Companies who have financial issues and are struggling to repay their bills are likely to face pressure from their creditors (i.e. the people and companies they owe money to). If no solution is reached, these creditors are likely to utilise certain debt recovery methods, ranging from attempts at communication to hiring debt collectors. Should these debt recovery attempts fail, creditors are likely to escalate things in an attempt to get their money. One of the first steps in this escalation is a County Court Judgment (CCJ).

A County Court Judgment can be applied for by creditors who have seen previous attempts at debt collection fail. A CCJ issues a formal demand for repayment to a company, which must either adhere to this demand, or risk further escalation. If you have received a CCJ for your company’s debt, you might be asking – what is the CCJ process, and what can I do about it?

In this article, Clarke Bell will answer these two questions and cover your options for responding to a CCJ (including putting your insolvent company into liquidation to deal with its debts once and for all).

What is a CCJ?

A County Court Judgment is a document that orders a debtor to make a full repayment of a debt. A court typically issues a CCJ on behalf of a creditor who has made several fruitless attempts at debt recovery. By applying for a CCJ, a creditor can utilise the authority of the courts to compel their debtor to repay, or to use a refusal as grounds to take further action. A winding-up petition, for example, could be used if a company cannot, or will not, adhere to a CCJ.

Applying for a CCJ

Creditors may apply for a CCJ if their debtor has failed to keep up with monthly repayments, and the situation has not been resolved through other means. Creditors must meet certain eligibility criteria, however. Before applying, creditors must know the precise sum they want to claim, the outstanding value must be below £10,000 if the claimant requires financial assistance with court fees, and the value must be below £100,000 overall. Assuming your debt meets these criteria, then your creditors can apply for a CCJ.

A CCJ application can be submitted either online or by post. Both applications require the debtor’s name, the company headquarters location, and contact information for both the applicant and the debtor. Additional information surrounding the specifics of the case will also be required. Once all data is included, applicants require a means of payment for court fees before submitting the application. Creditors applying using a paper document must complete the N1 form, then send it with an accompanying cheque to the Civil National Business Centre.

Receiving a CCJ

If one of your creditors has made a successful CCJ application, you will receive a document detailing the specifics of your case. This includes vital information that you need to formulate a proper response. This includes the following:

  • Your case’s claim number, which will be used during communications with various parties.
  • Date of issue, which will be used as the reference point for various timeframes.
  • The name of your claimant.
  • Your company’s details. You should ensure these details are completely accurate, as even minor errors can be grounds for appealing to the courts to have the CCJ set aside.
  • The details of the court handling your case. Any court-related communications should be made to this address.
  • An address for sending documents and payments, which is usually the address for the claimant’s solicitor. In some cases, your creditor will not include an address. It should be assumed that the creditor wishes you to contact them directly, though it can be a good idea to clarify this.
  • The reasons behind the serving of a CCJ.
  • Amounts payable, along with any costs and legal fees.

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How long does a CCJ last?

County Court Judgments essentially have two timeframes: a thirty-day timeframe and a six-year timeframe. If a full repayment is made within thirty days, the CCJ will not be registered against your company. This effectively keeps it off the public record, ensuring future creditors and business partners don’t catch wind of your CCJ.

If a full repayment cannot be made during the thirty-day window, creditors can take this as evidence that your company is insolvent. This evidence can then be used to legitimise further action, such as a winding-up petition. However, repayments can still be made during this timeframe, and agreements can be struck. Provided you keep to your end of the bargain, creditors are highly unlikely to escalate the situation.

Responding to a CCJ

Once you receive a CCJ order, fast action is essential. Leaving a CCJ unchecked can easily lead to creditors losing faith in any attempts at negotiation, instead causing a turn to more forceful methods of debt recovery. Upon receiving a CCJ, you should consider the following responses:

  • Make a full repayment within the thirty-day timeframe.
  • Enter into a repayment agreement with your creditor. This can take the form of a Company Voluntary Arrangement, if necessary.
  • Enlist the help of a licensed insolvency practitioner (like Clarke Bell) to explore a business rescue plan. If this is not an option then an insolvency practitioner can implement other insolvency procedures, such as Creditors’ Voluntary Liquidation (CVL).
  • Find alternative forms of finance, such as invoice financing, to quickly raise funds for a swift repayment.
  • Dispute the CCJ and have it set aside.

Can a CCJ be removed?

If you believe your creditor has submitted a CCJ in error, you may have grounds to appeal to the courts to have it set aside. An appeal to have a CCJ set aside can be made for several reasons, but there must be a valid justification behind the claim. Appealing without proper cause will not be viewed positively, and can result in negative consequences for directors.

