Winding-Up Petitions as a debt collection tool?
Faced with a customer who is
not paying its invoices, the standard remedy is to threaten the
issue of County Court proceedings to recover the debt. The
problem with this is that the procedure is quite slow and a debtor
who knows how to 'play the game' could extract at least a 4 week
delay out of the process. The key objective in debt
collection is to get to the top of a cash strapped debtor's
priority for payment and the threat and issue of County Court
proceedings is unlikely to achieve this.
Because of these limitations,
where a debtor is a company, a very useful tactic may be to
threaten (on, say, 3 days' notice) then issue a Winding-Up Petition
based on the debtor's inability to pay its debts as they fall due
and this can be a very effective way of gaining the debtor's
attention and ensuring payment.
The Winding-Up Petition
process has its own limitations; it cannot be used where there is
some form of genuine dispute and, in addition, certain Judges have
always been a bit disapproving of attempts to use an insolvency
process for debt collection.
However, a recent case, Angel
Group Limited v British Gas Trading Limited has shown, once again,
the effectiveness of such procedure. Angel owned a series of
properties with British Gas as its utilities supplier. There
seems to have been a long running and complex dispute as to amounts
due, including problems with estimated bills and the basis for
charging. Angel stated that they had paid the undisputed
elements of the bills. British Gas issued a Winding-Up
Petition which Angel sought to have struck out as an abuse of
process, arguing that the dispute should now proceed by way of
normal Court proceedings.
The Court, perhaps a little
surprisingly, disagreed; whatever the disputes, the Court was
satisfied that Angel owed more than £750, the minimum required, and
the Winding-Up Petition could continue.
This appears to represent a
hardening of the Court's attitude towards debtors and it will be
interesting to see if future cases follow this lead. The
Court appears, from the report, to have been critical of Angel's
actions over a period of time in not paying invoices and this may
have counted against them.
The case does provide a useful
reminder of the effectiveness of the winding-up process in debt
collection; it is anticipated that Angel will now have to pay the
sum in question, thereby strengthening British Gas'
18 October 2012
This article is for general guidance only. It provides useful information in a concise form. Action should not be taken without obtaining specific legal advice.