The Insolvency Proceedings (Fees) (Amendment) Order 2015 (SI 2015/1819) which comes into force on 16 November 2015 is set to change the landscape on how creditors pursue debts.

The cost of presenting a bankruptcy or winding up petition will increase for petitions presented on or after 16 November 2015.  This is not welcome news to many creditors as the increase may result in smaller debts being harder to recover, forcing more claims to be issued through the Small Claims Court which can often be a lengthy process and not always cost effective.

The bankruptcy petition (or threat of one) can be an effective tool for individuals and small and medium sized enterprises to recover debts from debtors who are refusing to pay what they owe. The changes increase in fees will remove the availability of this tool for the recovery of a debt lower than £5,000. 

To put the changes into context, when presenting a petition, the petitioner has to pay a deposit that will discharge a proportion of the administration fee charged by the Insolvency Service (OR fees) in every bankruptcy or compulsory liquidation. 

The minimum level of debt over which a creditor can petition for an individual’s bankruptcy will rise from £750 to £5,000 – that is a 700% increase.

Business Minister, Jo Swinston, welcomes the increase in fees as a mean of preventing ruthless creditors from bankrupting people over relatively small debts.

In reality the increase in fees will mean that creditors may have to look alternative options for the pursuit of low value debts. 

The potential difficulties for creditors is made more acute on the back of the hike in Court fees, which came into force on 1 March 2015, with claims worth £10,000 or more attracting a Court fee of 5% of the value of the claim.

The real risk to individuals and SMEs is that the changes could have a crippling effect on their ability to recover their debts.

If you are a creditor faced with debtors who are refusing to pay, Watson Burton LLP might be able to help you.

Our debt recovery unit is led by Leigh Ferguson, a Fellow of the Institute of Legal Executives. Leigh is a commercial dispute resolution specialist and is experienced in resolving a wide range of commercial disputes and complex debt recovery.