When appealing to have your CCJ set aside, a range of justifications can be given. In general, a CCJ can be set aside if any of the information is incorrect, or creditors have not followed the proper procedure. If you can prove that the CCJ information is incorrect, such as an incorrect sum, address, or even debtor, then you can appeal to have it set aside. Similarly, if you can prove that your creditor did not follow procedure, making no attempt to contact you or recover the debt through other means, then it may be possible to have the CCJ set aside.

Let Clarke Bell help

Receiving a CCJ can be stressful, especially if your company is experiencing financial problems.

If you have received a CCJ, and you think the best option for your insolvent company is a Creditors’ Voluntary Liquidation (CVL), we can help you.

Clarke Bell have more than 29 years of experience in helping companies find the best solutions to their financial problems. We can do the same for you. 

Contact us today for a free, no-obligation consultation.

There is often some confusion around the terms Statutory Demand and winding up petition. While part of the same procedure, these terms are very different, though equally serious for company directors. 

In this article, Clarke Bell will discuss the difference between a Statutory Demand and a winding up petition. We will also discuss what it means to have an insolvent company; and how a Creditors’ Voluntary Liquidation can sort out a company’s debt problems, once and for all.

What is a Statutory Demand?

A Statutory Demand is a prerequisite for creditors to submit a winding up petition. They can be issued by any creditor if they are owed a debt in excess of £750. In essence, they are the first step in the winding up process, acting as an official request for a company to either repay its debts in full, or reach an agreement with the creditor behind the demand. Once served, a company has 21 days to reach one of these two outcomes. If neither outcome is reached within this time frame, then this will be considered evidence that your company is insolvent, and the creditor is entitled to use other methods to recover their debt.

Statutory Demands are not issued lightly. They are typically one of the last actions considered by creditors, after a range of other actions have been tried and failed. However, once a Statutory Demand has been issued, it can be safely assumed that the creditor is very serious about recovering their debt. If a Statutory Demand is not resolved within the 21-day time frame, a winding up petition is almost certain to follow.

What is a winding up petition?

A winding up petition is the next step after a Statutory Demand has either gone unpaid, or has not paved the way for a new agreement. Creditors can initiate a winding up petition after their Statutory Demand elapses. This can be done by creditors approaching the courts with the relevant documents and particulars of the case in question. In doing so, they will formally request that the courts force their debtor into compulsory liquidation. This is not an action that will be taken flippantly; submitting a winding up petition will cost £1,600 in a deposit, plus additional legal costs. The procedure will also take a good deal of time and effort on behalf of creditors. In other words, if your creditors submit a winding up petition, then they are serious about recovering their debt.

Effects of a winding up petition

Once a winding up petition has been submitted and accepted by the courts, a date for a court hearing will be set. This hearing will give both sides, creditors and company directors, a chance to make their case. Creditors will aim to prove that the debt is valid, and liquidation is the only method of recovery, while directors have the chance to dispute the debt. 

If the court rules in favour of the company, then the winding up petition will be stopped. This allows the company to continue operating as normal. While certainly the best outcome for a company, it is also the least likely. Creditors usually have a strong case to justify their investment in the process, making a successful challenge easier said than done. 

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If the court rules in favour of creditors, the result will normally be the company being placed into ‘compulsory liquidation’. Usually, The Official Receiver will act as the liquidator initially, although a firm of insolvency practitioners will often complete the liquidation process. The result of the compulsory liquidation will be the closing of the company, any assets being sold and the distribution of any proceeds amongst creditors. There may also be legal consequences for directors, depending on their conduct.

Avoiding a winding up petition using Creditors’ Voluntary Liquidation

Given the negative consequences of a winding up petition, it is generally best for companies to avoid being served one. If your company has debts which it cannot pay back, a popular option is to put the company into Creditors’ Voluntary Liquidation. A CVL is an insolvency procedure that provides directors with a pro-active way of dealing with an insolvent company.

As it is a voluntary procedure, directors are allowed to appoint an insolvency practitioner of their choice to the role of liquidator. While in this role, the liquidator will effectively take charge of the company for the purposes of carrying out the procedure. They will identify any company assets, dispose of them for the highest amount possible, and distribute any proceeds amongst creditors. Once all distributions have been made, the company will be wound up and removed from the Companies House register. Any debts that remain will be written off, except for debts secured by personal guarantees.

The CVL procedure also grants directors strong legal benefits. Most notably, the company will be protected from legal action once it is entered into the procedure. This essentially removes the risk of a winding up petition, and the compulsory liquidation that often follows. Furthermore, should any of your creditors make accusations of misconduct, using a CVL makes for a good defence. It shows that you were prepared to act in the interests of your creditors, and took the initiative when it was appropriate to do so. 

