Bankruptcy petition threshold increases

From 1st October 2015 the £750 minimum liability threshold of debt for which creditors can petition for the bankruptcy of an individual has increased to £5,000.

Given the effort involved to make this change, it is interesting that the legislators have left the minimum liability threshold for creditors to petition for the winding up of a company at £750, a figure that was set in 1986.

Whatever the threshold, a petition should really only be issued with the intention of following it through to achieve bankruptcy or winding up as petitions are not intended for use as a debt recovery tool.

The issue however, is how do creditors get paid when dealing with a recalcitrant debtor who is ignoring them.

Historically the debt collection route was to pursue a money claim through the courts, however this is now expensive following the recent increase in fees to a whopping 5% of claim. This route also highlights the inadequacy of UK’s debt recovery procedures where debtors often get away with ignoring creditors, including ignoring a court judgement for payment where there are no assets. They can do this since the appointment of bailiffs of sheriffs only works where assets can be found and seized although such a visit sometimes frightens a director into making payment.

As a result creditors and their legal advisers have increasingly been using petitions as a means of obtaining payment.

The result is that a petition has become a realistic alternative for debt recovery despite it being an abuse of process.

For companies on the receiving end of a petition, it focuses the mind and generally forces the directors to deal with the liability or confront the prospect of the company being wound up. Such an outcome is often not what they want, even where they had hoped that by ignoring their company’s creditors, they would simply ‘go away’.

It would appear that the courts have some sympathy with creditors since they now tend to overlook obvious abuses of the procedure by not holding petitioning creditors or their barristers as court representatives to account. As an example I am seeing more and more solicitors pursuing payment on behalf of clients simply by serving a petition without first serving a statutory demand.

Those companies on the receiving end of a petition often don’t know what to do but might be reassured that there are several options for saving their company. This is however, an area which is not DIY so directors should seek professional advice since it is often a matter of understanding and following procedure.

In summary, the petition threshold is unlikely to influence the number of petitions. Instead, the factor impacting on the number of petitions is the recent increase in cost of obtaining judgement. Despite this a petition does not necessitate the demise of a company and there are several options to consider for those who wish to save their business.

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