Recovery of a £101K Business Debt from a Director

Our client had provided specialist manufacturing and product packaging to a prestigious London based wellness reseller but was still waiting for payment some 200 days after invoicing. By the time the case was referred to Advocate Debt Recovery several promises of payment had been broken, and a significant amount of senior management’s time had been taken up. On referral to Advocate, a Notice of Insolvency Proceedings was promptly issued for £62K plus statutory charges. Despite receiving the shipment more than 6 months previously, it wasn’t until our involvement the debtor first communicated a dispute. They initially claimed 10-15% of the 30,000+ units were defective and refused to make any payment on that basis. When pushed for evidence it was established the percentage of items and resolution required was so minor it had an immaterial value on the principle debt.

Cashflow is King

Resellers are often reliant on selling a percentage of stock to cover the entire manufacturing cost. This particular supply chain was heavily dependent on footfall in bricks and mortar stores. The impact of national lockdowns and delays in receiving business interruption funds no doubt contributed to the debtor’s cash flow predicament. Some firms set controls to avoid being too dependent on one particular manufacturer or retailer. In this case, the debtor was overly reliant on a single retailer to pay creditors and operating costs.

Mutually Assured Success

To settle the original debt, a further £39K of product was requested (for another waiting retailer) to in turn generate enough cash flow and clear both amounts. Both sides wished to continue their longstanding trading relationship but not at any cost.

Advocate Debt Recovery was presented with a Catch-22 where the debtor could not pay the original £62K without first being supplied with more product. With barely enough funds available to keep the lights on, the company could not provide security. The client was willing to help but could not justify further exposure at their own risk. In theory, the reseller would need to invoice the retailer on standard credit terms which could easily add 90 days to the time already elapsed. The sole director/shareholder mentioned they were in the process of selling a mortgage-free apartment worth upwards of £200K. Using the property as security was acceptable in principle to both sides, but a gentlemen’s agreement or handshake (even if Masonic!) would not afford our client the legal protections required. The director agreed to sign a Personal Guarantee drafted by Advocate and validated by one of the UK’s leading law firms. The guarantee would only be called in if payment for the full £101K was not received within 21 days of the additional product being supplied.

Calling in a Personal Guarantee

Despite the apartment sale being delayed and business interruption funds still in the pipeline, the debtor had achieved interim payments totalling £25K over the 21 days. It was time to call in the Personal Guarantee brokered by Advocate. Using solicitors and a process server, Advocate had a Statutory Demand served. Once the bankruptcy hearing date was set, full payment of the remaining balance was promptly received.

The client received payment of the original £62K plus the additional £39K and reimbursement for applicable court fees. Advocate received payment of the statutory late payment charges. The director avoided bankruptcy and continues to run their business, albeit now with an added awareness of what can happen when a creditor is empowered through Advocate Debt Collection.