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What action can a creditor take against my company if they have not been paid?

Failing to pay your creditors leaves you open to various forms of legal action, which can be taken through the County Court or High Court. These are civil rather than criminal courts, and as communications are conducted through the post in the main, you may not even have to attend.

We’ve listed below the actions a creditor can take against your company, in the order that they become available. If you need further assistance in understanding court process, or help in deciding what to do, Begbies Traynor has over 30 local offices and can quickly identify your best options.

Initially, you should receive a letter from your creditor outlining their intention to take action through the courts to recover their debt, also telling you where payment should be sent.

County court summons

If you receive a county court summons, you’ll have 14 days in which to respond. You can pay all or some of the debt, or defend the claim via a court hearing if you believe that you don’t owe the money, or the facts on the claim form are incorrect. It might also be possible to request an additional 14 days to pay.

County Court Judgement (CCJ)

Failing to respond to a county court summons within the time limit will result in a County Court Judgement, or CCJ, being made against the company. This makes the debt (and your company’s insolvency) official. The CCJ will be registered and the credit reference agencies informed if you don’t pay within 30 days.

The fact that your company’s insolvent position is now official leaves you open to more action by creditors, the most drastic of which is a winding-up petition which could close down your business.

Notice of enforcement

An enforcement notice gives you seven days in which to pay or to come to an agreement, otherwise one or more of these enforcement actions could follow:

Bailiff’s warrant of execution
The creditor can instruct bailiffs to collect the debt on their behalf. There are strict rules surrounding bailiff action, however, and your premises can only be entered by bailiffs if there is no residential element and the court has issued a specific order.

You should receive seven days’ notice of a bailiff visit. If you cannot pay, they will attempt to take control of goods under the Controlled Goods Agreement. If you don’t pay or sign the agreement, they have the right to remove goods belonging to the business over and above the value of the debt, to cover the cost of their services to the creditor.

Attachment of Earnings (if you’re also employed)
If you’re employed as well as being a company director, creditors can make an attachment against your earnings. This means that your employer will take repayments at source from your wages.

Charging Order
A charging order can be granted by the court if you own or have a mortgage on your business premises or home. It puts your property at risk in the future, but doesn’t give a creditor the right to sell it. In essence, a charging order secures the value of their debt to one of your assets.

Statutory Demand

Your creditor can issue a statutory demand for payment if you fail to pay your debt. Unfortunately, this is often followed by a winding-up petition, which generally results in a company being liquidated and closed down. You have 21 days in which to pay, once in receipt of a statutory demand.

Winding-up petition

This is an attempt by your creditor to close down your business and recover their debt. It is a creditor’s last resort, and although it can be used for debts over £750, it’s more likely that the debt is significantly more, as this process is very costly for a creditor. You may have options open to you at any stage of these processes, but it is important to act quickly and obtain the advice of a licensed insolvency practitioner. As the leading UK business recovery practice, Begbies Traynor can offer invaluable guidance on what to do at any stage of the debt recovery and enforcement process. You can call any of our local offices to discuss your needs at a same-day meeting.

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Insolvency Practitioners Association Institute of Chartered Accountants in England and Wales R3: Association of Business Recovery Professionals ICAEW Business Advice Service Turnaround Management Association ACCA (the Association of Chartered Certified Accountants) ICAS | The Institute of Chartered Accountants of Scotland