For more information about CVLs, read our complete CVL guide.

Clarke Bell can help

Statutory demands and winding up petition make clear the intentions of outstanding creditors, and their desire to get paid what they are owed.

If your company has debts that it cannot pay back, Clarke Bell can help you. 

We have more than 29 years of helping companies reach the best possible solutions in difficult situations, and we can do the same for you. 

Contact us today, for free, and find out how we can help you.

Receiving a CCJ, or County Court Judgement, is a realistic possibility for companies struggling with their finances. Creditors can apply to have one served to such a company, which can have a series of detrimental effects if approved. However, it is possible to mitigate the effects of a CCJ, and even prevent one from being served outright.

In this article, Clarke Bell will discuss what a CCJ is, how it can impact your company, and what you can do about it. We will also discuss what to do if you are unable to pay the CCJ and any other company debts.

What is a CCJ?

A County Court Judgement (CCJ) is a legal document issued by a court to a company, ordering a debt repayment. Creditors may apply for a CCJ to force a company into repaying an outstanding debt, assuming the court agrees with the claim. Should a CCJ be issued to a company, directors will receive a document detailing the particulars of the CCJ. This includes the amount owed, the creditor who applied, dates and deadlines, and your options.

If you receive a CCJ, you’ll have a few ways to respond, including:

  • making a full repayment
  • reaching a repayment agreement with your creditors
  • making a counterclaim against your creditor
  • disputing the CCJ’s legitimacy. 

We will cover these approaches in more detail later. 

It is vital that you respond to a CCJ. Ignoring it will likely result in more problems, as the courts may use more severe debt collection methods.

Will a CCJ be visible on my company’s records?

One of the downsides of a CCJ is that it will be present on your company’s records. These can be accessed via the Register of Judgements, Orders, and Fines, which is a publicly available database. This database can be viewed for a small fee by future creditors, stock providers, and potential business partners. This can jeopardise these future potential relationships and make them more difficult to secure. This can be quite an issue as a CCJ remains on a company’s records for six years.

Although a CCJ will typically be added to your company’s records, this rule has certain exceptions. The first exception is if a company pays its debt in full, as ordered, within 4 weeks. The second exception is mounting a successful dispute against a creditor. If a company can prove that the CCJ was submitted in error, or had factual inaccuracies within the claim, then the CCJ will be set aside and removed from the company’s records.

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The effects of a CCJ

Assuming a CCJ is added to a company’s records, it will have a number of noteworthy and detrimental effects on the company. Most notably, receiving a CCJ is an ultimatum; your company will either repay the debt in full, reach an agreement with creditors, or face further legal action. As such, you have lost the initiative to creditors once a CCJ is served.

In addition, having a CCJ added to your company’s records can make future negotiations difficult – e.g. attempting to take out loans. As anyone can pay to see the details of your company’s CCJs, future creditors and suchlike may impose unfavourable terms in a contract, or refuse to work with your company outright. To make matters worse, CCJs are visible for six years, meaning this could be quite a persistent problem.

Responding to a CCJ

If your company receives a legitimate CCJ, your options for handling it are limited. You can pay the debt in full. This will resolve the CCJ and get it removed from your company’s records, if done within 4 weeks. However, this is often easier said than done for companies struggling financially, as the recipients of CCJs often are.

Another option is to negotiate a new repayment agreement with your creditor. This can be done using a Company Voluntary Arrangement (CVA), a formal insolvency procedure specialising in reaching new repayment agreements. The end goal is to reach an agreement that suits both parties, and will act as a resolution to a CCJ.

If you cannot pay the debt association with the CCJ, it is crucial that you do not bury your head in the sand. An insolvency procedure called a Creditors’ Voluntary Liquidation (CVL) is often the best solution for you.

If your company receives a CCJ in error, then you may contest the CCJ in court to have it set aside. This can be accomplished by submitting clear evidence of an error, such as an incorrect loan sum, a failure to follow procedure, or outright misconduct. You would be advised to take legal advice about the best way to pursue this approach. 

It is vital that you only contest a CCJ if you have reason to believe it was made in error; mounting a frivolous dispute will not be viewed well by the court, and may result in penalties.

Consequences of ignoring a CCJ

Ignoring a CCJ is not a good idea. Although it may be tempting in times of financial difficulty, it could result in your creditors taking further action. This could include sending bailiffs to seize assets or submitting a winding-up petition. Additionally, it will be a mark against you should your creditor take you to court on accusations of director misconduct. 

