The threat insolvency proceedings on a debtor is immense and can result in payment being made. However, it is a risky approach.
A Winding Up Petition Is A Potential Abuse Of Process
The courts consider using insolvency proceedings as a method of collecting debts, as an abuse of process. If the debtor has the money or assets to pay the debt, other methods of obtaining payment should be used. If the debt is disputed by the debtor, the court may consider the petition as an abuse of process. The insolvency courts are there to decide whether the debtor is solvent or not. They are not there to resolve disputes. If the court decides your winding up petition is an abuse of process, it will dismiss the petition and likely order you to pay the debtor’s legal costs of opposing it.
The Effects Of Issuing A Winding Up Petition
- Any dealings with company money or assets after the issue of the petition, are void without the consent of the court. Therefore, any money received by you from the debtor after the petition has been issued, can be taken back by the liquidator if the company is wound up by the petition.
- Advertising the petition makes its existence public knowledge. This can:
- Result in the banks freezing the debtor’s bank accounts. This can bring the debtor to a grinding halt as it will not be able to pay wages, etc.
- Result in other creditors trying to recover payment as well at the same time as you.
- Cause harm to the reputation of the debtor making it more difficult for them to recover or put together a package for payment.
-If a lease specifically includes provision, it can allow the landlord to terminate a lease with the debtor if a winding up petition is presented or there is some other form of insolvency event. That could stop the debtor from being able to trade.
All the above will effectively hinder or prevent the debtor being able to make payment to you.
What If The Debtor Company Is Wound Up
If the debtor is wound up by the court, a liquidator is appointed to get together the assets of the debtor and to make payments to creditors if possible. A liquidation may not be a quick process and you may not receive any payment at all. If there is money available to the creditors, this will be reduced because of the costs of the liquidator.