Accepting an informal instalment arrangement for a debt that is owing to you instead of being paid on trade terms is not obligatory, giving you the discretion to evaluate the situation before making a decision. However, it's crucial to assess both the potential advantages and the associated risks.
If a debt is owing and not being paid there are common courses of action such as negotiating an agreeable solution and instalment plan, issuing a statutory demand, enforcing a judgment, engaging a debt collection agent, mediation, caveats (where there is a caveatable interest), lodging a report with credit agencies etc.
There are benefits and risks to most options. We discuss the informal arrangements here.
Risks of Accepting an informal Instalment Arrangement:
1. Delayed Payment: Opting for an instalment plan may result in a prolonged period before you receive the full amount owed, potentially affecting your own financial commitments. However if presented under a Companies Compromise this may provide a greater return than otherwise available.
2. Default Risk and Clawback Concerns: There is a risk of the debtor defaulting on the instalment plan. Additionally, in cases of insolvency and subsequent liquidation, there could be a risk of voidable transactions and clawback of payments made, potentially leading to partial or complete loss of the debt repayment.
3. Risk of Insolvent Transactions and Clawback: In cases where an insolvent company enters into an informal repayment arrangement, there is a significant risk of such an arrangement being deemed an insolvent transaction unless there are clear defences. This could lead to a legal challenge and potential clawback of payments already made to you. In such instances, you may face the prospect of having to return these funds, leaving you with a reduced or nullified debt repayment.
4. Interest and Penalties: Depending on the agreed-upon terms, interest or penalties may be associated with late payments.
5. Potential Financial Struggles: If the debtor's financial situation deteriorates further, they may face difficulties in adhering to the agreed-upon payment schedule.
Mitigating the Risks:
1. Clear and Comprehensive Agreement: Ensure that the terms of the instalment plan are thoroughly detailed, covering the total amount owed, payment frequency, and any applicable interest or penalties.
2. Document Everything: Maintain meticulous records of all correspondence, agreements, and payments related to the instalment plan. This documentation will be crucial in case of any disputes.
3. Collateral or Security: Whenever possible, request collateral or some form of security to secure the debt. This provides an additional layer of protection in case of default or a potential clawback following insolvency.
4. Vigilant Payment Monitoring: Keep a close watch on the debtor's payments to verify that they are meeting their obligations as agreed.
5. Legal Counsel: Seek legal advice or the advice of a Licensed Insolvency Practitioner to review and assist in drafting the instalment agreement. Legal guidance can help safeguard your interests.
6. Contingency Plans: Consider the steps you would take if the debtor defaults on the instalment plan. This could involve legal action or exploring alternative collection methods.
Instalment Plan Binding Following Insolvency Proceedings:
If the debtor has undergone an approved voluntary administration or entered into a company compromise under the Companies Act 1993, the terms of any instalment plan may be legally binding. This is subject to the specific terms and conditions outlined in the approved arrangement.
A company compromise should be seriously considered when offered by a company facing the risk of insolvency where that business is viable. The compromise may provide some relief but it ensures continued trade, employment for staff and a better outcome than an immediate liquidation.
It's crucial to consult with a legal professional who specializes in insolvency matters or a Licensed Insolvency Practitioner to ensure that any instalment plan complies with the legal framework and is enforceable.
If you are convinced the company that is not paying is insolvent then consult our team for advice on how to advance proceedings for putting the company into liquidation.
Remember, every situation is unique, and professional advice tailored to your specific circumstances is essential for making informed decisions regarding debt repayment arrangements.