If you cannot pay your CCJ, you should take professional advice from your accountant and/or an insolvency practitioner (like Clarke Bell). A popular option for dealing with debts that a company cannot pay, is to place the company into Creditors’ Voluntary Liquidation (CVL).

Clarke Bell can help you

If you have received a CCJ, and you cannot pay back the money that you owe, give us a call.

Clarke Bell have more than 29 years of experience in helping companies find the best solutions to their financial problems. We can do the same for you. 

Contact us today for free advice from our friendly team of experts.

As an accountant you are a key and trusted source of advice for your clients. They will seek your help for a wide range of things. However, there will sometimes be areas in which you cannot provide the level of assistance they need – such as if their company has no way of paying its debts or if they want to liquidate a company.

This is where Clarke Bell can help.

We are a well-established firm of corporate insolvency practitioners, specialising in liquidations and administrations. (We do not provide general accounting advice.) We help accountants and their clients across the whole country. The two main areas we deal with are insolvent liquidations (CVLs) and administrations, and solvent liquidations (MVLs).

Our aim is to help directors in the best and most cost-effective way possible, depending on their particular situation.

Insolvency

Insolvency is a term that refers to companies with more debts than assets, or that cannot repay their debts as they come due. Companies that meet this description must take immediate measures to deal with the situation. Continuing operations as normal may well be perceived as director misconduct. To identify possible recovery methods, or whether recovery is possible at all, the services of an insolvency practitioner (like Clarke Bell) are vital.

Signs of upcoming insolvency in a limited company

As an accountant, having your finger on the pulse of a client’s financial health is good practice. It can help you provide advice to your client at just the right time, possibly averting any would-be financial crises. This can also be the case for insolvency, as knowing the typical warning signs of insolvency in a limited company can help you steer your client clear of the problem.

There are a series of warning signs that can indicate potential insolvency in a limited company, including:

  • reaching borrowing limits, to the extent that additional credit is difficult or outright impossible to obtain
  • struggling to pay operational costs, such as employee salaries and stock.

Both of these warning signs can usually be spotted by accountants, if they can be keeping track of their clients’ company finances.

Arguably, the most severe warning sign is creditor pressure. Rapidly increased creditor pressure for repayment of their bills often acts as a health check. If the demands for repayment cannot be met, then the company is likely to be on the brink of insolvency, if not already insolvent.

Testing for insolvency in a limited company

While the above warning signs can certainly be useful to give an idea of financial health, they are largely passive indications. For a more active approach, accountants and directors can make use of two insolvency tests that can be conducted at any time to produce actionable information. These tests are called the cash flow insolvency test and the balance sheet insolvency test.

  • A cash flow insolvency test is a tool that can be used to glean information over the short term. It can be used to predict immediate financial difficulties and insolvency, and the accuracy decreases as the time period under analysis increases. To conduct a cash flow insolvency test, you will need to assess your client’s cash flow over a period of time. If a cash flow analysis shows that a company has more outgoings than revenue, or that the company cannot repay its upcoming debts, then impending insolvency is likely.
  • A balance sheet insolvency test can be used to predict insolvency upcoming in the long term. This test can be conducted by performing a thorough examination of a company’s balance sheet, making note of all assets owned by a company and all of its liabilities. If a company is found to have more debts than assets, then it can be considered balance sheet insolvent. While this doesn’t mean a company will encounter financial difficulties in the immediate term, balance sheet insolvency clearly shows the path a company is on.

Liquidity ratios are often calculated by accountants to show whether their client passes the cash flow test. A lot of modern forecasting and budgeting software contain these ratios which are designed to show various levels of liquidity. The “acid test” is cash at bank less all current liabilities.

There are ‘softer’ tests which incorporate additional current assets such as debtors and stock / work in progress.

While a lot of accountants will be familiar with these from their exam days, they are much easier to calculate now, as they are normally included in forecasting software.

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Creditors’ Voluntary Liquidation – advice for accountants

A Creditors’ Voluntary Liquidation (CVL) is one of the most common procedures used by insolvent companies. It gives directors of insolvent companies a way to close down the company efficiently, while ensuring their creditors are repaid, as far as possible, and their legal obligations are fulfilled. The procedure also provides other benefits, such as certain legal protections, more of which can be read about in our complete guide to Creditors’ Voluntary Liquidations.

If your client is facing insolvency and considering a CVL, they are likely to have a range of questions, including concerning their legal obligations as company directors and whether they can claim any redundancy payments with a CVL.

We can help answer these questions, and any others that you and your clients may have.

