The issue of Insolvency proceedings and if necessary the presentation of a Winding-up Petition is an effective, swift and legitimate course of action in recovering a commercial debt.
Insolvency proceedings are often considered as the final stage in the debt recovery process following the award of a County Court Judgment or service of a Statutory Demand. However, there is no legal requirement to obtain a Court Judgment prior to presenting a Winding-up Petition in Court; similarly there is no legal requirement to serve a Limited Company with a Statutory Demand prior to presenting a Winding-up Petition, provided the Company has been given Notice of the intention to issue Insolvency proceedings. This can be achieved by issuing the Company with a 7 day “Notice of Insolvency Proceedings”.
Following the issue of a “Notice of Insolvency Proceedings” the Company must fully discharge the debt within 7 days to prevent a Petition for the Compulsory Winding-up of the Company being presented in Court pursuant to the provisions of Section 123(1)(e) of the Insolvency Act 1986 on the basis that the Company is unable to settle its debts as and when they fall due.
Even if a Company is in financial difficulty and unable to settle its debts, if it is still trading, there will be assets that could be realised to pay the Company’s debts. In most cases the Company will own at least some of the assets that are used in the day to day running of the business which could include office equipment, stock, machinery, plant and vehicles, all of which can be realised to discharge the Company’s debts.
What will it cost to issue proceedings?
The total costs involved in issuing Insolvency proceedings and presenting a Winding-up Petition in Court are in the region of £3,000.00 and include The Court fee, Official Receivers deposit, Solicitors fees Process server’s fee and advertisement in the London Gazette. These costs can be prohibitive, especially in the recovery of smaller debts, however, there is a cost free solution, and subject to certain criteria being met Advocate’s panel solicitor will insure and fund proceedings on a no cost to the creditor basis. Furthermore our panel solicitor will apply to recover the full costs and Court fees from the debtor company.
In most cases the creditor can expect to recover their full costs in addition to the principal debt and the debtor company can expect to be forced to pay considerable additional costs or be liquidated.
What is a Winding up Petition?
It is a form of legal action taken against a company by a creditor that is owed money by the company.
Provided the creditor is owed £750.00 or more, they can issue a Petition against the company in Court. A hearing date would be endorsed on the Petition which must be served at the company’s registered address. Following which the Petition will be advertised in the London Gazette as a public notice.
A Winding up Petition is a most serious form of legal action which results in the company’s bank accounts and assets being frozen. The Petition becomes public knowledge when advertised which in most cases leads to lenders and suppliers withdrawing credit and services.
Once the Winding up Order is made the petitioning creditor can liquidate the company, realising the company’s assets to settle its debts.
What is the Winding up process?
Basically, the Petition is issued, served on the company, advertised 7 days later and then heard in Court. Other creditors of the company may support the Petition once advertised, and if the petitioning creditor is paid, the Petition can be taken over by the supporting creditor.
A Winding up Order will be made once the Petition has been granted in Court. The Official Receiver is automatically appointed as the Liquidator when the Order is served on the company.
Day 1: On expiry of Advocate’s 7 day Notice of Insolvency Proceedings our file is electronically transferred to our panel solicitor with an instruction to issue proceedings. A Petition is usually drafted and transferred to a Process Server on the same as the instruction is received.
Day 2: The Petition is served on the debtor company’s registered address by the Process Server. The company may choose to settle by paying the petitioned sum including the additional costs, or they may oppose the Petition. Unless the debtor company has previously produced documentary evidence to support the existence of a bona fide dispute in relation to the original debt, either before or during the 7 day Notice of Insolvency Proceedings, it is very unlikely the Court would order the Petition be set aside.
Day 9: If the debtor company has not paid the petitioned sum including the additional costs, the Petition is publicly advertised in The London Gazette. The advertisement must be placed no less than 7 days following service of the Petition, and no less than 7 days before the Order is made at the Court hearing.
Additional costs are incurred from day 1 of the process and continue to be incurred throughout the process. At some stage in the process the debtor company will be forced to pay the additional costs, unless it is Compulsorily Liquidated at the end of the process.
Advertising in The London Gazette
The advertisement of the Petition is in itself a public document, which details the name and registered address of the debtor company along with details of the petitioning creditor and the date and address of the hearing at which the Order will be granted.
The advertisement is intended to notify others creditors that the debtor company is insolvent. They may then support the Petition, making a claim to recover their own debt by giving notice to support the principal petitioner.
Advertisement will also lead to the bank freezing the debtor company’s bank accounts, effectively forcing the company to cease to trade.
If the debtor company fails to pay the petitioned sum within 7 days of the Petition being advertised, the Winding up Petition will be granted at the hearing leading to the Compulsory Liquidation of the company and the realisation of its assets by the Official Receiver.
The Official Receiver is obliged to investigate the directors of the liquidated company to ensure they were not responsible for fraudulent trading or wrongdoing, such as trading while insolvent. Evidence of any wrongdoing is reported to the Insolvency Service and often results in Compensation Orders or Fines. If the directors are found to be in breach of Companies Act duties they can be made personally liable for the liquidated company’s debts.