The use of winding-up petitions and bankruptcy petitions

Those engaged in credit control will be aware that, as a result of the current economic climate, many companies and individuals suffering from cash flow problems will try and delay payment.

As a result of this most companies are tightening up their credit control and the use of insolvency proceedings is increasing. This article aims to inform you about cases where the use of insolvency proceedings may be appropriate and what action to take if you are faced with insolvency proceedings.

Those involved in credit control may take the view that no further action is required if, despite late payment, a continued dialogue is taking place with the debtor and promises of payment, even if these result in only part payment of monies due, are kept. However, we would urge you to take immediate action, when your debtor is not responding to your letters or phone calls or where promises of payment are made, but not kept. This is an indication that your debtor is in real financial trouble and if you do not obtain payment now, then the chances are that you never will.

In those circumstances, you may wish to seek our advice about issuing insolvency proceedings against your debtor. Winding-up petitions and bankruptcy petitions can be very effective in obtaining payment from your debtor. If the debt is due, undisputed and in the absence of any counterclaim greater than the debt, the best course of action for a debtor who is subjected to insolvency proceedings is simply to pay, if they want to avoid being wound-up or being made bankrupt.  In our experience, debtors will prioritise payment of your debt, if at all able to do so, in response to (the threat of) insolvency proceedings.

If you are a company or an individual in receipt of a statutory demand, winding-up or bankruptcy petition and you dispute the debt owed or you believe that the petitioner owes you more than he is claiming from you, then you must seek immediate legal advice. It may be possible to set aside the statutory demand (in the case of individuals) or obtain an injunction to prevent either the presentation or advertisement of the winding-up petition. There is only limited time available to make such an application and you therefore need to act extremely quickly. Alternatively, we may be able to assist you in negotiating more time to raise funds to pay of the petitioner.