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Financial difficulties - United Kingdom

Updated 02/2011

Legal requirements

Many businesses run into financial difficulties. While the UK has no specific legislation on 'financial difficulties' as such, some indirect rules do apply.

The Finance Act 2008 addresses changes to income, e.g. corporation tax and capital gains tax, which can affect a business's financial position. The Enterprise Act 2002 covers changes in relation to financial difficulties.

The Late Payment of Commercial Debts (Interest) Act 1998 addresses  financial difficulties arising from non-payment of debts and can help by:

  • providing the legal right to claim interest on commercial debts that are paid late;
  • allowing suppliers to claim an amount of compensation for reasonable debt costs;
  • challenging contracts which do not provide a substantial remedy for late payment.
  • Late Payment of Commercial Debts (Interest) Act 1998

Stabilising a business

The amount of money you are claiming will determine whether a case is handled by the county court or by the High Court.

The county court offers three processes for settling disputes depending on the amount of money involved:

  • small claims process, covering disputes over smaller amounts of up to £5,000;
  • fast track process for claims up to £25,000;
  • multi-track process for claims over £25,000.

The High Court is a highly formal venue and cases will require a solicitor as the points of law discussed may be complex. The value of a claim in the High Court must be at least £25,000.

If your claim is for a fixed amount and is for less than £100,000, you may be able to claim via the Money Claim Online Service.

Individual Voluntary Arrangements (IVAs) are concluded by a debtor with his/her creditors. An IVA is an alternative to bankruptcy and sets out how creditors will be repaid over a set period of time; or it may specify that a lump sum be raised from the sale of an asset (e.g. property) and used as payment.

Business Link provides guidance on how to avoid bankruptcy which covers the many angles of stabilising a business.

Access to different sources of finance can help overcome financial difficulties.

When filing for bankruptcy is the only option left for a business owner, it pays to cut your losses, initiate proceedings sooner rather than later, and move on to a new project.

Administrative procedures

Order for payment

The Business Link website provides a range of guidance on recovering late payments, preventing late payments, getting paid when selling overseas, debt recovery, etc.

Deferment of payment

Under certain circumstances, it is possible to defer the payment of National Insurance contributions, import duty, VAT, and excise duty.

Dismissal

The Business Link website provides guidance on all legal issues around dismissing staff as well as tips on how to avoid dismissing staff.

Resources

Accredited lending organisations can be found on the Financial Services Authority (FSA) website. It also issues alerts about firms and individuals based both overseas and in the UK when there are grounds to suspect that they are offering UK consumers and investors financial services or products without the necessary authorisation from the FSA or overseas EEA regulators.

Check also the legislation on this topic in:

Living and moving in Europe

Still need help?

Still need help?

Enterprise Europe Network - Contact points

The Enterprise Europe Network provides businesses with information and advice through its local contact points. 

Choose your nearest contact point for personalized help and advice:

Further help

A list of chartered accountants and lawyers can be found on the following websites:

Banks are a useful source of advice, and most employ specialists who can help businesses facing financial problems.

The Financial Ombudsman looks at complaints about a wide range of financial matters, e.g. insurance, mortgages, investments, credit. The Ombudsman also offers guidance in disputes between consumers and financial service companies.

The Community Legal Services Direct   is a free service providing legal information, help and advice for small businesses, particularly on debt recovery through the county court.

The Insolvency Service provides advice on bankruptcy and alternatives to bankruptcy/compulsory liquidation. It also offers support and advice on preventing bankruptcy or insolvency.

Money Advice Scotland gives details of the nearest sources of advice for problems related to business debt in Scotland.

The Business Debtline provides free, confidential and independent advice on how to deal with business-related debt problems in England, Scotland and Wales.