According to research from R3, 6% of all businesses in the UK were creditors of insolvent companies over 2015. 113,000 businesses were owed money by companies in a CVA, administration or liquidation.
In many cases, a lot of the debt cannot be paid back by the insolvent company, putting significant pressure on the creditor company and its cash flow. This in turn can cause a domino effect.
President of R3, Philip Sykes, commented, “Businesses need to take preventative measures and properly assess risks before trading with individuals or other firms. Doing so will minimise the chance of being exposed to others’ insolvencies in the first place.”
He added, “Businesses need to be savvy about who they trade with. If a business isn’t paid up-front or on delivery, or pays in advance for its own supplies, it is essentially lending money to those with whom it is trading. This sort of ‘lending’ doesn’t have the same protection in insolvency situations that secured lending, like a mortgage, enjoys.”
If you are a creditor of an insolvent company, It is always best to contact the insolvency practitioner or official receiver as soon as possible to ensure you are updated on the process and know how much money you'll get back.