Taking action against clients who owe you money.
In a perfect business world, all of your clients would pay on time. They’d pay the correct amount and they’d pay via the payment method you specify. However, we know that sometimes things don’t quite go to plan, and we have worked with a number of clients in issuing statutory demands1 and bankruptcy petitions2.
On 1st October 2015 the bankruptcy limit will increase from £750.00 to £5,000.00.
Currently, you as a creditor can serve a statutory demand if you are owed £750.00 or more, followed by a bankruptcy petition. Under the new rules, someone who is owed money will be unable to issue a bankruptcy petition against a debtor unless the debt is over £5,000. This is the first time the limits have been changed since 1986.
Upon consultation, a number of industry bodies had recommended raising the threshold to £3,000 at most, but despite this the £5,000 threshold has been adopted. The previous system had been effectively used by creditors for years to collect debts. Now when a creditor wants to collect a debt of under £5,000 they will have to go through an alternative route. The alternative routes currently on offer usually take longer, and may involve more cost to the creditor.
So – as of 1st October 2015 if a debtor owes you less than £5000 you won’t be able to issue a bankruptcy petition.
If you want to discuss the possibility of issuing a bankruptcy petition against this entity before the deadline, please contact us now.
Please note, no such proposals have been brought forward in relation to winding up petition so we will be able to continue to issue winding up petitions3 for debts over £750.
1Bankruptcy petition: an application to the court for someone’s assets to be taken and sold to pay their debts. [gov.uk]
2Statutory demand: a type of written warning from a creditor. It will state that if you don’t pay your debt or come to another arrangement that’s acceptable to the creditor, they may star court proceedings to make you bankrupt. [gov.uk]
3Winding-up petition: your application to the court to ‘wind up’ a company if it can’t pay its debts of more than £750. If successful, the company will be put into liquidation. [gov.uk]