Legal actions creditors may take in the UK
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Business difficulties are clearly becoming serious when suppliers and
other creditors start on legal action to recover their money. This article
briefly outlines the main procedures used in the UK, from County Court
summonses to Statutory Demands which a company may face.
In practice there are generally two tracks that a normal unpaid creditor
can take to put pressure on a business to have their bills paid, and these
are to either to pursue payment of the debt through the courts, or to
threaten the winding up of the business.
If your business is facing any of the actions described below then the
overriding advice has to be to seek appropriate professional advice as
to how to deal with the action being taken, what impact it has on how
you should be conducting your business's affairs, and if things are becoming
serious, whether you should be considering the use of any of the 'rescue'
provisions of UK insolvency legislation.
County Court Summons and County Court Judgement (a 'CCJ')
Where there is any real dispute about the sum owed then the creditor will
often issue a County Court Summons. If the claim is not correct you can
dispute it and instructions on how to do so are given on the Court papers
you will have received.
Issuing a summons can be done online and is a quick and inexpensive procedure,
however if the claim is justified, it does not necessarily mean legal
action is inevitable. You have a statutory period in which to either admit
the claim or file a defence before the case can be scheduled for a hearing.
You therefore have some time within which to reach an agreement with your
creditor about settlement, and if their claim is valid this is usually
a sensible option if achievable. From the creditor's point of view, even
a relatively small regular payment may be a better solution than the cost
of pursuing a claim and the uncertainty of any eventual recovery, particularly
if the end result is your business's insolvency.
If, however, you simply cannot afford to pay the claim, your business
may simply be insolvent and you should take appropriate advice.
Should the case proceed and go against you, a County Court Judgement will
be issued. This will mean you have a set period within which to pay the
sum awarded, which may include the creditors costs and interest, in full,
or alternatively agree a payment plan acceptable to the other side. If
you do so the judgement can be set aside as having been satisfied.
If, however, the sum is not paid, then the judgement will become public
knowledge and your bankers and the credit insurers and reference agencies
will flag it which usually leads to difficulties in obtaining credit in
Enforcement of a County Court Judgement
Failure to satisfy a judgement is one of the grounds for issuing a winding
up petition so if you do not pay or reach agreement the creditor can proceed
to this step.
More usually however the creditor returns to Court to request a Warrant
of Execution. The Court will either issue a notice of the warrant to you
or pass it across to your local Court, after which a bailiff can be instructed
to collect the payment.
Bailiffs have extensive rights. While they cannot force entry, they are
entitled to obtain entry through open doors and windows and once inside
your property they can remove goods for sale to cover the debt due. Rather
than removing them immediately they may however take a walking possession
order which gives you five days within which to reach a deal or pay, after
which they can force entry to remove the items for sale.
Where larger sums are involved, a case may have been heard by the High
Court rather than the County Court and if this is the case then enforcement
will be made through a Sherriff rather than a bailiff, but the principles
are the same.
Distraint is a tool very much like a warrant of execution, but one which
can be used by landlords in respect of unpaid rent, or bailiffs acting
on behalf of the Crown for unpaid tax, without the need to obtain a Court
Statutory Demand and Winding up Petitions
A statutory demand is a formal demand for payment of a debt. The amount
has to be undisputed, which usually means that you have either acknowledged
in writing that you owe the sum or you have had a CCJ awarded against
you, and it must be for more than ?750.
Once served, you have 21 days within which to pay and failure to do so
is one of the statutory grounds on which the creditor can issue a petition
for a winding up order.
Seeking a winding up petition costs the creditor money and any creditor
getting to this point is obviously very serious in its intentions to either
recover its money or force your company into liquidation. As part of the
process the fact that a winding up petition hearing is to be held will
be published. Again your bank and the credit reference agencies will pick
this up and your bank will normally freeze your account immediately which
in practice usually means that you have no option but to cease trading.
The consequences of a winding up petition are obviously very serious.
As a result the Courts take an equally dim view of this process being
abused. If the application is unfair it can therefore be possible to have
the action halted.
In any event, if your business is at this stage you should be taking appropriate
legal and professional advice.
The information contained in a short article like this can of course never
be a full statement of the legal position as the relevant laws are complex
and liable to change. This article can only therefore be a general guide
as to the issues involved and you should always seek appropriate professional
advice on your own particular circumstances before taking any action.
Mark Blayney is a UK Institute for Turnaround accredited
business rescue expert specialising in owner managed businesses. For more
information on statutory
demand, company insolvency tests explained; a free copy of his 13 Key
Steps Guide to managing a crisis and a turnaround; or a free referral to
a local expert, contact him at: http://www.turnaroundanswers.co.uk
Published - May 2010
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