You can be involved in the CVL process as much as you want. We can work directly with your client, or we can liaise with you instead. Normally, it is a combination of these two approaches. For work you do in helping to close the company, you can normally earn a “statement of affairs” fee.

Other insolvency solutions

Whilst CVLs are the most popular way to deal with an insolvent company, there are other options – including Administrations and Company Voluntary Arrangements (CVAs).

These options are far rarer, but are right for some situations. If they are the better option for a client, we will always recommend that solution.

Another option is to let a company go into compulsory liquidation. However, this is not a solution that we would recommend.

It is important to be aware that a company cannot be dissolved it has any debts. Whilst directors might be tempted to try to “sneak” their company through this process, it will be rejected by one the creditors.

Solvent liquidations

The other key area we help accountants with is when you have a client who no longer wants a solvent limited company, and wants to close it down in the best way possible. This could be because they are taking up a PAYE role or retiring.

There are options available to the directors, such as dissolving the company or keeping it open. However, when the assets are of a certain size, the best way of closing the company is with a Members’ Voluntary Liquidation because of the considerable tax advantages.

Members’ Voluntary Liquidation – advice for accountants

A Members’ Voluntary Liquidation (MVL) is an HMRC-approved procedure for solvent companies to close down in a highly tax-efficient way. Under this procedure, directors and shareholders of solvent companies, typically with retained profits in excess of £25,000, can extract the assets from their company in the most effective possible way.

An MVL’s tax efficiency is made possible largely through two means:

  • a Capital Gains Tax categorisation
  • Business Asset Disposal Relief (BADR) – formerly known as Entrepreneurs’ Relief.

In an MVL, all extracted profits are taxed under Capital Gains Tax rates, rather than Income Tax rates. This results in a considerable reduction of the overall tax bill.

BADR may also apply to your client. If they are eligible, BADR can provide an additional large tax reduction up to a lifetime limit of £1 million.

If your client is looking to close their company via an MVL, we can help.

Our MVL options start from £995 +VAT +disbursements.

This means that your client can extract the bulk of their profits at a very affordable cost. You can be involved in the process as much as you want. We can work directly with your client, or we can liaise with you instead. For the work you do for your client in helping to close their company, you can charge them a “closure fee”.

To carry out the MVL procedure as quickly and efficiently as possible, we require a series of documentation detailing the company’s financials and other information. To make this easier for you and your client, and to help keep you in the loop, we will set up a client portal for straightforward communication. This client portal allows you and your client to quickly store all the necessary documentation, along with providing regular updates on the procedure. While the client portal offers access to key information points, we will still be available to answer any questions you may have.

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Can an accountant close a limited company?

Directors often ask us if their accountant can put their company into liquidation. However, as you are probably aware, unless an accountant is also a licensed insolvency practitioner, they cannot put a company into liquidation.

A licensed insolvency practitioner (like Clarke Bell) must always be appointed to liquidate a company. Accountants provide valuable assistance to that insolvency practitioner, including helping clients to:

  • prepare the necessary documentation required to carry out the procedure before the appointment of an insolvency practitioner. This can speed up the process.
  • interact with certain parties, such as HMRC
  • helping to ensure the tax-savings with an MVL are maximised.

Clarke Bell can help

There are two main areas that we can help you with:

  1. if you have a client who is struggling with their company’s financial situation and wants to pro-actively deal with the situation. The best option is normally a CVL or an administration. Or, it could just be advice on how to deal with their creditors.
  2. if you have a client who wants to close down their solvent company in the most tax-effective way i.e. with an MVL.

Clarke Bell have more than 29 years of experience in helping accountants and their clients with the liquidation process for limited companies. We work with accountants and their clients across the country. Face-to-face meetings are not needed, but can be arranged as appropriate.

Contact us today for free, confidential advice.

(Or, you can get your client to contact us directly.)

Creditor pressure is something experienced by many companies with outstanding debts. Oftentimes, this pressure is warranted and is the result of companies failing to make scheduled repayments for one reason or another. Other times, it is the result of impatient creditors that might be a little more pushy than necessary. No matter the reason, creditor pressure is something to take seriously. Left unchecked, it can sour the relationship between a company and its creditors, pave the way to escalations, and possibly culminate in a County Court Judgment.

Creditors can utilise County Court Judgments (CCJ) as a means of enforcing repayments. Once served, they can cause a range of problems for companies, from reputational damage to allowing more serious attempts at debt collection. If your company has received a CCJ, it is crucial you consider your options and act swiftly.

In this article, Clarke Bell provides a complete guide to County Court Judgments, how they work against limited companies, and what you can do in response.

