Understanding Insolvency

Understanding Insolvency

In the latest edition of our ongoing blog series, we consider the misconceptions surrounding debts related to insolvency and hear from a Credit Style partner that specialises in these cases.  

At Credit Style, our experienced team of collectors and credit management professionals regularly help businesses recuperate funds, taking away a time-consuming but essential task so they may focus on their business priorities. Many different scenarios can result in a business requiring our support and some are more complex than others. Insolvency, for example, is a state of financial being when a business can no longer pay their debts. It is an all too common misconception that if you owe money to a company that becomes insolvent, the debt is wiped and you no longer have to pay. This is untrue.

Credit Style and its partners regularly handle these cases and will seek to recuperate the funds owed to the business that has become insolvent. It is especially important to understand that insolvency crystalises accounts, which for some can mean an unexpected debt being owed. If you pay an energy or utility firm by direct debit each month, for example, your account balance will fluctuate throughout the year, often being in credit during the hotter summer months and in debit during the cold of winter. The balance of each often falls broadly in line with your direct debit and so over time you successfully maintain your account through the monthly payments you provide.

If the account is crystalised due to insolvency, however, this balancing ends immediately and the current status of the account becomes what is owed either way. If this happens during a period where you are using more, you can expect to be in debt and will owe the amount that appears on your current bill. Likewise, if this process happens at a time when you are using less, you may find that you are in credit and that money is in fact owed to you. Managing and settling these accounts is where Credit Style and its partners come in.

One of our partners that specialise purely in insolvency cases is FRP Advisory, a leading national business advisory firm. We recently caught up with Director Matt Higgins, who shared some of his insight into why engaging with firms handling these cases is beneficial for all involved.

Over to Matt …

FRP Advisory has worked with Credit Style for 18 months now on cases related to insolvency, specifically insolvent domestic energy providers. The number of cases required varies from business to business, but recent examples include companies that had 20,000 and 50,000 customers respectively. The sheer volume of accounts that need to be settled in these scenarios dictates that highly trained and expert personnel are required to achieve the best solutions possible.

If your provider suddenly ceases to trade, the industry regulator has a system that will protect the consumer and ensure that their supply is maintained; however, we would now be faced with collecting a significant number of customer accounts, and in a situation like this, we would work with Credit Style to collect debts that are due on the previous and now closed account. It is essential that the general public understands they are liable for the balance of an account up to the date of insolvency and that this does not simply disappear if the provider is no longer trading. When this happens, the best thing to do is provide up to date meter readings as early as possible so that an accurate account balance is calculated; this will ensure that you are paying the correct amount that is due, or, where you have a credit balance, that the new supplier is holding the correct account information. Where estimates are applied, this can cause confusion for all parties.

Diligence and trust

It is completely understandable that when some people hear from us, they can be concerned the call is some form of scam. But the reality is that a lot of low-cost providers are geared towards apps and sometimes have very small offices and teams. They will be bombarded with and inundated with questions at these times and these staff will also be heavily involved in processing the meter readings that are supplied to finalise the account balances, so hearing from ourselves or Credit Style may be the first direct contact a person receives.

Getting a phone call out of the blue from a business you have never heard of about something financial is a recipe for scepticism, this is quite understandable given the times in which we live, but it is imperative that these conversations are able to take place. Fortunately, there are quick and easy tools available to establish that the person and business calling to discuss an account is legitimate. Normally your online account will remain active with your supplier after an insolvency, which will allow you to see the current balance on your account and also which insolvency practitioner (such as FRP) and agent (such as Credit Style) has been appointed. If there is any further doubt, Ofgem can verify and confirm whether the company contacting you is credible and they will also often be listed on the Credit Services Association list of members.

Caution is a perfectly acceptable stance when first engaging but once adequate checks have been made it is important to engage openly. By not doing so, problems can escalate and in some cases, this may even leave you out of pocket, as we could believe you are owed money and will be looking to return this to you via the transfer process that exists in these sorts of situations.

In the absence of engagement, the joint Administrators would look to use an appropriate method to collect the debts that are due, and this can involve the instruction of solicitors or even a sale of the debt to a third party and if you have a correct bill that you do not pay this could affect your credit score in future. As a business, we never look to affect a person’s credit rating, but it is important that these risks are understood where a valid debt remains unpaid.

Successful partnerships

It might seem unfair that a bill can come out of nowhere because a provider has become insolvent, but we take this into consideration and always look to set up a sensible plan of action. Once the final bill amount is known we can negotiate settlements and where appropriate, payment does not always have to be instant.

Credit Style has been very helpful and supportive as partners and have shared their expertise with us through training especially in regards to options for settling debts. Bills can often be settled using straightforward advice and considering the options around fixed amounts and variable costs. We look forward to continuing our working relationship with Credit Style and helping more people to clear debts related to insolvent providers.

Join us next time when we will look in greater detail at the recent achievements of the dedicated Credit Style Service Quality team.