Following the lifting of the Government’s CIGA 2020 restrictions last month, creditors are once again free to present winding-up petitions to insolvent companies that owe £750 or more.

Subsequently, we thought you’d like some tips and advice on how best to utilise winding-up orders and petitions in 2022.

You should move swiftly against any company that owes £750 or more for an unpaid invoice or some other debt. After 21 days, you may obtain a winding-up order from the court if the debt remains unpaid and undisputed.

The winding-up process begins when the debtor company receives the petition. Failure to respond to a petition could lead to:

• Formal insolvency proceedings
• The company falling into compulsory liquidation

Life becomes stressful and much harder for company directors under these circumstances.

Winding-up orders and petitions

For example, following the presentation of a winding-up petition, a director must seek the court’s permission before making:

• Use of the company’s assets
• Payments from the company’s bank account(s)

Furthermore, the company’s bank accounts may be frozen if the director(s):

• Ignore the petition
• Fail to obtain a court-issued validation order

Review credit management policies

If your business offers goods or a service on credit, it would be wise for you to:

• Review and update your credit management procedures regularly
• Develop an invoicing system that ensures customers and other debtors pay up within 28 days

It’s essential that you respond immediately whenever a debtor fails to pay by the due date because they might be:

1. About to close down
2. Trading while insolvent
3. Ignoring you, but paying other creditors
4. Abusing your credit terms as an unsecured, interest-free loan
5. Exposing you to preventable losses
6. Moving assets into a new business while leaving you and other creditors behind to suffer with old company

A winding-up petition should never be used as a debt recovery tool. However, it’s perfectly ok to present them to insolvent companies that cannot pay their debts when they are due.

Always try to keep open a channel of communication with your debtors. Talk to them before, during, and after you present your winding-up petition. It’s quite likely they’ll be up for negotiating a deal to avoid the company being placed into compulsory liquidation.

The post How to obtain winding-up orders and petitions in 2022 first appeared on Company Debt Recovery.

Last month, the Government lifted the insolvency restrictions introduced to combat the Covid-19 pandemic. In particular, the repeal of Section 10 of the Corporate Insolvency and Governance Act 2020 (CIGA) should please creditors.

Creditors were still able to obtain winding-up orders. However, Section 10 of the act compelled them to:

• Only pursue debts of £10,000 or more
• Seek proposals for payment
• Wait 21 days before responding

Now creditors are free to pursue and recover (in a pre-pandemic fashion) any outstanding monies they are owed.

Debt recovery

This news should be beneficial to the debt recovery specialists and directors of small to medium-sized companies who were previously unable to:

• Collect overdue invoices
• Wind up insolvent companies

Many times between June 2020 and March 2022, we saw courts reject winding-up petitions because solicitors were unsure of the rules. However, we are debt recovery specialists who understood insolvency procedures.

Consequently, Insolvency & Law (I&L) successfully obtained at least a dozen winding-up orders while the Government restrictions were in place. For the past two years, things have been very favourable for debtors. But now the pendulum has swung back to creditors.

As a result, you can expect a significant increase in the number of winding-up petitions issued this year. Many directors are scared for their companies because creditors are:

• Chasing overdue invoices again
• Reengaging in debt recovery procedures

Call I&L on 0207 504 1300 to speak with an independent, professional advisor and learn how to protect your interests while recovering debts…

The post Insolvency and debt recovery specialists first appeared on Company Debt Recovery.

The UK Government’s decision to extend the temporary restrictions on statutory demands and winding-up petitions for Covid-19 related debts until 31 December 2020 offers some reprieve for hundreds of thousands SMEs.

However, statutory demands and winding-up petitions are essential to debt enforcement and insolvency proceedings.

Consequently, it’s difficult to fathom how prohibiting creditors from engaging in standard debt enforcement procedures for 6 months could result in anything but dire consequences.

Considering the circumstances, some company directors and business owners will, understandably, become desperate and make irrational decisions. They will try to obtain more credit so they can:

• Sell goods cheaply
• Increase cash flow
• Continue to trade

But this behaviour is speculative, and can easily lead to recklessness at the expense of suppliers who never receive payment. Consequently, it’s sometimes better to let 1 company fail if it means saving lots of others.

Statutory demands and winding-up petitions are essential to debt enforcement and insolvency proceedings

For example, it would be unfortunate if a struggling company collapsed in July 2020 owing creditors £100,000. But it would be much worse if that company were to:

• Continue trading until 31 December 2020
• Obtain £400,000 in credit 
• Collapse in January 2021

The Government deserves credit for taking action. But allowing hundreds of thousands of struggling and zombie companies to continue trading for an unspecified time without any debt enforcement measures is a recipe for disaster because when they fail they’re more likely to bring other businesses down with them.

