A 5 minute read…

What does the Corporate Insolvency and Governance Act (CIGA) extension mean for businesses?

From 26th March 2021 the UK Government has extended temporary insolvency measures introduced due to Covid-19, supporting businesses and helping them recover.  The measures, which include restrictions on using statutory demands and winding-up petitions will remain, in most cases, until 30th June 2021.

The Corporate Insolvency and Governance Act was introduced in June 2020, establishing permanent and temporary changes to UK laws.

How will the CIGA extension affect SME businesses?

If you are a small supplier you do not have to continue supplying an insolvent business; larger businesses will not be able to stop supplying a SME.

A company must be legitimately affected by Covid-19 to benefit from the restrictions on winding up.  Any company not paying its creditors which has continued to trade at a normal or increased level during the pandemic may still face insolvency action, if proven by the petitioning creditor to the satisfaction of the Court.

Excuses for not paying invoices

Are you concerned people will hide behind this as an excuse and not pay for work done?

This is a common worry for SME owners and managers who rely on payments from their clients for work carried out before or during the pandemic. Staff members need to be paid, even when the company is not being paid.

What if a company can demonstrate it has been affected negatively by the pandemic?

This does not mean the business can avoid making any contribution to payments for goods and services. It will remain liable for any interest or costs set out under the contract or late payment legislation.

What action can I take to protect my business?

Know your client! It goes without saying; if you are offering credit terms to a client ensure you know they can pay you first. If you have concerns about a company’s ability to pay you, ask for payment up front. Carry out checks via business intelligence agencies (e.g. Credit safe, Tracker) to identify any potential risk factors.  Also, impose credit limits to ensure that clients don’t get themselves into a situation they owe more than they can afford.

Including the above, ensuring you have a robust credit control process that immediately highlights missed payments, and allows you to quickly raise the issue with your client,  time is of the essence when chasing late payments as the longer they are allowed to default the more difficult it will be to recover.

Make sure that your terms of business are up to date and provide you with protection against late payments, making payment terms clear and accessible. If your terms and conditions have not been updated, review them. Our Commercial team can assist you.

Can I still chase overdue invoices with the CIGA extension?

Yes of course! As part of any credit control process it is important to chase any payments which are overdue. Often people are worried about chasing payment due to their ‘great relationship’ with their client. Any great relationships are two-way partnerships, and it is fair that clients must be prepared to pay on time in return for work carried out by a supplier.

When clients simply refuse to discuss overdue invoices, there are still options available to you to recover money you are owed. HM’s legal experts can support you. We provide advice on recovering overdue invoices, often recovering your costs while doing so.

What to do when late payment becomes a dispute

Are you hearing excuses as to why payment is not being made? When you chase overdue invoices, are you being told that there are issues with the work done?

Disputes are unfortunately common and are often a delaying tactic. Where there is a genuine dispute it is important that it is dealt with promptly and effectively. Our Commercial Litigation team is experienced in resolving a wide range of disputes. They are on hand to offer pragmatic and cost-effective support to avoid costly litigation wherever possible.

If your cash flow is being affected by overdue invoices, you can take action. Speak to our experts. If you find yourself in a dispute over payments, again, speak to us. Have a no-cost, no-obligation conversation with our team to explore your options.

Contact us: [email protected] or call 01244 318131.

If this raises any concerns for your business, or you would like to discuss this further – please contact the author, Michael Richards.

CIGA extension blogMichael Richards – Head of Commercial Recoveries

Email Michael

0151 541 9945