|
Legal Actions Explained
Here you will find legal actions described - hopefully understandably.
This is not a legal lesson or is it comprehensive - rather it is intended
to guide you through the maze of actions that a creditor can take against
the company. There are some practical tips on what to do when these actions
occur.
The key in all situations is communication. Provided your creditors are kept
fully involved and informed most will go along with deals to achieve a
satisfactory outcome. In our experience taking legal action is the action of
an exasperated creditor (or one with a proper credit control procedure that
is rigorously applied).
County Court Summons
Meaning - A creditor has tried to recover their debt from your company but
without success. You may have offered an informal deal but now their
patience is wearing thin.
Your company may have tried to stave payment off claiming the debt is
invalid or issued a counterclaim. They have issued an action to commence
recovering their money in the County Court
What can I do, what should I do? - You have time to pay the claim of the
creditor. Try to offer a payment deal sensibly before the action will be
heard in the court. Try to do a deal or pay the debt. If you cannot pay it
look at Insolvent? page. If you cannot pay it the company could be
insolvent.
You can dispute the claim if it can be proven the debt is not correct. Look,
carefully, at the forms for detailed instructions on how to defend the
claim.
County Court Judgment
Meaning - Having pressed for payment the creditor has now got the court to
agree that there is a valid claim for the money. You have 30 days from the
date of the Judgment to pay in full plus any costs incurred. Otherwise the
Judgment will be registered at the courts and with credit reference
agencies.
Remember an outstanding Judgment is proof of a company’s insolvency and
allows a creditors to wind the company up. See Insolvent? for further
details. There were over 193,000 CCJ’s issued against businesses in 2000 in
the UK, so they are quite a common tool to tackle late payment offenders.
What can I do, what should I do? - If possible always try to pay the debt
within 30 days of Judgment. This will ensure that the Judgment is "set
aside" and will not be registered with credit reference agencies. If you
cannot pay it then this of course further proves insolvency. If it is
registered then getting credit in future becomes much more difficult.
If you are under real cashflow pressure but are attempting to trade out call
the creditor/ their solicitor or the bailiff and try to agree a phased
payment. Often they will agree but they may use the non-payment to push for
further action such as distraint or winding up.
You may be surprised at how long a time you can spread payment through this
type of deal. Think about it, the creditor just wants paid, even at £50 per
week this is better than liquidation - because they will, inevitably, lose
the whole amount in liquidation.
Warrant
Meaning - As the creditor has not been paid under the judgment the creditor
can apply to the court for a warrant of execution. If the debtor is in
another area the court can forward this to the local court. A notice of
warrant will be issued to the debtor. If payment is not made a bailiff of
the court can be sent to collect payment or seize goods.
What can I do, what should I do? - As always a deal can be struck with the
creditor and or the bailiff to repay over time. Your have demonstrated an
inability to pay the debt and are offering to settle in a period to be
agreed. For small debts this is often acceptable to the creditor.
Statutory Demand
Meaning - Usually this action is taken after a creditor has obtained a
Judgment. It is a formal demand for payment of an undisputed debt (over
£750) - the debt must be paid within 21 days of the demand being issued.
Failure to pay a stat demand can lead to a winding up petition being issued.
In any event, the creditor has to pay to issue this document/action and it
is now becoming much more serious.
What can I do, what should I do? - Warning! This action means the creditor
is serious about getting the debt paid. If you don’t pay the debt in the 21
days they can go to the final step of issuing a winding-up petition against
the company.
If you cannot pay the debt, talk immediately to a turnaround practitioner,
review the contents of this website and make a plan for survival - such as a
CVA, Administration or urgent refinancing. Or if the company is simply not
viable talk to an insolvency practitioner.
Walking Possession
Meaning - A bailiff (for the County Court) or Sheriff (for the High Court)
has visited your premises and obtained entry. He /she has asked for payment
of the proven debt. If you have not paid this plus the court and his costs
he can "take possession" of the goods, equipment, fixtures, stock etc on the
premises.
Effectively if you do not reach a deal or pay in full he can remove and sell
the assets in 5 days. To sell the assets after they are covered in this way
is a criminal offence.
If the bailiff has obtained a walking possession he can force entry to
recover the goods after the 5 day period
What can I do, what should I do? - Unknown to most people unless in debt;
Sheriffs and bailiffs are an unusual breed. They will rely upon ancient laws
to obtain entry to your property - such as open doors and windows. But they
cannot force entry. Simply: your best defence is to close and lock all doors
and windows where they can gain access.
It is also not usually possible for the bailiff to possess or remove goods
that do not belong to the company - if you have a debenture the goods
therefore are charged to a bank. Whilst this is not possession bailiffs do
not (usually!) want to get embroiled in arguments with high street banks. If
the goods are subject to HP then they cannot be taken.
In reality isn’t this is just deferring the inevitable? The company is
probably insolvent if a bailiff is calling.
Once walking possession is in place it is STILL possible to do a deal with
the bailiff to keep the goods whilst making regular payments - default and
he may remove them without notice.
Distraint
Meaning - A popular tool for landlords where rent or other payments are not
made. If the landlord has agreed a payment deal and the company is not
keeping to it the landlord has various powers.
Distraint means that an agent of the landlord can effect entry to remove
goods or assets for sale to pay for the debt due. He /she does not need to
wait for a long period for this to happen. In theory 1 week after a rent
payment is due they can distrain. Nor does he/she need a judgment.
What can I do, what should I do? - If you cannot pay the debt, you need to
point out that the goods belong to the bank or other secured creditor. You
should really take professional turnaround or insolvency advice. The company
is plainly insolvent and you could be breaking the law by continuing to
trade. It is possible for a turnaround practitioner to help in these
circumstances - BUT you have left it very late.
Proposing a CVA or entering administration is a solution, but having
demonstrated the inability to deal with the cashflow problems are you sure
the company is viable?
Winding Up Petition
Meaning - The most serious action that can be taken against the company.
Clearly the company has breached any trust the creditor had, deals have
failed, cheques bounced and generally the directors have not kept their
word.
See the Winding up page for more details.
If a creditor elects to wind the company up it is serious in its intent to
recover the money it is owed and / or to put the company out business.
Remember, typically a WUP costs over £1200 to action.
What can I do, what should I do? - Other than pay the debt very little. On
payment the debt will have increased because of the costs of the plaintiff
(creditor). If the action is clearly unfair or an abuse then you MUST take
legal advice immediately. See compulsory liquidation section
If the petition is fair and indefensible, then in due course the petition
hearing will be published. At this stage the bank will find out and they
will FREEZE the company’s bank account to prevent any misfeasance or sale of
assets at undervalue or other illegal acts by the directors. Clearly, once
advertised a fair petition will lead to a court appointed liquidator taking
over.
Make very sure that all board and management actions have been carefully
noted and the assets of the business have not been disposed of.
back to top
|
