Help with the cost-of-living crisis. What is available for companies and individuals? 

It’s easy to make companies out as the bad guys when finding out a price has gone up and imagine their directors sitting pretty with a secure line of income. In reality, many business owners are facing tough times too. 

With the increased cost of utilities (electricity and heating), bills for many companies are skyrocketing, with some industries more heavily affected than others as they have more running costs. These costs could include purchasing materials to produce their products or tools and assets that allow them to provide a service. With inflation pushing up those costs, companies without deep pockets may have to pass these costs on to their customers. With belts already tightening to the point where the once untouchable streaming giant Netflix experienced a drop in subscribers, people are finding cheaper alternatives to essentials and cutting back where they can. 

All these factors mean the same stressors that individuals face are also issues for limited companies and their directors, with their livelihoods at potential risk. 

Unlike during the COVID pandemic, there are no restrictions placed on debt recovery action, so once you or your business falls into debt, the creditors can take reasonable action to recover what you owe them. 

This action could consist of the following: 

• Reminder letters and phone calls. 

Creditors can contact you via phone, email or letter and request that you repay what you owe. These reminders should only come during working hours for companies. They should NOT contact you at home at unsociable hours or via social media. Nor should they use threatening language, imply that they have more legal powers than they do or break data protection laws to obtain information. Doing so would be classed as harassment.

• County Court Judgements (CCJs) and Statutory Demands. 
  If repayment reminders go unanswered, creditors can escalate recovery action to CCJs or Statutory Demands. These can damage the connected credit files if you don’t repay the debt or appeal and get it set aside, with CCJs staying on the credit file for six years afterwards.
   
• Bailiffs.
  If you continue to ignore these repayment reminders, your creditors can send bailiffs. There are a lot of rules and regulations surrounding bailiffs’ powers and what they can and can’t do. If they arrive, you should check whether they are High Court Enforcement Officers (HCEOs) or debt collectors. As a general guideline, bailiffs cannot forcefully enter your home but may enter through an unlocked entrance. They may be able to force entry into commercial premises if they have permission from the court.
   
• Winding-up petitions and bankruptcy.
  Continuing to ignore all these warnings means creditors can apply for the most severe debt recovery action. For limited companies, this would be a winding-up petition. Filed when a company owes more than £750, a winding-up petition can freeze a company’s bank accounts, making trading impossible and forcing the company into compulsory liquidation. 

If individuals and sole traders owe more than £5,000, creditors can apply to make them bankrupt*. Bankruptcy generally lasts for a year, and during that time, your personal assets could be sold to repay the debts. 

*While you may have heard of companies going ‘bankrupt’, this generally applies to US-based companies. In the UK, bankruptcy only applies to individuals. 

While it’s very easy to get swept up in the doom and gloom surrounding the cost-of-living crisis, there is some good news. If you’re struggling to repay your debts, be they personal or business-related, there is help available. 

There’s no shame in admitting you’re unable to pay what you owe. Seeking professional advice from a licensed and regulated insolvency practitioner can help you find the solution best suited to your circumstances before the situation worsens, creditors take further action, and more drastic measures might be required to alleviate the problems. 

Some insolvency practitioner firms will also offer free initial advice with no obligation. 

For directors of companies struggling with the increased costs and potential drop in customers, the best course of action will largely depend on the company’s situation, the volume of its debts, who they’re to, and what assets it has. The director(s) desired outcome should also be considered, though it’s important to think realistically about what future might be possible. 

For individuals and sole traders struggling to cover increased outgoings due to the cost-of-living crisis, a similar arrangement exists to the previously mentioned CVAs. Individual Voluntary Arrangements (IVA) are formal repayment arrangements allowing the indebted party to repay a portion of their debt in affordable, monthly instalments. The arrangement usually lasts five years and covers unsecured debts. IVAs can be useful for individuals looking to avoid bankruptcy, either for professional reasons or if they have assets to protect. 

While the cost-of-living crisis is having a marked effect on the population, both individuals and companies are feeling the pinch as consumers tighten their belts and review their outgoings. Fortunately, while there isn’t government support on the scale rolled out for the coronavirus pandemic or limitations on creditors’ debt recovery action, help is still available for those struggling to repay what they owe. 

Whatever your circumstances, it’s essential to act as soon as you become aware either your or your company’s finances are at risk of becoming insolvent. Seeking help sooner rather than later can help ensure a more desirable outcome for you or your business. 

Disclaimer: MoneyMagpie is not a licensed financial advisor and therefore information found here including opinions, commentary, suggestions or strategies are for informational, entertainment or educational purposes only. This should not be considered as financial advice. Anyone thinking of investing should conduct their own due diligence.