If you want to sort your company debt problems, once and for all – then give us a call on 0161 907 4044.

What is a CCJ?

A County Court Judgment is a document issued to a company by a court on behalf of creditors. This document orders the full repayment of a debt, which may be registered against a company after repeated repayment failures. A CCJ often marks the first step in more forceful attempts at debt collection and can culminate in a winding-up petition and compulsory liquidation if left unaddressed.

What does receiving a CCJ mean for a limited company?

Receiving a CCJ is essentially an ultimatum for a company: either repay the specified debt in full or risk further action. Depending on the actions of the company, the CCJ can branch into two sets of consequences.

Assuming the company abides by the order and makes a full repayment, the main consequence will be immediate financial pressure. Broadly speaking, a company that receives a CCJ is unlikely to be in a strong financial position, and so this payment will have a notable impact on its cashflow. If the payment is made within 30 days of receiving the order, there will be no further consequences. However, if the payment is made after 30 days, the CCJ will be registered against the company, which can have additional consequences.

If a CCJ is registered against a company, it will be present on publicly available records for six years. This can have a series of negative effects: the company’s reputation could be tarnished, potential business partners may refuse to work with the company, and creditors may only offer less favourable products if any at all. In other words, standard operations can be made more difficult for a company once it is registered. Furthermore, once a CCJ has been made public knowledge, more of the company’s creditors could view it as a sign to submit their own CCJ. This can cause a cascading effect, where multiple creditors demand repayment in quick succession. Naturally, a series of demands can put unbearable strain on a company’s finances or force it to take major reputational damage from having multiple CCJs registered against it.

What does receiving a CCJ mean for directors?

A CCJ largely leaves directors unaffected. While it can cause directors some reputational damage, as a CCJ is registered under their watch, it likely won’t directly harm a director’s personal finances. The debts in question are company debts, meaning there is no expectation of repayment from a director’s personal finances. However, if a CCJ is issued for a debt secured by a personal guarantee, failing to repay could result in the creditor turning to other methods of debt collection, including demanding repayment from the director’s personal finances.

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How does the CCJ process work?

A CCJ cannot be issued out of the blue. For creditors to submit an effective CCJ, the proper procedure must be followed. Failing to do so will result in the CCJ being illegitimate and easily set aside by a debtor. To avoid this, creditors must follow three steps: issue a letter of claim, a default notice, and then the CCJ itself.

Letter of claim

The first step of the CCJ process is the issuing of a letter of claim. Essentially, a creditor must come to you with the intention of reaching a payment agreement before they issue a CCJ, and a letter of claim allows exactly that.

The letter of claim will detail several methods of repayment. These methods generally aim to make it a bit easier for a company to make repayments, while still ensuring the creditor receives the debt in full. If the company does not agree to any of these methods or outright ignores the letter of claim, the creditor can move on to the next step after 30 days.

Default notice

If the letter of claim is not enough to foster an agreement between a creditor and debtor, then a default notice can be issued. This default notice, sometimes referred to as a warning letter, is more forceful. It informs the recipient of the outstanding debt and demands repayment in full; otherwise, legal action may be taken. This default notice must be sent a full 14 days before further action, and will outline the options available to a debtor.

County Court Judgment

Once the previous two notices have elapsed, a creditor can pursue a CCJ. Creditors can approach the courts with the details of their case, asking for a court order to be issued. Assuming the court agrees with the case and believes a CCJ is the right option, they can issue a judgment demanding repayment. This demand will be for either a lump sum repayment or a repayment via installments.

Once a CCJ has been issued, your company will receive a document detailing the case, with a host of relevant information. This will include the overall debt payable, the creditors behind the CCJ, and dates of repayment, for example. At this stage, you can either adhere to the demands of the CCJ, or attempt to appeal it in court.

How long do I have to pay a CCJ?

Once a CCJ is in effect, you must either pay it in full, enter an agreement with your creditors, or have it set aside in court. If you choose to repay or reach an agreement, you will have 30 days to do so before the CCJ will be registered against your company. This will apply it to your company’s public records, allowing creditors, suppliers, and members of the public to view your CCJ. However, this timeframe is not exactly a deadline. Monthly repayments can be made after this time, as can lump sum payments. Creditors will only resort to further action past this point if you have refused to pay or reach an agreement as ordered by the CCJ. If this happens, your creditors may turn to bailiffs, a winding-up petition, or other forms of debt collection.

How long does a CCJ last?

