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Recovering outstanding debts can be really important for businesses. Having debtors can affect your cashflow and the smooth running of your day to day activities, so it's vital to recover the funds owed as quickly as possible.
If another company or an individual owes your business money and there is not any known disputes to the debt but they still haven't paid what they owe after formal demands have been made, they are technically considered insolvent by being unable to pay their debts. If there are other creditors also seeking money from them, the situation can get quite complicated. One option is to start insolvency proceedings against them, which means that your repayment would then be at the front of the queue.
An insolvency proceedings definition is that this is the process taken when a business or an individual are not able to pay their creditors when debts are due or meet their financial obligations.
Find out more about how commercial insolvency proceedings work below.
The process for insolvency proceedings in the UK is that you must first follow the appropriate steps by issuing and serving a Statutory Demand on the debtor. A Statutory Demand poses a much larger threat and also informs the Debtor that you are going to make them insolvent should payment not be received within 21 days from the date the demand has been served.
Forbes Collect can send this letter on behalf of your business and in the vast majority of cases, this is all that is required in order for you to receive the funds owed by the debtor. This letter indicates to the recipient that you're taking the matter seriously and also shows that you have already taken legal advice, which is often all that it takes to convince the debtor to pay up.
If this action doesn't result in the payment being forthcoming, the next stage of the insolvency will depend on whether the debtor is a company or an individual.
The outstanding debt must have a value of more than £750 and the debtor must not dispute that you are owed the money in order to proceed with company insolvency action.
If the circumstances meet the above criteria, a winding up petition can be drafted by Forbes Collect and sent to the debtor, along with a demand for the payment within a set period of time; usually seven days. The letter asking for payment must also outline that if the money owed is not paid within the given timeframe, the petition will be presented to Court.
In most cases, the debtor will make the necessary payment at this stage to avoid any further action being taken against them.
If payment is not received at this point, you can present the winding up petition to the Court and a date will be given for a hearing. The petition is served to the debtor and can be advertised in the London Gazette. The debtor's bank account may be frozen, which gives an incentive for them to make the payment sooner, rather than later.
As a result of the petition being advertised, other creditors might make themselves known and wish to support the petition.
The outstanding debt must be worth more than £5,000 and there must be no dispute that the money is owed to you before you can proceed with this course of action.
A statutory demand can then be drafted which sets out the debt that is due and has a deadline of 21 days from the date that it is served for the debtor to pay the sum owed. The statutory demand letter must be served to the named individual and proof of this must be given.
If no payment is forthcoming, or the debtor doesn't apply to have it set aside, the next part of the process is for a bankruptcy petition to be issued to the Court. A hearing date will then be set. The bankruptcy petition must also be served to the debtor personally and, again, proof of this will be required by the Court.
Whether the individual or corporate insolvency process is the route you choose to follow, the appropriate formalities need to be followed strictly in order for the outcome to have a chance of success at the following hearing of the petition.
An important consideration before taking this course of action is to ensure that the debt is not disputed. If the debtor disputes that they owe the money then the process will be halted and it's possible that you may need to pay the debtor's costs, which could be considerable.
Due to the complexity of insolvency proceedings, it's recommended that you take expert legal advice before deciding on the best course of action for debt recovery. It may be the case that another enforcement option is more suitable in the circumstances.
For more information about how we can help you with the entire debt recovery process for your business, get in touch with the team by calling 0800 689 4176, request a callback or use our online contact form.