Won’t pay or can’t pay?

It is universally understood that COVID:19 is having a massive impact on people’s financial and emotional health, to name but a few.  Businesses have been forced to mothball, employees furloughed or made redundant, and landlords are facing unpaid rents.

Although some businesses are still able to operate and some may even be thriving in the face of the pandemic, others are struggling and may not survive it.  Whether you are owed money by an individual or by a company, your options are largely the same and include:

  1. Negotiate a payment plan;
  2. Issue court proceedings;
  3. Serve a statutory demand;
  4. Appoint a receiver (fixed charge); or
  5. Sell the debt to a third party, for them to enforce.

What is really difficult to gauge is whether a debtor falls within the ‘won’t pay’ (has the means/cash but is choosing not to pay) or ‘can’t pay’ (doesn’t have the means/cash) camp. 

If you are a debtor, the creditor taking steps to enforce payment of the debt could increase the amount you ultimately have to pay. Therefore, it is in your best interests to try to reach a mutually agreeable compromise with the creditor, enabling clearance of the debt within a timeframe that is manageable. 

If you are a creditor then again it is in your best interests to engage with your debtor, to secure useful information as to their current circumstances and what might be achieved, say by way of a repayment plan.  If your debtor is not co-operating, then you will need to reconsider the hard options.  Remember, you may not be the only creditor of the debtor, who is under pressure from all sides. 

On the other hand, the debtor may be perfectly able to pay, but is using the uncertainty surrounding COVID:19 to try to avoid payment.  If you have no on-going business or other relationship with the debtor, you may be prepared to issue court proceedings or serve a statutory demand, to secure payment.  If he has the means to pay, your debtor would hopefully be sensible to reach terms with you, so as to avoid matters escalating. However, if the debtor simply can’t pay, then taking legal action may only be a case of throwing away good money after bad. It is often a judgment call on which course of action is the best to take. The more information you have about the debtor and his business, the easier it is to reach decisions.

The information contained in this article provides a general overview of the current position in relation to the subject matter.  It does not constitute legal advice and should not be relied upon in relation to any specific legal problem.  If you require legal advice in relation to a commercial debt, we at Stokes Partners have experienced solicitors who will be able to provide you with professional and bespoke advice.  Please contact us by email or telephone.