Dealing with Creditor Action
How company directors can minimise the costs of dealing with creditor claims and ensure the survival of their company when threatened with creditor action.
If you are the director or adviser of a company dealing with a large business creditors who are threatening legal action against you, it is essential to bear in mind that if a creditor does take formal legal action, at each stage of the legal action the costs of resolving matters with the creditor will increase significantly.
If a creditor is successful in obtaining a county court judgement (which will happen if no action is taken to enter a defence), the court will rightly add costs and interest. If the judgement is subsequently left unpaid, a creditor can issue a Winding up Petition.
Dealing with Creditor Action
The costs of the petitioning creditor’s solicitor, which must be paid if the creditor is to be dealt with, dependent on the number of hearings required, can often run up around £3,000 -£4,000.
If the company facing this enforcement action by a creditor still does not seek advice as to how to deal with the creditor, (including how it might negotiate with the petitioning creditor with a view to the settlement of the petition debt, how it can obtain an order of court that its bank should release funds in a bank account frozen as a result of the winding up petition, and how other formal processes can be used to avoid formal winding up) it is very likely that a Winding Up Order will be made.
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Once a Winding Up Order is actually made it will only be possible to lodge an appeal (or an application for a stay of the winding up) before the Winding Up Order is perfected, i.e. before the order made by the judge is created, printed and sealed by the court office. Otherwise, following a Winding Up Order, any alternative insolvency process can only be instigated with the approval of Official Receiver, a civil servant who initially acts as the liquidator of the company.
Accordingly, once a company is subject to a Winding up Order a company will require expert advice from an insolvency practitioner on how to deal with the Official Receiver and the courts if the director wishes to prepare an application to the court for a stay of the winding up order or wishes the company to enter an alternative insolvency process as a means of dealing with outstanding liabilities. The costs of this advice from an Insolvency Practitioner may start at around £2,000, but can be considerably more dependent upon the complexity of the company’s position and whether other parties, e.g. banks or invoice & asset finance companies need to be consulted. Any solicitor’s and barrister’s fees for representation of the company will be additional.
To minimise the accumulated costs of dealing with creditors, your company must seek expert advice as soon as possible before enforcement action progresses as outlined above.
Blunt thinking on Dealing with Creditor Action from Yorkshire Powerhouse
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