Insolvency proceedings are a formal and often decisive solution for undisputed debts.
Different procedures exist for corporate and individual debtors, both require strict procedural legal compliance. LF Debt Solutions are experts in these matters.
If you have concerns that your debtor has other creditors chasing payment, then commencing Winding Up Proceedings against a company, or Bankruptcy Proceedings against an individual means you could jump straight to the front of the queue.
We strategically assess the circumstances of each individual case to design the best debt recovery strategy.
Winding Up petitions
To petition the court for a winding up order against a corporate debtor, the debt must be undisputed, and the company must be shown to be unable to pay its debts as they fall due.
The most common way to prove a debtor cannot pay is to simply to demand payment. The minimum deadline for repayment in these circumstances is three days. There are no other procedural requirements, and failure to repay within the specified time can be used as evidence the debtor cannot pay. Often, the threat of further action will be enough to secure repayment.
A formal approach is to serve your debtor with a statutory demand. We understand the criteria that must be met in the demand, what can be claimed and how it must be served. The debtor has three weeks from the date of service to make repayment or compound the debt.
Serving a statutory demand means that any subsequent court proceedings will be more straightforward. The statutory demand will also ensure that any potential disputes are raised ahead of court proceedings.
Once satisfied that your debtor cannot pay, we can present a winding up petition to the court. The court then serves the petition on the debtor and, at least 7 days before the court hearing, the petition must be advertised in the London Gazette. This freezes the debtor’s bank accounts and alerts other creditors that winding up proceedings have started.
Following a winding up order, the court will appoint an official receiver to take responsibility for the liquidation of the company. At this point, any secured and preferential creditors take priority, leaving all unsecured creditors with a pro rata distribution of the remaining assets of the company.
Bankruptcy proceedings
Insolvency proceedings against an individual require an undisputed debt of more than £5,000.
A Statutory Demand must be served personally on the debtor, setting out the amount and basis of the debt. The debtor has 21 days to pay.
A bankruptcy petition can be presented to Court if the debt is not paid. The petition also needs to be personally served on the individual. If the debtor does not arrange to pay the debt at this stage, they will be declared bankrupt at a Court hearing.
Things to consider
Although they are a powerful tool, insolvency proceedings are not always the best strategic option.
- Once a debtor’s bank accounts are frozen, it is often impossible for them to continue trading, further reducing the chances of recovering your money.
- The debtor may repay once you start formal proceedings, but they may not. If your petition is successful, you will join other unsecured creditors in the distribution of any available funds. There is no guarantee that you will receive any portion of the money you are owed.
- If your petition is unsuccessful, you may have to pay your debtor’s costs as well as your own. As such, you must be careful to ensure that the debt is not disputed.
Disputed debts
If a debt is disputed, LF Debt Solutions draw on the strength and experience of Lupton Fawcett’s commercial litigation team and their ADR mediation specialists.
If insolvency is the route we follow, the debt cannot be in dispute. An insolvency process can be immediately halted in the case of a dispute, with creditors in some cases held liable for costs incurred by the debtor.
As insolvency proceedings are public, we find that beginning an action often results in prompt repayment as debtors want to avoid negative publicity. However, case law makes clear that the threat of insolvency proceedings should not be used to facilitate debt collection. The Courts do not set a high threshold on a debtor to prove that a debt is disputed and will look unkindly on any perceived misuse of the insolvency process.
As a specialist debt recovery team of one of the UK’s top 150 commercial law firms, our unrivalled experience of the complexities surrounding insolvency and dispute resolution mean you can always count on us for the best advice.
We will take the lead – determining whether insolvency proceedings are the best means of achieving the positive outcome you want.