The Government doesn’t want to see more people unemployed and businesses fail, but the current policy simply delays the inevitable.

This strategy could even be counterproductive, exasperating the problem like a snowball gathering momentum as unemployment increases and more businesses collapse.

It’s a cold hard truth, but sometimes it’s better to let failing companies fail. By extending the restrictions on statutory demands and winding-up petitions until the end of the year, the Government is simply kicking the can down the road, which will lead to a greater number of economic casualties in the end.

The post Creditors vulnerable without winding-up petitions first appeared on Company Debt Recovery.

It can be argued that by restricting the filing of statutory demands and winding up petitions for Covid-19-realted debts, the Government has targeted all industry sectors with a blunt instrument.

Covid-19 did not adversely affect every business in Britain. Indeed, many continued to operate throughout the lockdown period, and some of them thrived.

We need to be careful because any business can avoid paying debts simply by claiming to have been affected by the pandemic, which is not easy to disprove.

The restrictions on statutory demands and winding-up petitions end on 30 September. This should provide creditors with more than enough time to organise their finances.

However, Parliament has the right to extend this provision of the new Corporate Insolvency and Governance Act. This would be an obvious mistake and only encourage businesses to stop paying each other, which would be disastrous.

Greater burden on taxpayers

Any additional strain on already fragile economy would surely lead to an increase in company collapses and unemployment. In turn, this would place a greater burden on the Exchequer, and ultimately taxpayers.

There is a ripple effect when a company goes bust, so the primary objective is to stop them from collapsing. Unemployment fractures households because parents can no longer afford necessities and other things for their children.

Additionally, the small businesses that rely on that household suffer too. There is a perfect storm brewing and it is just a matter of time before small businesses start going under.

While there is logic in the Government’s decision to limit the enforcement of statutory demands and winding-up petitions, the danger is in leaving the restriction in place for too long, which would be counterproductive.

The post Why statutory demands and petitions are essential first appeared on Company Debt Recovery.

While the restricted use of statutory demands and winding-up petitions will provide a lifeline for many struggling companies, the move also forces creditors chasing overdue debts into an already overburdened court system.

As it stands, the only remedy to enforce payment of a debt is through a High Court enforcement officer. You may send out a bailiff or arrange a third-party debt order.

Alternatively, you may apply to the court to put a charge on any fixed property owned by the debtor. You will get an interim charge if you already have a judgment.

But a final charge may prove more difficult to obtain. This is because all the other creditors must be notified, and any 1 of them might object.

Whereas the consequences of Formal and Statutory Demands can encourage a debtor to pay quickly, county court proceedings take much longer, especially if the defendant tries to frustrate the proceedings by filing a contrived defence.

Weak defence

If the defence is weak, you can make an application for a summary judgment. But if the defence has merit, the court will give directions to set a timetable for the:

• Exchange of evidence
• Taking of witness statements
• Preparation of a trial

This process usually takes around 6 to 12 months. But a determined defendant can easily string that out for 12 to 18 months or more.

With only 54% of court and tribunal buildings in England and Wales currently open, legal experts predict the backlog of cases that built up during the first half of 2020 could take up to 12 months to clear.

In the long run, the changes being introduced to Her Majesty’s Courts & Tribunal Service, including video and phone calls, benefit everyone as better use of technology should vastly improve productivity.

But for now, creditors chasing overdue debts are faced with little option but to litigate and accept that payment is many months away.

The post Congested courts the only option for debt enforcement first appeared on Company Debt Recovery.

The Government’s decision to suspend the filing of Statutory Demands and Winding-up Petitions is a huge blow for creditors seeking to collect payment of outstanding debts.

As a result of the Corporate Insolvency and Governance Act, a creditor’s only debt enforcement remedies are through the county court via either a bailiff or a third-party debt order.

In response, a wisely-advised debtor can easily defend the claim and keep the action going for 12 to 18 months.

Although temporary, these measures could be extended further if the economic fallot from Covid-19 is worse than previously determined.

No single creditor should unduly benefit from a winding-up petition. But there are grey areas and so abuse exists.

For example, before the Covid-19 pandemic, some creditors would covertly use a winding-up petition as a debt recovery tool. They would say: 

“I issued a winding-up petition because I wanted to have the company wound up, not for debt collection purposes. But the directors claim the company is solvent. They resisted the petition and paid what they owed me. So now the petition serves no purpose.”

