We are a supplier to a company that has gone into administration, What should we do?
How can you avoid getting stuck?
1. Firstly, you need to get to know your industry. There are often tell tale signs that a business is in difficulty apart from just starting to pay late. Please see our list of warning signs of a business that is in distress. Of course, these are from the company in difficulty point of view but it should give you useful pointers. So be ahead of the news.
2. Make sure that you know all the excuses about slow or non payment - the aim is to get paid and keep your own cash flow going.
3. But what if the debtor has gone into administration. You need to know the law and your rights as a supplier. You have a contract with ABC LTD and on 21st December 2019, ABC LTD goes into administration, You are owed all monies up until 21st May. However of course you may not receive much of it. You must be able to provide proof of debt so make sure you have invoices to hand. The administrator should contact all creditors to inform them of the administration and inform them of a creditors meeting. Make sure you attend the meeting if you can, or get someone to attend for you.
4. Do not supply or give credit to ABC LTD, if you continue to supply credit to this company there is a good chance you wont get paid because that company on paper does not trade anymore.
5. Speak to the management (if a new management company has been set up), the administrators, your contacts. You need to be sure you are happy to continue to trade with the new business (out of administration) . You will need to agree new terms ie, reduced credit, a DD mandate, payment up front, (pro forma) whatever you are comfortable with and you will need to get the name of the new company. In a pre-pack sale where the business is put into administration and immediately sold, it may of course be trading under a different but similar name the very next day such as ABC Ltd. This is what is called a trading administration prior to a sale. If you are asked to supply the administrator (who is running the business) ask for payment up front or a guarantee from the ADMINISTRATOR that your business will be paid.
6. Set up a new agreement but be careful who signs it, it can be signed by the following people
a) ABC (IN ADMINISTRATION) LTD, co-signed by the administrators
b) The administrators themselves
c) The new management company, appointed by the administrators.
7. The debt owed to you by ABC (IN ADMINISTRATION) LTD and ABC LTD are two separate things. The main purpose of administration is to rescue the company so it is often important that all suppliers continue to supply for the good of everyone.
8. What if the business is sold via a pre-pack to a newco and that company with the same management asks your company to supply it? If the business is sold then this could be an opportunity to supply a new and perhaps more lucrative customer! but again make sure that you get the best terms possible. Pro forma is usually the best way to supply until there is a track record of being paid. Then provide say 7 days credit over time. Once again make sure a tight rein is kept on the credit.
If the administration of a large customer puts you under pressure then there is no harm in giving us a call and we will give you free no obligation advice over the phone.
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Please note that the guide was mostly written pre Covid-19 and there have been some changes to insolvency legislation that limits creditors actions and relaxes rules regarding wrongful trading. A new 20 day moratorium for distressed businesses has also been introduced.