If your company receives a CCJ and you intend to make a full repayment, it is best to do so within 30 days. In doing so, the CCJ will not be registered against your company, mitigating the negative consequences. However, sometimes, this is not possible, and a full repayment will only be possible after this deadline. In this case, the CCJ will be added to your company’s records, remaining for six full years until it is automatically removed.

How to know if your company has a CCJ

In most cases, directors will be notified multiple times of an upcoming CCJ, and its registration upon court approval. Several notices will be sent to inform directors at various steps throughout the CCJ process, and the particulars of the CCJ itself will be issued to directors. However, there are times when a director will miss one or more of these notifications. As failing to respond to a CCJ can cause serious problems, it is prudent to check if one has been registered against your company from time to time.

When registered against a company, the details of a CCJ will be kept in a public database. These databases can easily be accessed online, with some being free, and others requiring a subscription for information and some additional perks. By using these databases, you can keep track of your company’s records, and check whether a CCJ is registered against your company.

Responding to a CCJ

If a CCJ is issued to your company, time is of the essence to properly respond. Although you may allow the CCJ to elapse, doing so is likely to cause you much more problems in the long run and is not usually a good idea. Your responses boil down to two main categories: paying the debt specified by the CCJ or contesting it in court.

Payment in full

Paying a CCJ is quite straightforward, though it may be easier said than done. If your company has the finances, it can make a lump sum repayment to have the issue dealt with swiftly. However, if a lump sum repayment is not possible, you may be able to reach a payment agreement with your creditors.

A payment agreement can be negotiated through the courts or with your creditors directly. Such an agreement must be reasonable and hinges on a company having a viable business model and revenue stream to keep up with the monthly repayments. If a company reaches an agreement with its creditors yet fails to keep it, it could spark an escalation in debt collection attempts.

Having a CCJ set aside

If you believe your company was wrongfully issued a CCJ, you may be able to contest it in court to have it set aside. While a viable option, it is important to note that contesting a CCJ should not be done frivolously; intentionally making a baseless claim against your CCJ will not be viewed well by the courts and may result in legal penalties.

Appealing the courts to have your CCJ set aside can be done if you believe the CCJ is illegitimate. An appeal could be an option if you have evidence that your creditor has not followed the proper procedure for filing a CCJ, has sent it to the wrong company, or has included false information. You may present this evidence in a court hearing and, if successful, will have your CCJ set aside.

Can a CCJ be removed from my company’s records?

Although a CCJ has serious implications if it is registered against a company, it is not permanent and can be removed. The following are the circumstances in which a CCJ can be removed:

  • Six years have elapsed – A CCJ will be present on a company’s public records for six full years. After this timeframe has elapsed, the CCJ will automatically be removed from the company’s records without any action from directors.
  • Repay the debt within 30 days – If directors repay the debt within 30 of receiving a CCJ, it will not be registered against their company. This prevents any record of the CCJ from being present in public databases.
  • Have the CCJ set aside – Assuming directors are able to successfully contest their CCJ and have it set aside, it will be removed from their company’s records.
  • A third party is responsible for the debt – If a third party is responsible for debt repayment, such as an insurance company, then the CCJ will not be registered against the company.

Avoiding a CCJ

While the negative effects of a CCJ can be mitigated and the order removed from your company’s records, it is often best to avoid one entirely. If full debt repayment is not an option, the use of insolvency procedures could be a viable alternative.

Creditors’ Voluntary Liquidation

Creditors’ Voluntary Liquidation (CVL) is one method of avoiding a CCJ. Once an insolvent company is entered into the procedure, it will be protected from legal action, such as a CCJ or winding up petition. Directors may appoint an insolvency practitioner of their choosing to carry out the procedure. This insolvency practitioner will be responsible for the disposal of assets and distribution of proceeds. At the end of the CVL, the insolvency practitioner will close down the company and remove it from the Companies House register. For more information, read our complete guide to the CVL procedure.

Company administration

Administration may be a good solution if your company has a viable business model, and liquidation is unappealing. By placing your company into administration, you can gain the assistance of an insolvency practitioner and pursue the restructuring of your company to a more efficient entity. This can help get your company back on track, making it easier to repay outstanding debts and stave off a CCJ. However, if it is found that the company cannot be restored as a going concern, liquidation can be pursued instead. Both objectives ensure that your company avoids a CCJ.

Clarke Bell can help

Receiving a CCJ can be an alarming event for any director. It applies more pressure on what is likely an already struggling company and foreshadows future action from creditors if not dealt with swiftly. However, no matter how urgently action is needed, the best solution is not always clear. If you find yourself in such a position, seeking out help is an excellent first step.

