A powerful alternative to issuing a Claim is to start insolvency proceedings. You can only do this for debts (including contractual interest and Late Payment compensation) of £750 or more. To examine the pros and cons of Claims or Insolvency click here.
How to start
Insolvency proceedings are started against:
- a company by presenting a winding up petition
- an individual by presenting a bankruptcy petition
- a firm by presenting a winding up petition against the firm and/or bankruptcy petitions against the partners
Using a Letter
Although it is possible to serve a statutory demand before presenting a winding up petition, this is generally unnecessary, but may be used tactically. It is often more effective to send a seven-day letter demanding payment. A draft winding-up petition can also be included with the letter to show that you are serious.
Statutory Demands and Petitions
A statutory demand must always be served on the debtor before a bankruptcy petition is presented
If payment is not made, the petition can be presented. Note - once a petition has been presented, the debtor's ability to pay will be affected when its bank hears of the petition, because the bank will freeze the debtor's bank accounts
It is important to use insolvency proceedings only where you are sure no defence will be raised. They are particularly appropriate where you have recorded promises of payment in writing or oral promises, or where there has been no real response from the debtor. If there is any dispute, the court will dismiss the petition and you may have to pay the debtor's costs.
Important
You are not in complete control, especially when a winding up petition has been advertised. Other creditors may support the petition and take it over.
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