What will it cost me to chase overdue debt with a winding up petition?
- By Derek Cooper
- Published 04/17/2010
- Finances
- Unrated
What will it cost me to chase overdue debt with a winding up petition?
As the economy begins a fragile recovery, winding up petitions will continue to be used as a method of debt collection. However, the cost of issuing a winding up order is often considerable
Despite the recent figures suggesting that the British economy moved out of recession in the last quarter of 2009, there are very few who believe that the recovery will not be long and difficult.
In the coming months, it will be very important to maintain cash flow if the a company is to continue in business. This task will be made all the more difficult as customers demand longer and longer payment terms. Many businesses will be suffering their own cash flow problems and will therefore pay late or not at all.
When a debt becomes increasingly old despite the usual attempts to get it repaid, you can try to collect it by issuing a winding up petition against the company who owes you the money
A winding up petition causes the debtor huge difficulties
Once a winding up petition is issued, the company will find it very difficult to trade as their bank account will be frozen. They will incur cost fighting the petition or risk the closure of their business.
Because of this, even the threat of issuing a winding up petition may be enough to get a debtor company to pay an overdue invoice. Its use as a debt collection tool can therefore be very effective.
Given the advantages in collecting the debts it would appear to be a "no-brainer" to go ahead. There are however costs and risks to taking action to wind up a company.
Costs can increase up to GBP2,000 with no guarantee of payment
First of all, it is impossible to apply for a winding up petition without first having issued a statutory demand for payment. This would have to be arranged through a solicitor at a cost of between GBP150-GBP200.
If payment is not forthcoming in 21 days, a winding up petition can be applied for at the High Court. The solicitor's costs for this application will normally be between GBP 1,500 and GBP 2,000. However, there is no guarantee that the High Court will issue the petition.
A petition will only be issued if the court is convinced that all other reasonable methods of collecting the outstanding debt have been exhausted.
Once a petition is granted, at this stage clearly it is hoped that the company pays its debt or makes suitable arrangement to pay it. Should the company be unable to do so then it will be wound up If this happens, the creditor who originally petitioned for the winding up will be treated as an unsecured creditor and is very unlikely to be paid.
The use of the winding up process can be an extremely effective method of debt collection. It is not cheap however and there is the risk of the debtor being wound up and the creditor ending up with little or nothing to show for it. As such, the use of this process must be carefully planned and thought through.
Despite the recent figures suggesting that the British economy moved out of recession in the last quarter of 2009, there are very few who believe that the recovery will not be long and difficult.
In the coming months, it will be very important to maintain cash flow if the a company is to continue in business. This task will be made all the more difficult as customers demand longer and longer payment terms. Many businesses will be suffering their own cash flow problems and will therefore pay late or not at all.
When a debt becomes increasingly old despite the usual attempts to get it repaid, you can try to collect it by issuing a winding up petition against the company who owes you the money
A winding up petition causes the debtor huge difficulties
Once a winding up petition is issued, the company will find it very difficult to trade as their bank account will be frozen. They will incur cost fighting the petition or risk the closure of their business.
Because of this, even the threat of issuing a winding up petition may be enough to get a debtor company to pay an overdue invoice. Its use as a debt collection tool can therefore be very effective.
Given the advantages in collecting the debts it would appear to be a "no-brainer" to go ahead. There are however costs and risks to taking action to wind up a company.
Costs can increase up to GBP2,000 with no guarantee of payment
First of all, it is impossible to apply for a winding up petition without first having issued a statutory demand for payment. This would have to be arranged through a solicitor at a cost of between GBP150-GBP200.
If payment is not forthcoming in 21 days, a winding up petition can be applied for at the High Court. The solicitor's costs for this application will normally be between GBP 1,500 and GBP 2,000. However, there is no guarantee that the High Court will issue the petition.
A petition will only be issued if the court is convinced that all other reasonable methods of collecting the outstanding debt have been exhausted.
Once a petition is granted, at this stage clearly it is hoped that the company pays its debt or makes suitable arrangement to pay it. Should the company be unable to do so then it will be wound up If this happens, the creditor who originally petitioned for the winding up will be treated as an unsecured creditor and is very unlikely to be paid.
The use of the winding up process can be an extremely effective method of debt collection. It is not cheap however and there is the risk of the debtor being wound up and the creditor ending up with little or nothing to show for it. As such, the use of this process must be carefully planned and thought through.
Derek Cooper
If your business is in financial difficulty why not talk to us about solutions, more info at http://www.company-debt.co.uk More info on Winding Up at http://www.winding-up.info Derek Cooper is Managing Director of Cooper Matthews Limited. Cooper Matthews specialise in Business Debt Advice, providing expert help so that you can turn your business around.
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