January and February 2016 Credit Management

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LEGAL MATTERS WINDING UP PETITIONS – HOW TO MAKE THEM WORK FOR YOU? EMMA EMERY IS A PARTNER AT FREETHS : emma.emery@freeths.co.uk In this month’s legal matters we explain the process of issuing a winding up petition against a debtor. We explore when the method is appropriate and offer practical advice on how to ensure debts are paid whilst maintaining mutually beneficial client relations. WINDING up a debtor involves requesting the Court to make an order that a company’s assets are frozen with a view to those assets being realised and potentially distributed amongst its creditors. Applying for a winding up order should be considered as a last resort and is most appropriate when other debt recovery procedures have been exhausted. Usually, a statutory demand will be served as a prerequisite to a petition and whilst this is not a legal requirement, it is sensible to do so. To apply for a winding up order, the debtor must owe you at least £750 of undisputed monies and you must have credible evidence that the sum is outstanding. THE PROCESS Applying for a winding up order involves filing a petition at Court which outlines details of the debt. The Court fee is £280 and the official receivers fee is £1,350. Once sealed by the Court and a hearing is listed, the winding up petition has to be served on the debtor and evidence of this must be sent to the Court. The company then has an opportunity to dispute the petition. The office holders of the company, you as the petitioner and any other creditors can attend the hearing. Once the winding up order has been granted, the official receiver is appointed and will commence investigations into the company’s assets. An insolvency practitioner may then be appointed for further investigations. ADVANTAGES • The threat of issuing a winding up petition alone can pressure a debtor to pay. • If the debt owed is relatively large, a winding up order can be an inexpensive method of recovering monies owed. • The process involves the appointment of a liquidator whose job is to maximise the assets that are distributed to creditors. You may be able to regain possession of goods supplied to the company under a retention of title clause if this is included in your terms and conditions. • If the debtor pays the monies owed after the application is made, the petition can be withdrawn with the court’s permission. However, other creditors could take over your petition if they remain unpaid and the debtor could still be put into liquidation. DISADVANTAGES • If the company has reasonable cause to dispute the debt or issue a counterclaim against you, the court may reject the petition. This may leave you liable for the debtor’s costs which may be awarded on an indemnity basis, meaning that the Court will decide the amount of costs with no requirement for proportionality. • You must ensure that another creditor has not already issued a winding up order against the company and that no other insolvency arrangement is in place. If a winding up order has already been initiated, you can only act as a supporting creditor to the existing application. • You may not get the full debt paid as an unsecured creditor and so you must take legal costs and expense of personnel time into account. STRIKING A BALANCE Your customers are essential to your business and it is hugely important to avoid unnecessarily aggressive methods of debt recovery. Customers should be made aware of their outstanding debts on multiple occasions and should be notified of your intention to commence legal action before you do so. Engaging in open communication is vital as it may be appropriate to attempt negotiation with debtors, allowing for monies to be repaid in instalments. Ensuring that your terms and conditions clearly state your payment provisions and consequences of late payment is also fundamental to avoid confusion. If communication attempts have failed and it appears the company cannot pay their debts, presenting a winding up petition presents an effective alternative. However, if you genuinely believe that the company has no realisable assets then the most commercial solution may be to write off the debt rather than incur further cost. AS A CICM MEMBER YOU CAN RECEIVE FREE LEGAL ADVICE FROM FREETHS CALL THE CICM LEGAL HELPLINE 0845 0779698 34 Jan/Feb 2016 www.cicm.com The recognised standard in credit management
INTERNATIONAL TRADE NEWS HELPING HAND In the first of a new regular column, Lesley Batchelor OBE looks at the importance of practical finance and credit guidance for SME exporters. WHETHER seasoned international players or nervous debutantes dipping a tentative toe in the water, all SMEs need practical technical support to plan and fulfil export activity. The key issue facing any company looking at exporting is ensuring prompt payment and, by extension, how to collect money owed and reduce bad debt across borders. This is particularly important for those who have overseas customers that are not always as easy to contact or visit - and with whom it can take longer to build a trusting relationship. With exporters also exposed to diverse regulations of differing degrees of complexity in wide-ranging markets, securing payment is underpinned by the need to get compliance right first time to avoid unnecessary costs and labour intensive administration. SMEs usually start their export journey by trading in EU countries, where payment is by open credit. Even ‘on our doorstep’, it is vital to conduct proper credit checks and understand the market you are getting into. Prompt payment is not simply about a customer’s willingness to pay – it is also about the political willingness – a country’s rules, readiness