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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:

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