When you are running your own business most of the time you’ll find that customers pay their bills. Admittedly some quicker than others but usually they will get paid.
Occasionally though you may come across someone who simply refuses to honour a contract or pay their debts. In this instance it may become necessary to take legal action to enforce your claim and in extreme cases this will involve submitting a winding up petition.
It has to be said that early debt collection is the most effective thing. Research shows that calling a debtor within the first few days of non payment produces vastly better results than calling after a month. Consequently the best advice has to be to either employ a really good credit controller who will be on top of the issue or to outsource to a reputable company.
Taking legal action has to be an option of last resort. The way forward here is to talk to people calmly and openly. Try and find out what the real situation is because there will be little point in winding up a company that will have nothing left at the end of the process meaning that you are out of pocket.
Be aware that very often emotions can get the better of us, especially if we feel that we have been taken advantage of. Try and take a calm view of the situation and make your decisions based on logic rather than a need to ‘get back at’ the people that owe you money.
You may wish also to do a little bit of desk research. Check out services such as Duedil or Experian and do your homework on the debtor as this can give you a valuable insight as to whether liquidation will be worthwhile or not.
A Compulsory Liquidation doesn’t remove the need for a proper, documented debt recovery process, in fact it is simply the natural result of a failed process rather than a replacement.
For smaller debts you may wish to use the small claims court and this is a simple system to use and you can fill in all of the forms online. However it may be that you wish to protect other creditors of the company or your claim is over the statutory amount for a small claim. As long as you are owed £750 or more then you can apply to wind up the firm in question. If you do go down the small claims route and the judgment remains unpaid you can still apply for a winding up order later.
It is vital that you have all of your documentary evidence in hand. You’ll need copies of contracts and agreements and be able to prove your debt hasn’t been paid. You will also need to serve a statutory demand on the company as a final step before a petition. You can find out more about statutory demands on the .gov website at https://www.gov.uk/statutory-demands.
Once the statutory demand has been served the debtor has 21 days to make payment or come to an agreement. If these are not forthcoming after this time then the creditor can move on to winding up.
As a result of serving the demand you may have certificates of personal service or substituted service as evidence to show that the debtor is aware of the issue and you may also need to provide proof that the company not only has not paid its debts but also has debts that exceed its assets.
You’ll need to complete form 4.2* which is the petition for a winding up order and make 3 copies (or 4 if the debtor is dissolved). There is some information about the debtor to be entered in the form that you’ll need to find out from places such as Companies House.
As the creditor you will now need to make a statement of truth regarding the information you have supplied.
Once the forms are complete they will need to be sent to the correct court. If the debtor has a paid up share capital of more than £120,000 then this will be the High Court. If it is less than £120,000 then the petition can be presented to local Crown Courts that deal with insolvency matters**.
A Copy of the petition will need to be served on the debtor at their registered address and you must provide a certificate of service to the court. If the company is in liquidation, a Creditors Voluntary Agreement (CVA) or the subject of an administration order then you’ll also need to provide a copy to the relevant administrator or insolvency practitioner.
Assuming that the court accepts the petition then a date will be set for a hearing. You’ll need to place an advertisement in The Gazette at least 7 days before the hearing and provide the court with a certificate of compliance. By 4.30pm on the day before the hearing you’ll also need to give the court a list of everyone attending.
At the hearing the court will consider your position and any evidence supplied, together with any defence from the creditor company. If they decide to grant a winding up order then the court will appoint a liquidator and the winding up procedure will begin.
It’s probably best not to start spending the money too soon. Companies in liquidation will have debts that exceed their assets and there will be significant costs involved in the liquidation process. The likelihood that creditors will receive what they were originally owed is close to zero. The liquidation will also take a significant amount of time as the official receiver has a number of duties to carry out rather than just simply selling off any assets.
It’s also important to remember that this can be a long process and any proceeds will only be distributed after a delay of around 6-9 months or longer in complex cases.
As can be seen from this article, winding up a company that owes you money is a complicated process that not only involves administrative tasks but also a court appearance and you are unlikely to get back the money you were originally owed in full. To maximise the chances of a successful outcome directors should take reliable and experienced advice from a licenced insolvency practitioner.
*Form 4.2 can be found here https://www.gov.uk/government/publications/winding-up-petition-insolvency-form-42
**The Insolvency Service have a handy court finder here https://courttribunalfinder.service.gov.uk/search/