Creditor pressure and creditor harassment. How to differentiate and deal with them. 

Dealing with creditor pressure is one of the worst aspects of being the director of an insolvent company. Creditors are within their rights to chase repayment from a company that owes them money, and they can explore several options through which to recover what they’re owed. However, there is a clearly defined line between reasonable creditor pressure and harassment that they shouldn’t be engaging in. 

Some of the differences between creditor pressure and creditor harassment are as follows: 

How frequently are they contacting you? 

Creditors can contact a company that owes them money via telephone, post, and, in some cases, through sending debt collectors.  

The distinction between this action constituting creditor pressure or creditor harassment depends on where the reminders are delivered to and when they arrive. 

For example, if the debts belong to a limited company, as its director, you shouldn’t be contacted at your home address in relation to those debts, especially late into the evening or the early hours of the morning. Nor should the creditor contact you personally via social media. 

The reminders’ frequency also contributes to whether such creditor action could constitute harassment. Weekly reminders towards the company might be considered reasonable, but daily letters or multiple phone calls a day to the point it hinders your ability to conduct business might be less so. 

Is their language formal or threatening? 

The language creditors use in their attempts to recover what you owe can determine whether they’d be considered harassment.  

Repayment reminders commonly feature formal language, clear explanations of the amounts owed, repayment deadlines, and further action if the debts are not settled within that time.  

However, threatening language, aggressive wording, encouraging the company to take out more credit (straddling it with even more debt), or out-and-out threats to your business or you personally could count as harassment. 

Has further action been mentioned? 

Creditors can pursue further action if you ignore repayment reminders. They could file a Statutory Demand or a County Court Judgment (CCJ). These should be addressed as soon as possible, as they can negatively affect the company’s credit rating if ignored. In the worst-case scenario, they could even apply for a winding-up petition, making trading impossible and forcing the company into compulsory liquidation. 

Some creditors might even threaten criminal action. However, accruing debt is not a crime in the UK. Insolvency matters are handled by county courts rather than criminal courts and don’t usually involve the police. Creditors threatening action outside their powers can, therefore, constitute harassment. 

Is the company undergoing an insolvency procedure? 

Directors of limited companies that cannot pay their liabilities as and when they fall due should put that company into a formal insolvency procedure. Doing so stops any further creditor pressure, with a licensed insolvency practitioner acting on the company’s behalf and dealing with the creditors while they work on the solution best for the company. While it can feel like an admission of defeat to consult an insolvency practitioner, doing so when the company cannot cover its liabilities is fulfilling your duties as director and acting in the company’s and its creditors’ best interests in finding a solution to the issues. 

The company’s circumstances dictate the options available. A licensed insolvency practitioner will assess your company’s situation and the future you want for it. Depending on its situation, it might be viable for a recovery and repayment procedure such as a Company Voluntary Arrangement (CVA), wherein the company repays a portion of its debt in monthly amounts tailored to what the company can afford. Alternatively, more substantial restructuring may be required if the debts are more significant, which could see the company enter administration to alleviate the issues. If the debts are of such a level that the company would be better off closing, the company can enter a Creditors Voluntary Liquidation (CVL). This process closes the company in an orderly manner, minimising creditor losses and writing off any outstanding debt. 

If your company is engaged in one of these insolvency procedures and creditors are still pushing for repayment, you should refer them to the insolvency practitioner dealing with your company.   

If a creditor partakes in any of the actions listed above, you can complain directly to the creditor or report them to the financial ombudsmen. 

Summary 

Creditors can contact your company with reminders to repay what the company owes them without it being considered harassment. Ignoring these reminders will only worsen the company’s situation, potentially leading to longer-lasting consequences, including Statutory Demands and County Court Judgments, and in the worst-case scenario, a winding-up petition. 

Creditor reminders become harassment if they cross certain boundaries. If demands for repayment increase in frequency, start coming at unreasonable hours or start being delivered to your personal address when the debt relates to your business, they may have overstepped the line into harassment. Reminders should be worded professionally, without threatening or aggressive language, and shouldn’t imply that creditors have powers beyond their means. 

Speak to a licensed insolvency practitioner if your company can’t repay its liabilities when they fall due. They can advise you of the best course of action for the company and help stop further creditor pressure.