How to Claim Debt Before Club is Insolvent?: Financial Times Q&A

The following question was published in the Financial Times on 23 July 2011 and answered by Richard Curtin, a lawyer in the London office of Faegre & Benson LLP.

I run a food and drinks company supplying products to football clubs.  But we recently heard that one of the clubs we supply will probably go into liquidation very soon and we are concerned that we may not receive the money we're owed by it. Is there any action we can take now to make sure we are credited if and when the club becomes insolvent?

The first step is to ascertain the terms of the contract between your company and the client, to check whether they are written, both written and oral, or whether they are simply a continuing trading relationship.

I am assuming that you are a creditor of the club, the outstanding debt is payable now, and that your company is an unsecured creditor.  If so, the problem your company appears to have collecting the debt is the shortage of time and the fact that it is an unsecured creditor.

Consequently, the first practical step would be to consider applying a harder form of credit control: insisting upon payment in full now, combined with payments upfront for future supplies.  But this may be impractical for commercial or other reasons.

You could instead try to insist upon personal guarantees from the directors – although I suspect that you won't get them.  This leaves you with the unclear option of serving the club with a winding-up petition, which should concentrate the minds of the club's directors.

If you do obtain payment of the debt, a subsequently appointed liquidator may try to recoup this as a preference.  If the club does go into administration, administrative receivership, liquidation or company voluntary arrangement, the debt is not automatically excluded but I would expect it to be diluted – due to secured claims, costs and expenses – to less than 20p in the pound.  I would therefore suggest hard-nosed credit control followed by consulting your solicitor with a view to presenting a winding-up petition.  Make sure you move quickly.