A winter of discontent – how can you avoid commercial disputes over the coming months?

The news headlines have made for bleak reading recently – an ongoing cost of living crisis, rising inflation, a possible recession and the value of the pound falling to historic lows. It’s a lot to contend with, and there’s no doubt that collectively we’re facing an unbelievably tough winter on all fronts. 

The picture for UK businesses is equally as alarming.

Corporate insolvencies are rising at the highest rate since 2012, and have rebounded back almost to pre-pandemic levels. Bars and restaurants, retail and construction appear to be the hardest hit, with CVLs (creditors’ voluntary liquidations) being the most popular insolvency option to take. 

Covid support measures have been masking the true picture on insolvencies for quite some time, a prediction that our co-founder Nick Harvey previously made when he discussed so-called ‘zombie’ companies and the calm before the storm.

What does this mean for the dispute resolution market? 

According to the most recent Legal Services Board report, 41% of businesses said that Covid-19 had either started or made their legal issue worse, which reflects what we’re seeing.

Activity in the commercial dispute resolution market has picked back up, which is driven by several issues:

• Government support measures ended around March 2022
• Repayments for BBLs (Bounce Back Loan Scheme) and CBILs (Coronavirus Business Interruption Scheme) now being due

Businesses that had been holding on over the last couple of years on ‘life-support’ may now be faced with the prospect of closure, especially with the threat of a looming recession. A recent article stated that more than one in five of business owners are unsure if they can survive this.

One main difference in the post-pandemic world is that HMRC is now a secondary preferential creditor, meaning that companies which go into liquidation will have to settle their debts to the taxman before many other creditors can be paid. 

Given that HMRC is usually one of the largest creditors in this type of situation, this will undoubtedly have a knock-on effect for unsecured creditors who are further down this new hierarchy.

Avoiding potential commercial disputes – five things that businesses can do right now:

Prevention is always almost better than cure, and in this economic climate the following advice is what we’d recommend to companies looking to safeguard themselves and avoid potential commercial disputes.

1. Have an honest conversation sooner rather than later

It might be uncomfortable, but addressing issues early can help prevent them spiraling into a full-blown, costly dispute. A lack of communication is one of the main recurring themes we see that pre-empts commercial disputes – an issue that we’ve written about previously.

For example, if you spot a potential issue with unpaid invoices early enough, you may be able to agree an alternative repayment schedule with your debtors.

2. Review your contracts – both old and new

It’s never a bad time to review your contracts. For new clients and suppliers, make sure your expectations and responsibilities are clearly defined from the start. Many disputes arise from terms that were never properly documented, so investing time and legal expertise into this can prevent issues from occurring down the line. 

For older and existing contracts, are they still fit for purpose? There’s room for uncertainty and potential disagreements if the original contract no longer serves both parties. It’s important to regularly update and refresh your business terms, to reflect the ever-changing nature of your business.

3. Document, document, document

Spend some time organising your most important agreements and paperwork, and filing them away. Having a clear paper trail that provides evidence will help your case, should it ever be needed in court. 

4. Don’t give up chasing unpaid invoices and debts

Businesses who are already struggling to pay the bills will prioritise who shouts the loudest at times like this unfortunately. There’s also often a time lag between companies falling into financial difficulty and deciding to file for insolvency, by which point there might be very little left in the pot.  

Try to keep the lines of communication open, and resist the urge to write off what is due.

5. Be impartial, and get an outside opinion

We know that it can be difficult to separate the emotion from a business disagreement that you’re closely involved with. Taking a step back and asking an impartial observer for their opinion is always worthwhile.  

And if all else fails, call in the experts. Escalate was designed to help with all kinds of commercial disputes, making us the number one packaged solution for dealing with any type of dispute up to £1 million.

If you’d like to find out more about how we can help to resolve your dispute, please get in touch with us.