I am owed money: Should I sue the debtor or threaten to wind them up?

20 Apr 2015

March brought in a huge change in court fees for ordinary legal proceedings to pursue a claim: Court fees on claims from £10,000 are payable at 5% of the claim (capped at £10,000 at £200,000). This now makes the cost of starting, say, a £40,000 claim far more than a winding up or bankruptcy petition (about £1,500 for winding up and less for bankruptcy).  For a claim of £150,000 you will have to pay £7,500.

Winding up and bankruptcy fees on the other hand, are flat fees that don't increase with the value of the debt. Tim Symes, Head of Restructuring and Insolvency at DMH Stallard, addresses some common concerns & questions about using winding up petitions to recover debts:

Will the debtor care about the petition?

Most certainly - anybody who has presented a petition and then been paid their debt will know just how powerful they are: the debtor faces serious and immediate pressure to pay, and ignores a petition foolishly.

If it works so well, why would I bother with suing debtors anymore?

The courts have made clear that insolvency proceedings should not be used as a debt collection tool. As such, they will not take kindly if the process is abused. Further, you must not use a petition if there is a genuine dispute to the debt.  Sophisticated debtors know this, and may meet your petition with all sorts of spurious arguments. A good lawyer can quickly expose those arguments to render them useless as a defence to the petition. If that still leaves the debtor with valid arguments to dispute the debt, and a deal cannot otherwise be done, then ordinary proceedings are the appropriate option.

So the process starts with issuing a petition?

No - make sure you have a good paper trail, ideally with clear admissions to the debt before you issue your petition. You can make good use of your lawyer at this stage. Any later denial of the debt will look disingenuous.

Doesn't the debtor have to be insolvent?

The debtor must be insolvent according to the statutory definition, namely that they cannot pay their debts as they fall due, or their liabilities exceed their assets. This can be established by a failure to meet a statutory demand, through the use of financial information on the debtor, or with pre-petition correspondence.

I want to be paid - I don't care about putting them under

Understood, although you must respect the court’s position that they are not to be used as a debt collection tool, and payment of your debt should be viewed, at best, as a possible consequence of the process, but not the purpose of it.

I don't want the debtor to get away with not paying my debt.

That's understood too: Unscrupulous directors will get a very hard time from a liquidator, thanks to your petition, and may themselves be sued personally, or ultimately even bankrupted if they have caused loss to you and other creditors.

For more information on the use of winding up and bankruptcy petitions please contact:

Further reading

Use of statutory demand to make company insolvent suspended until June

Blog, Legal Updates
Cheraine Williams looks at more temporary Covid-driven measures that will protect businesses and tenants from possible legal action
Read more Read

New guidance issued for valuation of flats and investigating fire safety

Blog, Legal Updates
Cheraine Williams looks a the current situation facing leaseholders looking to sell or re-finance their property; will new guidance provide clarity?
Read more Read

Government sets new energy targets for domestic and commercial buildings

Blog, Legal Updates
UK law requires net zero greenhouse gas emissions by 2050; new rules and standards for heating and powering buildings will have a significant impact
Read more Read

Covid regs prevent landlords taking action to recover rent for more than 500 days

Blog, Legal Updates
Just seven days’ rent arrears used to be enough for commercial landlords to take action; the latest adjustment pushes that out to 554 days
Read more Read
  • Brighton Office

    1 Jubilee Street


    East Sussex

    BN1 1GE

  • Gatwick Office

    Griffin House

    135 High Street


    West Sussex

    RH10 1DQ

  • Guildford Office

    Wonersh House

    The Guildway

    Old Portsmouth Road



    GU3 1LR

  • Horsham Office

    Ridgeland House

    15 Carfax


    West Sussex

    RH12 1DY

  • London Office

    6 New Street Square

    New Fetter Lane


    EC4A 3BF

  • Get in touch