As an alternative to issuing a county court claim, you can commence an insolvency action on the basis the debtor is insolvent as they are unable to pay their debts as and when they fall due.

It is not possible to use the process if the debt is disputed on grounds that appear to the court to be substantial or the creditor has adequate security for the debt. In this instance you will need to issue a claim or start some form of alternative dispute resolution such as mediation or negotiation.

The insolvency process differs depending on whether money is owed to you by a company or an individual.

Corporate insolvency – winding-up

There are two options you can take if a company owes you money:

Option 1: Serve a statutory demand

This will set out the debt owed to you and details of the creditor and how payment can be made.

The statutory demand will need to be personally served on the debtor. This is very important as if you proceed further along the process you will need to prove service of the Demand.

The debtor will have 21 days from the date the demand is served to deal with the demand. If they do not pay or apply to set the demand aside then the next step would be to issue a winding-up petition.

Option 2: Send notice for a winding-up petition

We send a letter to the debtor giving notice of intention to issue a winding-up petition. The letter would advise that if payment is not received within a certain number of days, usually three or seven days, the next step would be to issue a winding-up petition.

Issuing a winding-up petition

A company can be wound up by a creditor if they owe the creditor more than £750 and they are unable to pay their debts as and when they fall due. They are then deemed insolvent.

Before issuing a winding-up petition against a debtor it is a requirement to serve a statutory demand or a pre-action giving notice of your intention to satisfy the court that you have made a formal demand for payment that has not been paid. This will be used as evidence that the company is insolvent and unable to pay its debts as and when they fall due.

Once a petition is issued, we will arrange for it to be personally served on the company. This often prompts payment as the company only has seven business days to deal with the petition. After this time it can become in the public domain through advertising in the London Gazette, the company will face their bank accounts being frozen and risk other creditors demanding payment and suppliers refusing to give further credit.

Should payment remain outstanding then a hearing will take place to determine if the company should be wound up. If a winding-up order is made then the company will be investigated by the Official Receiver or an independent insolvency practitioner with a view to realising the assets of the company to pay its creditors and ascertaining any directors misconduct which may result in personal liability.

Personal insolvency – bankruptcy

To start insolvency proceedings against an individual (bankruptcy) the debt owed to you must be over £5,000 and not be disputed (you could face having to pay the debtor’s costs if the debtor can prove that the debt is disputed on substantial grounds).

The next step is to serve a statutory demand that sets out the debt owed to you and details of the creditor and how payment can be made. This will need to be personally served on the debtor if you want to move further along the process.

The debtor will have 21 days from the date the demand is served to deal with the demand. If they do not pay or apply to set the demand aside then the next step would be to proceed with a bankruptcy petition.

Bankruptcy petition

If a bankruptcy order is made your costs would be included as an expense in the bankruptcy. The Official Receiver would be appointed who would work to realise the assets to satisfy the debts owed to the creditors.

Creditor services and book debts

If you have received notification that your customer is facing insolvency, our creditor services team can help you maximise your chances of recovering outstanding debts owed to you by insolvent individuals and companies.

We offer free creditor service advice if you are in receipt of notices or letters from insolvency practitioners helping you to use your vote in the insolvency process and making sure your debt is registered with the liquidator or trustee in bankruptcy.  Another benefit of this service is that it releases the administration burden on the credit manager and ensures that filing deadlines are not missed as the response times are time critical.

If you are a creditor of a company or individual who enters into insolvency, you are may be entitled to appoint an insolvency practitioner to help you recover the outstanding debt owed to you.  An insolvency practitioner will look to maximise the recoveries in the insolvency for creditors. We work with a host of experts within the industry who will work to receive the best realisation of the debt and investigate any wrongful actions of the company directors of the bankrupt.

We also provide a valuable service to insolvency practitioners where we assist with the collection of book debts owed to companies who are subject to an insolvency order.

Investigations under the Insolvency Act 1986

We work with a network of respected insolvency practitioners who can carry out investigation on a company that is subject to insolvency proceedings as well as bankrupt individuals. Insolvency doesn’t end the debt recovery process as skilled forensic investigations can lead to undisclosed assets or claims against directors and third parties for the benefit of creditors.

Debt Recovery, Insolvency and Creditor Service news