Creditor Unpaid Debt Advice

Creditor Unpaid Debt Advice

Creditor unpaid debt advice may be useful if you are a creditor owed money by an insolvent company. How do you look to recover your unpaid debt?

The first thing you need to think about is whether or not the company is insolvent or if you have concerns that it might become insolvent.

There are a number of things that you can consider doing:

  • review the company’s most recent accounts to consider its position
  • request security
  • issuing proceedings in the court to take enforcement account
  • instruct debt collectors to pursue the debt on your behalf
  • instruct solicitors to assist you with the recovery process
  • sell your debt for a discount to a third party
  • factor your debt
  • assign the rights to your debt to a third party

If the company is insolvent, then you need to consider what type of insolvency procedure either applies or that you want to participate in if the company were to opt for insolvency – there are a few.

If it is in liquidation, administration or CVA then the rules of the Insolvency Act 1986 apply and you can submit a claim using a Proof of Debt form to prove the debt and rank with creditors for a dividend.

Creditor Claim

In an insolvency case the claims of creditors will not generally be adjudicated upon, unless or until there are sufficient funds available to pay a dividend to creditors. This is to avoid an Insolvency Practitioner incurring costs that might never be recovered in assessing claims that might not be paid.

There are exceptions to that position, such as if legal proceedings that a Liquidator or Administrator might bring are linked to the position of creditors and there needs to be determination of the claims of creditors as a result. This situation arose in a case such as that of Fielding & Anor v Hunt [2017] EWHC 247 (Ch) but it is a somewhat unsual scenario.

If the company has not entered a formal insolvency procedure, then one of your options is as a creditor to initiate that process. This is in effect the ability that you have as a creditor to put the debtor company into compulsory liquidation.

Compulsory Liquidation

Winding Up Petition and Statutory Demand

If the company is insolvent but has not yet been wound up, then you have various options but perhaps the one which enables you to determine the matter one way or the other is to issue a winding up petition provided the debt is not disputed and it is over the minimum value of £750.

This will often be preceded by a Statutory Demand for payment to make the process easier if further enforcement action is required. It is however not necessarily essential. A Statutory Demand is a formal demand for payment and acts as a warning that the company can be wound up if matters are not resolved within 21 days. It should be deployed when the debt is not disputed.

An unsatisfied Statutory Demand can lead to a winding up petition being served. This is a serious position because a company cannot continue to trade normally through its Directors if the winding up petition leads to a winding up order and being placed into Compulsory Liquidation.

If however the debt is disputed, then you will need to obtain judgment from the Court first to dispose of the dispute.

Once a winding up petition has been served on the debtor company then any disposition of its property will be void absent a validation order in light of Section 127 of the Insolvency Act 1986.

You may well find that issuing the winding up petition in itself leads to your rapid recovery of your unpaid debt.

Winding Up Order

A winding up order is an order of the Court, that declares that the insovlent company’s affairs be wound up. The effect of the making of a winding up order is that its affairs will be taken over initially by the Official Receiver who is a civil servant who works for the Insolvency Service.

The Insolvency Service is a government agency.

Thereafter you can be provided with an opportunity to participate in the appointment of a Licensed Insolvency Practitioner such as for instance our CEO, Elliot Green FCA FABRP, to be appointed as liquidator to investigate the company’s financial affairs and to realise it assets.

It is the job of the liquidator to realise the disclosed assets and also to seek to discover if there are undisclosed assets also which can be recovered for the benefit of creditors.

Investigations

If upon undertaking forensic investigations which may need to be conducted in accordance with Statement of Insolvency Practice Number 2 for example only, then it may be possible for the liquidator to also bring civil recovery actions which produce recoveries for creditors.

Such actions might be for example only, a claim against the Directors for Wrongful Trading and or Misfeasance and or Antecedent Transactions, such as Preferences and Transactions at an Undervalue; all of which might considerably improve the returns available for creditors.

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