Liquidation petitions against debt collection companies

Starting today (April 1), creditors can petition for liquidation without (a) having to give the debtor company 21 days to make payment proposals, and (b) being liable for payment. debt(s) of £10,000. With all temporary restrictions and procedures now complete, the “gloves are off” when it comes to debt collection.

Although filing a winding-up petition entails high legal costs, the effect (or even the threat) of a winding-up petition may result in prompt payment to avoid the consequences that a pending petition can have for a debtor company, including

  • impact on reputation,

  • director duty concerns – unlawful dealings/misconduct,

  • the company’s lender freezing its bank account(s),

  • the risk of making recoverable payments in the event of liquidation of the business; and

  • finally a liquidation order.

Any of the above can have a detrimental effect on the business and cause the debtor business to pay quickly.

For companies concerned about aggressive action by creditors, it should be remembered that a request can be made at short notice, leaving little time for the debtor company to respond – 3-day demand letters do not are not customary, but even 24 hours notice of an intention to petition is permitted.

For businesses faced with even the threat of a petition, they should not assume they have time on their side and seek advice as soon as possible. It should also be noted that even if a petition debt is paid, there is a risk that another creditor will take control of the process and payment to the original creditor of the petition may not be the end of the matter!

For creditors who effectively had their hands tied and were unable to use liquidation as a threat to collect unpaid debts, they will now be able to threaten (and pursue) a petition for liquidation as a means of collecting the debt. Unpaid debt must be undisputed, but the threshold which has been temporarily increased to £10,000 will no longer apply, meaning the door is open again for creditors to use liquidation as a way to collect debts £750 or more.

© Copyright 2022 Squire Patton Boggs (USA) LLPNational Law Review, Volume XII, Number 91

Tana T. Thorsen