Bankruptcy Petitions & Insolvency Disputes | Recovering Outstanding Debts
When an individual or corporate body seeks to recover outstanding debts, various procedural options are available, depending on the specific circumstances, including the nature of the debt. In a instances where it is known that the debtor will, or is likely to, submit reasons disputing liability for the debt, it would be prudent to commence recovery proceedings through the court, as this forum is specifically designed to resolve such disputes.
This process can be lengthy, involving substantial case preparation, and can be both costly and uncertain, given that, success will depend upon the decision reached by the court.
However, in cases where there is no dispute concerning liability and the debtor simply fails to pay, Bankruptcy proceedings through the Insolvency Court may be the appropriate course to follow.
Stuart Southall of KANGS Solicitors comments on such proceedings.
Issue of A Bankruptcy Petition
Formal Demand, Court Judgment or Breach of Settlement Agreement
In most circumstances, it is preferable for the creditor to issue a Formal Demand to the debtor. This document should specify the exact amount of the alleged debt and make it clear, the creditor intends to take recovery action, and offer the debtor an opportunity to respond stating any reasons for the non-payment of the debt.
An alternative position to this is if a Creditor has been able to secure a Court Judgment or has previously reached a commercial resolution that permits for Judgment and/or enforcement in the event of non-compliance with the settlement agreement, a Bankruptcy Petition may be presented without challenge.
In the absence of being able to rely upon a Judgment or breach of Settlement Agreement, it is important to issue a Formal Demand in order to assess any argument the Debtor may raise in response to the Demand.
It is important for the debtor to be given such opportunity because the Insolvency Court is not designed to deal with disputes, merely undisputed facts. Accordingly, where such Formal Demand reveals a potentially credible dispute concerning payment of the debt, continuing with the issue of a Bankruptcy Petition could be considered to be an abuse of process. This being the case, the Bankruptcy Petition may well be dismissed and a Costs Award made against the creditor.
If the debtor fails to respond to the Formal Demand or accepts that the debt is due but is unable to pay (the test being “an ability to meet your debts as and when they fall due”). In the absence of a pragmatic resolution being proposed, such as a suitable repayment plan, then it falls to the creditor to proceed with the presentation of a Bankruptcy Petition.
For a Bankruptcy Petition to be issued, the debt must be at least five thousand pounds, and in the absence of an agreement to the contrary, interest cannot be claimed.
Court Procedure
Once a Bankruptcy Petition has been presented to the appropriate Court, it must be personally served on the debtor by a Process Server, who is required to swear a Witness Statement confirming that service has been legally effected.
Some creditors advertise the issue of a Petition in the London Gazette which draws its existence to other creditors who may wish to confirm whether they oppose or support the Bankruptcy Order being made. Insolvency Rules provide a procedure for those seeking to oppose an application for a Bankruptcy Petition.
Once all of the procedural documents have been issued and properly served, there will follow a Court Hearing at which any representations from the Parties will be heard as to whether or not the Bankruptcy Order should be made. A formal Hearing will be heard within a period of eight to twelve weeks from the presentation of a Bankruptcy Petition.
Whilst the debtor may appear and challenge the Petition, it would be unusual for the Court to pay much credence to such an objection in the absence of exceptional circumstances.
Consequences of A Bankruptcy Order
Following the issue of a Bankruptcy Order, the debtor will be declared bankrupt and required to report to the Official Receiver associated with the Court, where the Bankruptcy Order was made.
The Bankrupt will remain bankrupt for a period of twelve months, although the bankruptcy may be annulled, upon application, on the grounds that payment in full has been made and the creditor agrees.
During the period of Bankruptcy:
- the Bankrupt is obliged to assist with the Official Receiver’s investigations and provide details of all assets,
- the beneficial interest in all assets vests with the Official Receiver and/or any other Insolvency Practitioner who may be appointed,
- the Bankrupt is prohibited from securing credit of more than fifty pounds,
- the Bankrupt is prohibited from holding the office of director or other official position within a company.
- Even though a creditor has sought and obtained a Bankruptcy Order and incurred the costs involved, there is absolutely no guarantee that the monies owed will be recovered either fully or in part.
All recovered assets of the debtor, if there are any, are put into a ‘pot’ and divided between all other creditors who submit an accepted claim. Even this division is diluted by the extent of preferential claims by bodies such as HMRC.
Accordingly, the risks of having to, at best, share whatever assets are recovered with other creditors following the cost and inconvenience of pursuing Bankruptcy Proceedings may well lead a creditor to consider that proceeding in this manner is not the appropriate choice.
How Can We Help?
At KANGS we understand the complexities and challenges that come with insolvency disputes and bankruptcy petitions.
Our skilled solicitors have a wealth of experience handling bankruptcy petitions and on claims arising from bankrupt estates. They can represent you at any meeting or interview with an Insolvency Practitioner or at Court.
Our team at KANGS provide advice and guidance in all aspects of Insolvency law and would be delighted to assist with whatever you may require. Speak to an experience solicitor today, simply contact us, using the details below:
Tel: 0333 370 4333
Email: info@kangssolicitors.co.uk
We provide initial no obligation discussion at our three offices in London, Birmingham, and Manchester. Alternatively, discussions can be held through live conferencing or telephone.
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