The killer app for corporate debt collection in the UK – winding up petitions
By Jim James, Ward Hadaway
In most jurisdictions, the legal process for debt collection can be long and uncertain. Even using the most effective court process in the UK, for example, an undisputed debt can take seven weeks before an enforcement officer attends on the debtor. The one exception to this is the winding up petition. If the debtor is solvent and merely "playing for time", the presentation of a winding up petition can result in a payment of the creditor’s debt and legal fees in a matter of days.
The presentation of a winding up petition is not without its dangers. Dealt with incorrectly, it can result in a significant costs order against the creditor and merely strengthen the debtor’s hand.
When considering whether a winding up petition is appropriate, two questions should be asked: do you have an indisputable debt of over GBP 750? Does the debtor have the funds to pay you if they were so inclined? If the answer to both is ‘yes’, then a winding up petition may be the most effective route to being paid.
Technically, a winding up petition is not a debt collection process at all, but a class action calling for the court to "wind up" the company because it is insolvent. If a winding up order is made, the company ceases to trade.
It is the finality of the risk of a winding up order being made that makes the presentation of a winding up petition such an effective debt collection tool and the reason it is commonly used in the UK.
Ward Hadaway, Newcastle upon Tyne, United Kingdom
T: +44 191 204 4000
Jim James heads the Insolvency and Corporate Recovery Unit and has extensive experience in advising lenders, companies, directors, individuals and creditors on the options available when a business is in crisis or has failed. He has a wealth of experience in insolvency matters and undertakes work as appropriate for all parties involved in an insolvent business, whether they are creditors, insolvency practitioners or directors.
Ward Hadaway is one of the largest full service law firms in the North of England with a reputation for quality, innovation and a practical approach to meeting our clients’ needs. With 84 partners and over 400 staff, the firm’s approach of partner-led relationships with all clients is supported by a resource that has real strength in depth.
published: March 2014