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.

A Winding Up Petition (WUP) is the most serious action that can be taken against a company and usually is only issued if a creditor is determined to recover an undisputed debt or put the company out of business because the debtor company is believed to be insolvent.

The creditor will issue a statutory demand, which is a formal notice giving the debtor 21 days to settle the debt. If it remains unsatisfied after that time the creditor makes an application to the High Court or a Chancery Court (a division of the High Court) District Registry to wind the company up. 

If you receive a WUP, you must act quickly and should contact business expert Peter Murray on 020 7504 1300 immediately as there may still be time to discuss options such available to for the company.  This does not have to be the end of the road if you wish to carry on trading .

The post How Do You Issue a Winding Up Petition? first appeared on Company Debt Recovery.

Cardiff was taken over in May by Malaysian gambling and property tycoon Sri Vincent Tan Chee Yioun and is just one of several English football institutions to fall foul of HMRC recently.
 
This year alone, Portsmouth, Preston, Notts County and Southend have all faced winding up orders.
 
Settling your bill is a sure way to get a petition dismissed. However, there are several ways to avoid a winding up order – compulsory liquidation.
 
Winding up petitions can be withdrawn if:
 
i)                   The petitioner decides there is no value in winding the company up. Once the threat is delivered and the debtor doesn’t pay, the petitioner may be unwilling to front the full cost of winding up proceedings.
 
ii)                The petition has not been advertised in the Gazette
 
iii)              No other creditor has supported the petition
 
iv)              The debtor gives consent
 
 
They can be dismissed if:
 
i)                   The debt has been paid
 
ii)                  The debtor goes to court and proves the petition has no real basis; disputed debt
 
iii)                There is a technicality. A petition needs to be spot on when issued and served. If it’s not technically correct, a judge can grant leave the petitioner to and amend it.

The post How Are Winding Up Petitions Dismissed and Withdrawn? first appeared on Company Debt Recovery.