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If you have any more questions or would like more information regarding debt recovery for your business, you can get in touch with our Business Debt Recovery Team below.
For most businesses, it is critical that the collection of outstanding debts is managed efficiently to assist cash flow. Generally speaking, there are two ways to try and collect business debts owed to your company: issuing a court claim or pursuing insolvency proceedings. In this blog, we explore the key factors which need to be considered when deciding how to pursue a business debt.
If another company owes your business money and the debt is not disputed, you may be able to commence insolvency proceedings. When considering a winding-up petition, the court must be satisfied that there is a debt that is due and payable. In addition, the debtor will need to have demonstrated an inability to pay the debt.
From the point of view of a creditor, commencing winding-up proceedings should be regarded as a last resort and generally speaking, the winding-up procedure should not be used as a means of enforcing the debt when other processes, such as litigation through the courts or alternative dispute resolution (ADR) may be more appropriate.
However, the refusal by an otherwise solvent company to pay an undisputed debt does nonetheless entitle a creditor to present a winding-up petition. For this reason, the courts have acknowledged that insolvency proceedings may be used in certain circumstances as a method of debt collection.
The advantages to a creditor in commencing winding-up proceedings are:
The disadvantages to a creditor in commencing winding-up proceedings are:
As an alternative to commencing winding-up proceedings, creditors can bring a debt claim against the debtor. Such claims are normally brought in accordance with Part 7 of the Civil Procedure Rules (CPR), which governs the conduct of litigation in England and Wales.
Some key points which should be considered when deciding whether to issue a court claim are:
Part 7 court proceedings are likely to take longer and involve greater expense than proceedings to wind up a company. Court proceedings involve the drafting of statements of case and witness statements (where each party sets out their position) and the disclosure of documents.
If you have any more questions or would like more information regarding debt recovery for your business, you can get in touch with our Business Debt Recovery Team below.