Don’t Be Caught Out By Rats

Rogue companies are escaping their financial responsibilities at a time when creditors are less prepared to throw good money after bad, says Mike Collins.

2020 is the Chinese year of the Rat. In China, the Rat is associated with wealth, whereas in the western world, especially in business circles, it can have an altogether different connotation.

According to one myth, the Jade Emperor said the order of the zodiac would be decided by the order in which they arrived at his party. The Rat tricked the Ox into giving him a ride. Then, just as they arrived at the finish line, Rat jumped down and landed ahead of Ox, therefore finishing first and reaping the rewards, whereas the Ox was burdened with all the work and effort to reach that goal. Caught out

The whole story around how the Rat became the first of all animals in the Chinese zodiac could be a metaphor for how we now view the rogue directors of this world. The ability of some to use others for their own personal gain, to then leave them stranded at the final moment is an illustration of the trials and tribulations many businesses face when dealing with debtor insolvencies.

A recent study by The Insolvency Service showed:

• Total company insolvencies increased slightly in Quarter 3 2019 compared with Quarter 2 2019. This was driven by increases in administrations and creditors’ voluntary liquidations.

• Administrations have reached their highest quarterly level since Quarter 1 2014, continuing recent patterns of growth of insolvencies.

• Creditors’ voluntary liquidations have reached their highest quarterly volume since Quarter 1 2012.

• However, compulsory liquidations have fallen for the third successive quarter to their lowest level since Quarter 4 2017. Phoenix route

What we conclude is significant from the survey is that creditor’s voluntary liquidations have increased, whereas compulsory liquidation numbers have fallen. A creditor’s voluntary liquidation is where the directors or shareholders of the business place the company into insolvency themselves.

A compulsory liquidation is where a creditor or someone who is owed money by the company takes action to place their debtor into insolvency. More and more business owners are willing to send their companies under, safe in the knowledge that they individually cannot usually be chased for the liabilities and are free to simply set up another business or ‘phoenix’ without recourse.

What it also shows us is that people who are owed monies are less and less prepared to spend more of their hard-earned cash closing these businesses down.

They know the same parameters of the above and they know it’s simply not cost-effective to spend money in the pursuit of monies that unfortunately they’re unlikely to get back. Short of securing a personal guarantee from the directors of the debtor before you act with them, sadly the paths to pursue same can be limited.

It’s for these exact reasons that Zero Cost debt recovery agencies exist – to try and ensure that creditors have the minimum outlay possible in the pursuit of their outstanding monies. Ask yourself, with company insolvencies on the rise, do you have a cost-effective strategy for dealing with your unpaid debts, to avoid you being one of the victims of those many Rats leaving their sinking ships?

Direct Route is regarded as the Pied Piper of the debt collection business. Feel free to contact us, the BPMA’s long-established debt collection partner on 01274 223190 should you need any advice or assistance in any area related to this article.

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Mike Collins is managing director of Direct Route

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