Debtors – to Sue or to Petition?
In the latest UK200Group blog post, Nat Young, Senior Solicitor specialising in Insolvency and Dispute Resolution, Longmores Solicitors, discusses the subject of debtors
If you have problem debts, the obvious solution is to sue. First, you send a letter of claim. Then you start proceedings, and pay a court fee for doing so. If all goes well, you will obtain a judgment from the court some weeks later.
Normally, that is when the hard work starts. You have to find a way of making the debtor pay. Hopefully the debtor has equity in a house, or valuable cars, or a regular job, and you can find an enforcement method that results in recovery.
Unfortunately, all this takes time, and it also takes some knowledge of the debtor’s financial circumstances. How can you tell what assets or income stream the debtor has? You could apply for the debtor to attend court to give information, but how can you check that is accurate? Above all, how can you tell debtors who truly can’t pay, from debtors that just have other priorities?
There are no easy answers to these questions, but there is a way to short-circuit them. If an individual debtor has not paid a debt of £5000 or more, you can petition to make him bankrupt, while if a company has not paid a debt of £750 or more, you can petition to wind it up. If granted, these petitions will pass all assets of the debtor into the hands of a third party. They will be used to pay the costs of the process, and the balance will then be distributed to creditors based on the size of their debts.
At first sight, that’s not great for the petitioning creditor. They want to recover their debt, not share with other creditors. However, the drastic consequences of insolvency make it an excellent way of sorting the ‘can’t pays’ from the ‘won’t pays’. Insolvency procedures apply pressure like nothing else, as debtors with anything to lose will do everything they can to avoid the petition being granted.
At one time, insolvency was seen as pricey, and this is still a barrier for smaller debts. However, rising court fees mean that for larger debts, insolvency procedures can actually be cheaper than suing in court. While petitioning debtors is not suitable in all cases, it’s certainly an option to consider.
Please note the contents of this article are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.
Senior Solicitor specialising in Insolvency and Dispute Resolution
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