Insolvency – The Journey

   

 

What will happen when insolvency proceedings are begun against you and/or your business and what should you be doing about it?


The procedures for personal and corporate insolvency are similar in some respects, different in others. The most significant difference is that the final hearing in personal insolvency (a bankruptcy hearing) is heard in chambers, i.e. Judges’ rooms, whereas the final hearing in corporate insolvency (a winding up petition) is heard in open court.

Bankruptcy

  • You will be approached by a Process Server (a private agent employed by the creditor who is seeking payment from you) and handed a Statutory Demand. This is a document which claims you are insolvent as a result of owing the creditor a specified sum of money.
  • If you believe you do not owe the money, or are in dispute with the creditor over other matters which set off the sum claimed to be due, then you can apply to the court to have the Statutory Demand set aside. You need to do this straight away.
  • If you do not make an application to set aside the Statutory Demand, or your application fails then the creditor can issue a Bankruptcy Petition, which will be handed to you personally in the same way as the Statutory Demand.
  • It is open to you to defend the Bankruptcy Petition and you should always attend the court hearing to make your case. It may be that the court deals with the Petition there and then, but if you wish to defend the Petition and it appears you have a defence, the court may adjourn the hearing to a future date in order to allow time to hear all the arguments.

If your defence fails either at the first hearing or a later one, then the Judge will make a Bankruptcy Order.

  • If you apply to set aside the Statutory Demand and defend the Petition then it can take up to four to six months for a Bankruptcy Order to be made. If you do not then the process can take less than three months. These time estimates are subject to how full the court’s calendar is.
  • Following the making of the Bankruptcy Order you will need to meet with the Official Receiver and complete a detailed Bankruptcy Questionnaire.
  • Following that meeting if it appears you have no assets or any meaningful income it is unlikely that a Trustee will be appointed. You will be required to co-operate with the Official Receiver and will be automatically discharged from your Bankruptcy one year after the Bankruptcy Order being made.
  • If you do have assets, or it would appear you have disposed of assets prior to your Bankruptcy the Official Receiver may appoint an Insolvency Practitioner as your Trustee. The Trustee will then take over the running of the Bankruptcy and undertakes any investigations which appear to be necessary.

Provided you co-operate you will be automatically discharged from your Bankruptcy one year after the Bankruptcy Order being made.

Liquidation

Although it is possible for a creditor to deliver a Statutory Demand to your Limited Company, it is more common for the creditor to send you a formal Letter of Demand giving seven days for the sum claimed due to be paid.

  • If your company does not/cannot pay the money then it is open to the creditor to issue a Winding Up Petition and have this delivered personally to the Registered Office of your Company. It may be possible to enter into a dialogue with the creditor or in some cases issue an application at court for an injunction to prevent the Petition being issued.
  • Your company now has another opportunity to either pay the amount claimed to be due or issue an application for an injunction to prevent the advertisement of the Petition.
  • In the event of non payment or application for injunction failing, the creditor must advertise the petition in the London Gazette and once this happens the bank may freeze your company account. Payments from the account can be made following this but only usually after making an application to court.

The Petition is then heard in open court and, if not defended, a Winding Up Order will be made. If you do defend the Petition it is likely proceedings will be adjourned to a future date when the court has more time to hear all the arguments.

  • If you defend the Petition then it can take up to four months for a Winding Up Order to be made. If you do not then the process can take about two months. These time estimates are subject to how full the court’s calendar is.
  • Following the making of the Order the directors of the Company are required to meet the Official Receiver and complete a detailed questionnaire. A Creditors’ Meeting may be called with the intention of appointing a Liquidator.
  • The Liquidator will undertake an investigation into your company’s affairs and, if necessary, instruct solicitors to assist him in. The Official Receiver may also carry out investigations and in some cases action may be brought against former directors in respect of Disqualification Proceedings.