and ability to release foreign exchange. For example, consider the differences in economy and liquidity, political landscapes and social outlook between fellow Eurozone members, the Netherlands and Greece. Moving further afield – and into more complex markets, such as Asia, Africa and the Far East, there is more likelihood of governmental and institutional restrictions to getting money out of countries – and non-resident companies may well be subject to ‘withholding taxes’ on any payments. In these situations, you will need formal methods of payment, such as ‘letters of credit’ or ‘documentary collection’. Both work efficiently, but can be difficult to understand. These methods of payment must be supported by papers that reflect compliance in ‘strict accordance’ with the instructions. Exporters need to know specific procedures and document formatting right down to the letter and individual punctuation points for banks to process transactions swiftly. A staggering 70-80 percent of all letters of credit are not presented properly first time, leading to delayed payment, administrative costs and exporters not being paid at all. While not ‘rocket science’, procedures are technical and professional support is usually needed, from an accredited organisation or professional advisor. With the need for security becoming a greater influence on documenting and monitoring shipments from a simple couriered item to an entire container they all need supporting papers to evidence origin and nature of the products. Many companies simply don’t understand or factor this paperwork into their costs and pricing calculations. Collecting money can have a high cost especially if it’s linked to an insurance scheme or invoice discounting plan. Letters of credit, although a secure and guaranteed method of payment, can often cost several hundred pounds, and this can eat into profits. For example, a ten percent margin on goods sold for £10,000 is dented significantly by £300. If things are wrong first time, as is often the case, then profits may quickly be eradicated entirely. VAT is another issue requiring knowledge and understanding. Exporters usually enjoy a zero rate but HMRC’s proof of export requirements can be confusing and, if not presented correctly, you can become liable – and, at any rate, waste much time, cost and effort on the matter. There is a particular danger of this for the many exporters who choose not to take on the responsibility for delivering their goods, as the arrangement often excludes HMRCcompliant proof of export. Dealing with payments in foreign currencies is also an important consideration that should be planned carefully. With many potential cost efficiencies and pitfalls, choosing the right one to sell in - and receiving payment that can be converted into money you can use - is vital. Many business support organisations offer practical help and support you in navigating all these ever changing compliance and regulation issues. For example, the IOE membership provides a Helpline that can answer all immediate questions and, for more complex issues, its Technical Help for Exporters can assist with a detailed response. Training courses can advise on local taxes and explain letters of credit in non-technical terms – or the IOE can process them. It can likewise check currency rates and every documentary and regulatory demand for every product in every territory. It is also worth considering avoiding the learn-as-you-go approach of many exporters, who fail to research and prepare in advance but simply deal with problems as they encounter them. Such constant firefighting is costly, timewasting and can even lead to business failures. In the age old adage, forewarned is forearmed, and there is no substitute for learning in advance; the IOE’s structured courses and qualifications not only allow companies to take problems in their stride, but confer a vital degree of credibility in international export markets to give exporters a competitive edge. Lesley Batchelor OBE, Director General of the Institute of Export. The recognised standard in credit management www.cicm.com Jan/Feb 2016 35
Page 1 and 2: CREDIT MANAGEMENT CM JAN/FEB 2016
Page 3 and 4: CONTENTS JAN/FEB 2016 www.cicm.com
Page 5 and 6: ONEPROVIDER MULTIPLE SOLUTIONS AML,
Page 7 and 8: NEWS IN BRIEF CAI LANDMARK THE Col
Page 9 and 10: CICM NEWS COST OF HACKING LIKELY TO
Page 11 and 12: INSOLVENCY NEWS IN DEBT - WHERE TO
Page 13 and 14: There are debt purchasers. And then
Page 15 and 16: THE CUSTOMER PERSPECTIVE When I fir
Page 17 and 18: Filter out the time wasters Finding
Page 19 and 20: FRONT COVER FEATURE As an industry,
Page 21 and 22: OPINION LIFTING THE VEIL ON INTERNA
Page 23 and 24: Stand out from the crowd,beyour own
Page 25 and 26: INTERVIEW • LOCAL WORLD • ON A
Page 27 and 28: INTERVIEW Mark was not out of actio
Page 29 and 30: CONGRATULATIONS TO ALL OF OUR 2016
Page 31 and 32: www.portfoliocreditcontrol.com Port
Page 33: FEATURE SPECIAL The conference has
Page 37 and 38: INTERNATIONAL TRADE NEWS NEWS IN IN
Page 39 and 40: 7 6 5 4 3 2 1 0 2 1 0 Region Region
Page 41 and 42: ELECTIONS2016 WE NEED YOU! The Advi
Page 43 and 44: Does my bum look big in this? Impro
Page 45 and 46: FEATURE SPECIAL New to CICM qualifi
Page 47 and 48: Time is money. We recover both. No
Page 49 and 50: THE CICM British Credit FULL PROGRA
Page 51 and 52: The recognised standard in Credit M
Page 53 and 54: THE B2B DEBT RECOVERY SPECIALISTS T
Page 55 and 56: The winning team from Northumbria U
Page 57 and 58: STAND ALONE CREDIT CONTROLLER WORK
Page 59 and 60: Cr£ditWho? CICM Directory of Servi
Page 61 and 62: Cr£ditWho? CICM Directory of Servi
Page 63 and 64: CREDIT MANAGEMENT CM MONTHLY PRIZE

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