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' hand.

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.