due to run out at the end of June, East of England businesses should grab the initiative and start conversations with their creditors.

At the end of June the lid will be lifted on creditors presenting winding up petitions. Meanwhile, a ban on evictions from commercial and residential properties ended at the start of June. June 1 also saw receivership actions going ahead again, meaning individual companies and organisations can take action to recover debt.

Mr Bacon fears that the artificial situation created by the various bans and by the furlough scheme is only holding off the inevitable and that a huge number of firms will go bust once the crisis measures are lifted. It is unclear how the system will cope with the huge backlog of petitions – possibly around 8,000 to 10,000 – which will have built up, he added. However, he believes that the sooner normality resumes and measures are lifted the better.

R3 is concerned a rush by creditors to recover what they are owed might force the companies out of business if sums are demanded too quickly.

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Mr Bacon called for “constructive and honest conversations” between groups such as landlords and tenants, suppliers and customers, businesses and HMRC. These will be “vital” to businesses and to wider economic recovery, he added.

“Businesses have built up debt over the pandemic for very understandable reasons, so it will be important for them to have productive and frank discussions with those to whom they owe money about the best way to proceed,” he said.

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“Creditors who stubbornly insist on imposing unrealistic debt repayment plans may well find that this is far from the best way to recover their funds, and that a little cooperation will go a long way towards securing longer-term repayments.

“Aggressive action to recover debt, while shortly to be allowed once more, would go against the spirit of everything that the government has done to keep many businesses afloat, and to protect the jobs that they support.”

Finance industry figures showed that UK consumer spending rose above pre-pandemic levels in April for the first time this year, while consumer confidence levels remain below 2019’s levels, although they are slowly beginning to improve.

Mr Bacon advised business owners concerned about their finances to seek qualified advice.

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