Bar set high

As it stands, the type of abuse described above will reduce considrebly because the bar has been set high for individuals issuing winding-up petitions.

To be successful, the petitioner must now prove the company:

• Is insolvent
• Was doomed to fail irrespective of Covid-19 (which is only practical for petitions relating to debts incurred in before 2020).

However, thanks to the new Bill, it is perfectly acceptable and credible for the defending company to respond by saying:

“We’d planned to pay you in May 2020 from the proceeds of a payment one of my customers was due to make. But they haven’t paid because they’ve been affected by Covid-19, which is why I’m unable to pay you.”

For creditors hoping to recover their losses quickly, the new legislation is completely useless and will ultimately lead to an increase in cowboy traders as the commercial environment degenerates into a chaotic frontier similar to the Wild West. 

It’s unclear exactly how long the provisions will remain in place, but they need to be lifted quickly. Once a debtor business stops paying its creditors, they become unable to pay their creditors.

This creates a catastrophic domino effect and business owners will eventually stop paying each other because the Government has given them all a valid and legitimate reason not to pay. A debtor company simply needs to tell its creditors:

‘We are unable to pay you because we have been affected (either directly or indirectly) by Covid-19.”

The post Stat demands and winding-up petitions post Covid-19 first appeared on Company Debt Recovery.

When issuing a Winding Up Petition, it’s integral that every piece of information that identifies the company is correct.

To be successful, your application must include the following accurate information:

1. Company name
2. Registered office address
3. Company registration number information
4. Shareholder information (aggregate number and value of issued and paid up share capital).

A lot of people get at least 1 of these details wrong. The problem is that if you make a mistake; you may not get the company wound up, and you could be exposed to greater costs in the proceedings.

One simple mistake on your application can give you a lot of issues. You’ll have to make an application to court seeking permission to make an amendment, which could delay the court issuing the winding-up order.

If the raison d’être is to wind up the company, everything must be correct. Otherwise your application will be struck out because the respondent will simply say:

“That’s not me. That’s not my company name, number, registered office address etc, so you must be speaking to the wrong company.”

The situation could be even worse if you’ve advertised the winding up petition and the respondent suffered damages from the negative publicity. They could seek to get damages from you.

It’s essential that you get everything right because the respondent will be looking for inarguable statutory deficiencies in the Winding Up Petition in order to either stop or disrupt the proceedings.

As a result, you must check absolutely everything because you’ll want to issue your Winding Up Petition with expedience. But it may run into difficulties there are lots of mistakes.

Your petition might get adjourned, and you might have to pay costs to the other side, which could be expensive if they have lawyers.

The post Mistakes to avoid when issuing a Winding Up Petition first appeared on Company Debt Recovery.

Dealing with disputed invoices can be challenging, especially if your customer is squabbling simply to avoid payment.

The most important thing is to take time to understand what the dispute is. Then, isolate and seek to resolve the issue as quickly as possible. If you believe the dispute is bogus, explain your reasons and press on with enforcement proceedings.

It’s essential that you act swiftly because you want to get paid. When you’re tolerant with overdue invoices there’s a danger that you may lose all of your money. The company you’re chasing could be insolvent, struggling on its last legs, and simply robbing Peter to pay Paul.

Disputed invoices must dealt with urgently because you don’t know if the company is doing the same thing with other suppliers. Never sit on a dispute because it won’t simply go away.

Still, you don’t want to magnify the problem by throwing oil on the fire or fanning the flames. When someone says they’re not paying, it’s very easy to become irrational, hot-headed and start exchanging threats.

Before you know it, you’re trading accusations, the issue remains unresolved, and no one’s suggesting a way to end the dispute.

Ask the customer to set out their dispute in writing

Avoid this and get straight down to business. Ask the customer to clearly set out their dispute in writing, supported with whatever documentary evidence they have.

You can give them 7 or 14 days (or less) to respond. If they reply without any documentary evidence there’s probably no need to take the dispute seriously.

Also, never accept a dispute verbally over the telephone. Always ask the complainant to articulate their dispute in writing. A person with a genuine dispute can do that. Someone with a spurious claim will struggle, unless they’re going to manufacture a dispute.

If the response comes back with supporting evidence; deal with the disputed invoices straight away. Grasp the issue and address it quickly. Sometimes you may have to concede some form of value (monetary amount of the invoice) in order to get paid, that’s just business.

To avoid these types of issues, it’s always best to ensure that your agreement terms and conditions clearly set out the process for dealing with disputes.

