Insolvency Essentials: When should you consider a Petition?
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In the current economic climate, insolvencies continue to hit record highs. Many of these are voluntary as unfortunately, some businesses simply cannot pay their debts and choose to undertake an insolvency process.
As Creditors however, there may be appropriate circumstances where you should consider compulsory insolvencies for debtors by presenting your own petitions. This blog aims to break down the general principles of the processes and implications of creditors petitions, to help you decide if a petition is a good idea.
Bankruptcy and winding up
Those that are pursuing debts from individuals, will pursue the bankruptcy orders. Whereas, Winding up orders are for companies.
The processes for bankruptcy and winding up proceedings are very similar processes in a lot of ways but there are also significant differences.
For Bankruptcy, the debt must be equal to or exceed a £5,000 threshold, and a Winding Up Petition must be equal to or above £750.
When is a debtor deemed unable to pay debt?
You have to prove that a debtor is unable to pay their debt. The debt must be owed and if it has not been paid immediately, that is an immediate warning sign for the debtor being insolvent. However, there are other situations where the law allows presumptions of insolvency .
For example, if you have had that the unsatisfied execution of a judgment, this could give rise to a presumption of insolvency .
Another example to would be if a Statutory Demand has been personally served and three weeks have passed with no payment or the statutory demand being set aside.
Things to remember before you raise a petition
It is important to remember is that Bankruptcy petitions are class actions and not just a debt collection process. If you raise a petition, each creditor that is owed money can support that petition.
The purpose of insolvency proceedings is to appoint an independent person to locate and preserve the debtor’s assets, and to distribute them to creditors pursuant to the legislation.
It can be an expensive process so creditors should be aware of this and should also consider the likelihood of a recovery being made - make sure you know what you're getting into with the legal process.