On 2 March Cambridgeshire-based merchant WellGrain went into administration, reportedly owing at least £15m to almost 300 creditors, many of those being farmers.
The administrators' report has now been published and indicates that the unsecured creditors - including some 155 farmers - will expect to receive between 1.4 - 6.7 pence for every pound they are owed.
It is an announcement which will no doubt be met with dismay by those creditors. However, it is not unusual that unsecured creditors of an insolvent company will receive little or no payment.
High-profile insolvency situations in the Agriculture Sector such as WellGrain present an opportunity to remind those active in the Sector of the risks of extending credit to customers and other business in the supply chain.
Whenever credit is extended, businesses run the risk of becoming an unsecured creditor in the event of insolvency. If there are concerns about the credit-worthiness of a customer, then there are actions that can be taken to minimise exposure in the event of insolvency, including:
- Requiring payment up-front or on delivery
- Including retention of title clauses in standard terms (where title to goods only passes on receipt of payment), or
- Obtaining guarantees from directors.
The options outlined above will not be suitable for every situation, often only provide a certain level of protection, and of course the other business will need to be willing to agree to the additional comfort which is being sought. There is a degree of truth in the adage "if you don't ask, you don't get", and, if having asked, your request is refused, the balance of risk and reward can be reassessed and a decision can be made as to whether to enter into the commercial arrangement or not.
Ashfords LLP has a dedicated Agriculture Team who can advise on all of the options highlighted above.
If, ultimately, credit is extended to the other party, close attention should be paid as to how the account is operated, whether the limit is appropriate, whether payments are made in a timely fashion, and whether credit control procedures are robust enough. Ultimately, if debts are not paid within an acceptable period of time a decision will be required as to whether legal action should follow.
As we approach a period of uncertainty for the Agriculture Sector, perhaps now more than ever it is important to reduce risk in your business and help ensure that your business is financially fit, and ready to seize the opportunities that present themselves.