Building company suffers as their client won’t pay agreed fees

May 30, 2019

Our client was a limited company in the Manchester area, trading in the building sector.

The company’s turnover had increased gradually since it started, and things were going well. Then its major contract went over budget. The director promptly approached their client to advise them of this and he was told this was acceptable and that the work should continue.

When that contract was completed, the director submitted his final account in the sum almost £200,000. However, their client then advised the company that they were no longer prepared to pay for the additional works which had been carried out.

This immediately put severe financial pressure on the company and the director was forced to look for other contracts, whilst also trying to negotiate a payment from the main contract. The director did manage to secure £30,000 from the contractor, but he was advised that no further payments would be made as there wasn’t a signed contract in this respect. This put a huge strain on the company’s cashflow, and the director decided to seek professional advice on what to do – so he approached Clarke Bell for advice.

We reviewed the company’s situation. Whilst the company did have an outstanding debtor with a book value of £160,000, no further payments were going to be coming from this debtor. In addition, the company had a number of trade debts it owed, along with VAT and PAYE/NIC payments due to HMRC.

Given the level of its business debts and the company’s inability to pay them, it was agreed that the company should be wound up with a Creditors’ Voluntary Liquidation (CVL). This process meant that:

  • the limited company closed down (i.e. went into liquidation)
  • the business debts were dealt with
  • all the legal obligations of the director were met
  • the director was able to move on and have a new start.

John Bell, the senior partner at Clarke Bell, said:

“This is a common situation in the construction sector, where a company is too reliant on a single contract. When that contract goes wrong, the effects on the company’s cashflow can be disastrous.

In these cases, a CVL is normally the best option for the directors as the process enables them to deal with the debt problems and fulfil all the relevant legal requirements.

A problem for these directors is that many Insolvency Practitioners charge prohibitively high fees for their liquidation services. The directors then become stuck between a rock and a hard place.

This is why Clarke Bell introduced our ‘£2,995 CVL’ service – to enable directors to have an affordable way to deal with their cashflow problems responsibly.”