Debt Recovery Part 4

Insolvency Proceedings

While not intended to be used for debt recovery, the threat of insolvency proceedings may persuade your customer to settle its debts.

The type of insolvency proceedings used will vary, depending on whether your customer is a company, an individual or a partnership.

Note that it will be an abuse of process to issue a winding-up petition against a company, or issue a bankruptcy petition against an individual if you know that a debt is genuinely disputed.

Further, if your customer is wound up or declared bankrupt, you may receive only part of what is owed, or nothing at all. Meanwhile the costs of issuing a winding-up or bankruptcy petition can be high.

Corporate: Winding Up or Liquidation

The process begins with the issue of a petition at court. The court decides whether to make a winding up order.

There are various grounds on which a company may be wound up but the most common ground on which a petition can be founded is that the company is unable to pay its debts.

There are four circumstances in which a company is unable to pay its debts:

1. Neglecting to comply with a statutory demand made by the creditor for a sum of over £750;

2. An unsatisfied judgment;

3. The company’s assets are exceeded by its liabilities including contingent and prospective liabilities; and

4. The company is unable to pay its debts as they fall due.

The cost of filing a winding-up petition is high. As a guide, the deposit payable is £1,165.00.

Individuals (Personal): Bankruptcy Petitions

Making someone bankrupt is one way to recover money owed to you.

You can issue a statutory demand to ask for the money that is owed to you (see section Statutory Demand above).

If the other party is an individual and s/he owes you more than £750.00 and s/he either ignores the statutory demand or can’t repay the money, you can file a bankruptcy petition (that is, you can ask the court to make that person bankrupt).

You should not present a bankruptcy petition based on a statutory demand if the debt is disputed on substantial grounds or if the debtor has a counterclaim or set off that would reduce the debt to less than £750.00.

A court will not make that person bankrupt if s/he is able to pay, or if you have refused to accept payment.

Filing a bankruptcy petition is expensive (as a guide, the deposit payable by a creditor when filing a bankruptcy petition is £700.00) and you may not get your money back.