Ensure that both parties agree to the terms before trading takes place, so if there is a dispute they’ll automatically submit to the process set out in the agreement.

Disputes can be complex and it’s sometimes easier to let a third party handle these issues while you concentrate on running your business. For more information, visit our 123Pay credit management page.

The post How to deal with disputed invoices first appeared on Company Debt Recovery.

Issuing a Statutory Demand (or Stat D) is an effective way to encourage prompt payment of overdue invoices and debts, but it’s not the only method.

A Stat D is a formal document requesting payment of an outstanding debt within 21 days. By issuing one, you give creditors another 3 weeks to pay a debt that’s already overdue.

In that time, if the debtor is a limited company with debts; the director(s) may consider a formal insolvency procedure.

Try to avoid this because creditors in Company Voluntary Arrangements may get 30% of what they’re owed over 5 years. In a Creditors’ Voluntary Liquidation it’s likely they will end up with nothing.

Bizarrely, issuing a Stat D may deter a company director from paying quickly. 20 days after it’s been issued, they can file in court a Notice of Intention to Appoint an Administrator.

This acts as a moratorium preventing creditors from taking oppressive action against the company for 14 days. After 2 weeks, the director is free to repeat the process.

Breach of payment terms

Filing 2 notices buys the director(s) extra time in addition to the 21 days offed by the Stat D. Despite breaching your payment terms, they may have benefited from 7 weeks of interest-free credit.

In these circumstances, director(s) have 21 to 49 days to consider their options. During that time, they can easily remove assets from the company and place them beyond the reach of creditors.

And this is the primary reason why it’s sometimes best to avoid Statutory Demands if the debt is undisputed.

If you really want companies to pay swiftly, ensure your initial contract with them includes a watertight enforcement provision. This should inform creditors that you may take action 14 or 28 days after the due date.

Once this provision is included and the specified period has elapsed, you can refer them to the provision and say:

“If this debt remains unpaid after 24 hours, I may petition for the Winding-Up of your company.”

As soon as the court issues your Winding-up Petition, Section 127 of the Insolvency Act 1986 comes into effect. This forbids directors from taking several actions, including making payments from the company’s bank account(s) without first obtaining the court’s permission.

But there’s no guarantee their application will be granted. So the director must pay the invoice immediately if they want to regain control of the company’s assets.

Whereas Stat D’s offer a 21-day reprieve; an enforcement provision accompanied by a 24-hour notice motivates debtors to pay faster.

The post Stat Ds and undisputed, but overdue invoices first appeared on Company Debt Recovery.

Sometimes, you may need to issue a County Court Judgment (CCJ) or a Winding-Up Petition on an insolvent company that owes you money. But what’s the difference?

County Court Judgments usually come about when a company refuses to pay an overdue debt. The creditor (claimant) who’s owed money commences proceedings by visiting the Government’s website, and issuing a County Court claim online.

In many instances, if the debtor (defendant) fails to respond, the court may grant the claimant a default judgment order.

If a defendant provides a good reason, a default judgment can be set aside. For example: they couldn’t offer a defence because they never received the summons.

If the court is satisfied with the defendant’s application, the claim will proceed to a trial so it can be tested. Claimants would be unwise to oppose a defendant’s application as everyone has a right to defend themselves.

Sidestep the county court

A claimant with a judgment debt is free to issue a Winding-Up Petition to enforce payment. But if the debt is undisputed, they can sidestep the CCJ and petition for the debtor-company to be wound up.

The issuing of a Winding-Up Petition immediately triggers Section 127 of the Insolvency Act 1986. This forbids directors from taking several actions, including making payments from the company’s bank account(s) without first obtaining the court’s permission.

For example, directors may not use the account(s) to pay for a customer’s coffee during a business meeting. As a result, they must pay the debt quickly to regain control of the company.

After applying online for a County Court claim it may take 7 days for the summons to be dispatched. The defendant will then have an additional 28 days to file an acknowledgement of service, and a defence.

It could take 6 months for the defence to be tested in court. Crucially, they will have the benefit of the claimant’s money during that time.

In contrast, if you decide to wind-up the company, the issuing of a Winding-Up Petition costs around £3,000 including legal fees, insolvency expenses, and other disbursements. But you’ll get to claim that sum back when the debtor pays.

Winding-Up Petitions are useful when dealing with insolvent companies. But the insolvency courts must never be used as a debt collection instrument because that’s an abuse of process.

The post CCJs, winding-up petitions and undisputed debts first appeared on Company Debt Recovery.