Welcome to the third article in this amazing series which looks at what you can do to try to extract money from a stubborn business debtor.
In the first article I looked at the potential benefits and detriments of issuing a County Court Claim and in the second article I examined what you could do prior to going to Court. This time around I will set out what you can do to get really tough with those businesses that just will not pay.
Pull Their Leg!
Hang on, pull their leg does not quite sound right…what is the phrase I’m grasping for?! Ahh, yes – wind them up!! Does the debtor owe you over £750.00? Whilst a debt over this amount is bad news for the books, it does mean that you can commence insolvency proceedings against them if they have not provided you with details of a dispute in relation to the debt. The process to do this is fairly simple albeit a little drawn out. Essentially, you start with either a letter giving the debtor 3 days warning that you are going to wind them up if they do not pay or you can serve them with a Statutory Demand. When the time limit on your chosen route has expired you apply to the Court for the Petition. This is then served on the debtor and advertised in the London Gazette. A hearing subsequently takes place and, all being well, your debtor is wound up. Total cost of all this to you is going to be in the region of £2,500.00. The questions I now hear you ask are what does this mean, why would the debtor want to avoid this and will it get me my money back?
Put simply, once wound up the company can no longer trade. The assets of the company will be liquidated by an Insolvency Practitioner and divided up amongst all the creditors. As you can imagine, most companies are keen to avoid this if they still have ongoing contracts and can still trade feasibly. The Insolvency Practitioner can also investigate the directors of the company if it is possible that they have been misbehaving in their running of the company. Therefore, threatening to wind a company up can be an effective method of getting them to focus on paying you to avoid such devastating action. If the threat does not work then actually commencing the action is also quite effective at persuading your debtor to pay you quickly.
Actions Have Consequences
The really important thing to remember about insolvency action is that it is not viewed as a debt recovery technique by the Court. Therefore, you should not start sending out hundreds of Statutory Demands which you have no intention of following up or a local District Judge might give you a dressing down at some point! The purpose of commencing insolvency proceedings is to bring the Court’s, and other creditors', attention to the fact that the company is not running itself correctly and should be stopped. Being the named creditor on the petition does not give you a bigger share of any pay-out made when the liquidation process is complete and you will even be behind any secured creditors. Therefore, issuing a winding up petition should not be something you do lightly as you have to be prepared to follow it through with the potential outcome of receiving no money whatsoever in return. However, threatening and taking such drastic action can sometimes result in payment of monies which might otherwise not be forthcoming. It can also be quite satisfying to stop a dodgy company in its tracks.
Insolvency proceedings not your thing? Want to peruse the directors of your debtor? Join me next time for a tip on how to lift the corporate veil.
To Sue or Not to Sue - Part 1 is available to read here.
To Sue or Not to Sue - Part 2 is available to read here.