Statutory Demand, Company Insolvency Explained
Legal actions for paymnet against the business are a key signs that a business is in serious difficulties
. This article 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. This gives you time to reach an agreement with the creditor and if their claim is correct this is usually the best thing to try to do. 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 then the judgement is regarded as having been satisfied and will be set aside.
If you do not settle the judgement within the specified period, its details will be published and will immediately be picked up by the credit reference agencies and flagged to their clients which will include your current (and any potential future) lenders.
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 though 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 order.
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.
The Stautory Demand gives you 21 days within which to pay (or dispute) the debt, and failure to do so is one of the statutory grounds on which a Court can order a winding up of your company.
The legal costs involved in issuing a winding up petition mean that 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.
As the consequences of a winding up petition are so serious, the Courts take a dim view of this process being abused and if the application is unfair it may 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.
by: Mark Blayney
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