From today (1 April), creditors can present a winding up petition without (a) having to give 21 days to the debtor company to make proposals to pay, and (b) being owed a debt(s) of £10,000. Given that all temporary restrictions and processes have now ended, the ‘gloves are off’ when it comes to debt collection.
Although presenting a winding up petition incurs a hefty court fee, the effect (or even threat) of a winding up petition can elicit a swift payment to avoid the consequences that an outstanding petition can present to a debtor company, including
- reputational impact,
- director duty concerns – wrongful trading/misfeasance,
- the company’s lender freezing its bank account(s),
- the risk of making payments that can be clawed back if the company is wound up; and
- ultimately a winding up order.
Any one of the above may have a damaging effect on the business and reason for the debtor company to pay quickly.
For companies concerned about aggressive creditor action it is worth remembering that a petition can be presented at short notice, giving the debtor company little time to respond – 3 day demand letters are not usual, but even 24 hours’ notice of an intention to present a petition is permissible.
For companies faced with even the threat of a petition, they should not assume that they have time on their side, and take advice at the earliest opportunity. It is also worth noting that even if a petition debt is paid, there is a risk that another creditor make take over control of the process and that payment to the initial petitioning creditor may not be the end of the matter!
For creditors that have effectively had their hands tied, and been unable to use winding up as a threat to recover unpaid debts, they will now be able to threaten (and pursue) a winding up petition as a means of recovering debt. The unpaid debt has to be undisputed, but the threshold that was temporarily increased to £10,000 will no longer apply, meaning that the door is once again open for creditors to use winding up as a means to recover debts of £750 or more.