Recover debt through Court

Bankruptcy applies to a person or a general partnership. If it is a general partnership, all the partners are made bankrupt.  The assets are sold and the proceeds are paid to the unpaid creditors.

Find further guidance on bankruptcy.

The threat and how it works

Often the mere threat of winding up or bankruptcy is very effective. But if the customer still refuses to pay, you might consider the following steps:

• A statutory demand, from a legal stationer or solicitor, or downloadable, can be prepared and issued by the creditor without necessarily using a solicitor to complete the paperwork for you.
• The demand must be delivered to the customer, preferably by hand or by post, using the special delivery or registered mail services. In the case of a registered company, the statutory demand should be served at the registered office.
• On receipt, the customer has a fixed number of days to pay or respond.
• If they do not do so, you can issue a winding up (company) or bankruptcy (individual) petition.
• If you follow all the procedures correctly, and the court finds in your favour, the customer will be wound up or made bankrupt. However, just because you issue the petition does not mean you get priority over whatever money becomes available.

The law assumes that a statutory demand merely paves the way for a petition. But it can be a very powerful debt collecting device in its own right, without the need to proceed to a petition. If the demand results in the issue of a petition (not an order for winding up) it may be publicised on the internet. This means that small businesses have an effective debt collection tool against customers of all sizes.

You should seek legal advice before you act, and you should only act if the money is definitely owing.

As a last resort, if the amount you're owed is more than £750, you can apply to make an individual debtor bankrupt, or issue insolvency proceedings if the debtor is a limited company. Such proceedings can be costly.

Appointing a liquidator or trustee

Where a company is put into liquidation or a person is made bankrupt, you may have to appoint a licensed liquidator or trustee in bankruptcy.

Insolvency practitioners charge fees to the money recovered and you may have to guarantee these fees if the money recovered is not enough.