News

The hostile impact of the credit crunch

Release date: 27/10/2008

Businesses are being warned to be wary of the risks of being served with winding up proceedings, as companies take increasingly aggressive steps to recover debts.

Andrew Oranjuik, a specialist commercial litigator with Harvey Ingram, says more and more businesses are now adopting a far more hostile approach to recovering outstanding debts as the credit crunch's impact starts to bite.

He adds: "As an alternative to bringing proceedings to recover a debt in the usual way via the County Court or High Court, creditors are now seemingly more willing to serve a statutory demand, or a winding up petition, to claim the money they are due. Although this option has always been available, its use has now become far more prevalent as businesses step up efforts to recover outstanding sums as quickly and efficiently as possible.

"Court proceedings can take a considerable time to resolve, but serving either a statutory demand or a winding up petition will bring the matter before the court, and hopefully get a result, much quicker."

Statutory demands and winding up petitions are simply formal demands for payment for what the creditor claims is an outstanding debt. Under current legislation a company is deemed to be insolvent if, when served with a statutory demand, it neglects to pay the outstanding sum, or reach a settlement within 21 days of being handed a creditor's demand. Once the company is insolvent, the creditor can rely on its demand to apply to a court to place it into liquidation.

Oranjuik says: "Although it's not strictly necessary to serve a statutory demand on a company before serving a winding up petition, it is regarded as good practice. Both routes will lead to the same result if they are not dealt with. The only difference is that the time allowed to deal with a statutory demand is longer than with a winding up petition."

A company served with statutory demand or a winding up petition, that accepts the sums demanded are owed, is urged to pay the outstanding debt or discuss and agree repayment proposals. If the sums demanded are disputed, creditors are advised to bring proceedings in the normal way through the courts.

On the flip-side, debtors can take steps to protect their position if there is a legitimate dispute, by contacting the creditor as early as possible and asking them to confirm in writing that the demand is withdrawn. If the request is refused, a court application can be made to prevent the creditor beginning or continuing winding-up proceedings. In cases where a company accepts only part of the sums demanded are due, the undisputed sum should be paid, or a settlement relating to it reached, with the creditor again being asked to withdraw the demand.

Oranjuik adds: "The day-to-day pressures on businesses mean it's not always easy to promptly deal with paperwork, but statutory demands and winding up petitions are ignored at their peril."