What action can creditors take against my business for non-payment of debt?

If you fail to meet your liabilities, creditors have a wide range of actions open to them depending on the level of debt. Prior to taking initial legal action, however, they must communicate by letter, setting out the details of your debt and where you should send payment.

There is a limited time to respond to any notices of action or threats of enforcement, so if you haven’t already done so, you should seek advice immediately. Begbies Traynor is the UK’s leading business rescue and recovery practice, and can guide you towards the best solution for your company.

County Court Judgment (CCJ)

If you receive a County Court Summons you have several options, including paying the amount in full and negotiating a new payment plan. Failure to respond to either the summons or the court’s decision will result in a County Court Judgment (CCJ) being issued, and this remains on the company’s credit file for a period of six years.

Notice of enforcement

A notice of enforcement can take various forms, including:

• Bailiff’s warrant of control
• High Court Enforcement Officer’s writ of control
• Charging order on your company’s premises

Controlled Goods Agreement
A signed Controlled Goods Agreement will result in County Court bailiffs removing business assets from your premises to the value of the debt (plus their own costs), and selling the items at auction to repay your creditor.

If the debt amounts to more than £600 the case can be transferred to the High Court, in which case you will be dealing with High Court Enforcement Officers (HCEOs) under a writ of control.

You should receive seven days’ notice of a visit by bailiffs or HCEOs. Their right of entry depends on whether your premises are purely commercial or if there is a residential element, in which case rights are limited.

Charging order
A charging order effectively attaches the debt to an asset of the company, generally land or buildings, but it gives the creditor no rights to sell it. It works in a similar way to a mortgage, the idea being that when the asset is sold, your creditor receives their money.

The asset in question may already be subject to a charge or mortgage, however, in which case the value of the creditor’s return could diminish. The court should use its discretion when granting a charging order - if you are up-to-date with your instalment plan and your creditor still applies for a charging order, the court may see no reason to issue one.

Statutory Demand

A Statutory Demand is an official written request for payment of the debt. You have 21 days to pay in full or come to an arrangement to pay in instalments, but a stat demand issued against a company cannot be set aside (challenged). Instead, you can apply to stop your creditors from winding up your company.

If you don’t respond to the statutory demand, your creditor is able to petition to wind up the company, which would effectively close down the business and all assets would be liquidated.

A specific format must be used for the statutory demand, detailing why it has been sent, when the payment is due, and the consequences of failing to pay. It should also contain the name, address and telephone number of an individual who can be contacted in connection with the debt.

Winding up petition

Your creditor is able to petition for the company’s winding up if an undisputed debt is over £750, and all other avenues of collection have been exhausted. This figure has increased to £10,000 as per the Government's temporary measures which will apply for the period 1 October 2021 to 31 March 2022. Once the 21-day period associated with the statutory demand has passed, non-payment becomes official proof that the debt exists.

When a winding up petition is filed at court, the creditor places a notice in the Gazette. The public nature of this advert usually leads to action by the bank, which involves freezing the company’s accounts in an effort to safeguard their money.

A winding up order is generally granted by the court at the subsequent hearing, unless there is compelling evidence against it. A liquidator is then appointed to realise all business assets, and the company is struck off the register at Companies House by way of compulsory liquidation.

Seeking professional advice is paramount at any of the stages above. In our experience, there are usually options available that could save the company from liquidation, but in all cases you need to act quickly.

Begbies Traynor has 80 offices around the country. Call our team for a same-day consultation, and discuss your situation with a licensed insolvency practitioner.