SMEs unable to claim debts following law change

SMEs are at financial risk following a change in the law that means they are unable to claim back money owed to them if a supplier goes bust or does not pay their debts.

The law was implemented this April, and as a result many smaller businesses will not be able to afford to take legal action against businesses that owe them money.

Latest data from Encompass Corporation, amongst lawyers and insolvency professionals, shows that over 40% believe that claims will not proceed because of the change in the law and a lack of available funding.

Over 60% think that small and micro businesses are at greatest risk as they may not have the financial resources to pursue a company out of their own business funds. As a result 94% recommended that businesses should be much more careful when entering into contracts.

78% of legal professionals think that there will be an increase in unscrupulous or illegal behaviour by businesses as they know the risk of action being taken against them is now significantly lower.

Encompass founder and CEO Wayne Johnson said: “This change in the law may make pursuit of a claim too costly for creditors owed money by a company with assets of value but made insolvent by its directors.

“Our advice is to employ a lawyer or other professional before entering into new contracts and request that they thoroughly check the counterparty and establish whether any director has a history of involvement with repeatedly failing companies”.