Clarke Bell can be that help. We have more than 29 years of experience in helping companies find the best path forward, and we can do the same for you. Our specialist team is certified by the ICAEW and sports a wealth of experience in helping companies out of financial difficulty. Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.

There are a number of ways to close a company. The best option depends on your specific circumstances, with one of the most important being whether your company is solvent or insolvent.

Although every method of closing a company has the same goal, key differences set each method apart. To make the closing of your company as smooth as possible, it’s essential to know the ins and outs of each procedure.

In this article, Clarke Bell gives a complete guide to each method of closing a company. We will discuss the unique qualities of the available procedures, cover the core advantages and disadvantages, and provide additional information that can help make closing a company a bit easier.

Closing your company – what are your options?

While several factors influence which method of closing a company is best, the main factor is its financial state. Company closing methods can be broken into two main categories, namely solvent and insolvent.

A solvent company is one which has no debts that it cannot pay. An insolvent company is one which cannot pay all its bills.

Within these two categories the primary methods of closing a company are Members’ Voluntary Liquidation and company dissolution (for solvent companies); and Creditors’ Voluntary Liquidation (for insolvent companies). There are other ways of closing a company, which we will discuss later.

How to close a solvent limited company

Closing a solvent limited company can often be done using a Members’ Voluntary Liquidation (MVL). This procedure sports a range of strong benefits, chief among them being an unparalleled level of tax efficiency.

Should the benefits of an MVL be unappealing, as may be the case for some small companies, then company dissolution is a viable alternative. We will cover this alternative in its own section later.

Members’ Voluntary Liquidation

An MVL is one of the most commonly used methods of closing a solvent company. It is most effective for companies that have retained profits in excess of £25,000, as this allows such companies to make the most of this tax-efficient procedure.

In order to close your company using an MVL, the company must be solvent (i.e. able to pay all debts and liabilities within 12 months) and the company director will need to swear a Declaration of Solvency to evidence that.

A company that can’t confirm its solvency will not be eligible to enter into an MVL.

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What is a declaration of solvency?

A Declaration of Solvency is the primary prerequisite for an MVL. Directors must swear a Declaration of Solvency before undergoing the procedure. Once sworn, it serves as legal proof that the company in question is considered solvent and eligible for an MVL. If made in error or outright deceit, it can serve as evidence against the directors who signed the declaration.

If you decide to swear a Declaration of Solvency, you must do so in front of a practising solicitor. (The fee is normally around £30.) Declarations not sworn in front of a solicitor cannot be used as evidence that a company is solvent.

Tax efficiency with a Members’ Voluntary Liquidation

One of the key benefits of an MVL is tax efficiency. Solvent companies with retained profits over £25,000 can expect to keep a much greater percentage than with other procedures. This is accomplished primarily through two factors: the classification of gains and the application of Business Asset Disposal Relief.

In an MVL, profits gained from disposing of assets will be taxed under Capital Gains tax rates, rather than under Income Tax rates. This will be considerably cheaper, and alone will result in directors saving a substantial amount on their tax bill. Reducing your tax bill even further is possible due to Business Asset Disposal Relief.

Business Asset Disposal Relief

Formerly known as Entrepreneurs’ Relief, Business Asset Disposal Relief (BADR) is an option for companies closing under an MVL. Eligible directors can use this relief to make the procedure as efficient and cost-effective as possible. Capital gains made through the sale of assets will be taxed at 10%, greatly reducing a director’s tax bill. This relief can be used as many times throughout a director’s career as desired, although it does have a lifetime limit of £1 million. Any gains made over this limit will not benefit from the effects of BADR.

Who can initiate a Members’ Voluntary Liquidation?

An MVL can be initiated by a company’s directors at any time, provided the company is eligible for the procedure. If a company has only one director, then the procedure can be initiated with a Declaration of Solvency, the appointment of an insolvency practitioner, and the preparation of the necessary paperwork. If a company has two or more directors, then the approval of a majority of the board must be obtained.

MVL & CVL Bar Chart

 

How to close an insolvent limited company

If your company is insolvent, i.e. it cannot repay its debts and other liabilities within 12 months, then you cannot use procedures intended for solvent companies. Instead, you have a series of other options available, with some more beneficial than others. The most common voluntary method is a Creditors’ Voluntary Liquidation. Company administration is an alternative to a CVL. However, if directors do not take decisive action, then the company’s creditors may choose to place the company into compulsory liquidation. We will cover each of these procedures below.

Creditors’ Voluntary Liquidation

Creditors’ Voluntary Liquidation (CVL) is one of the most popular methods of closing an insolvent company. This is for good reason; a CVL provides a series of excellent benefits for insolvent companies, benefits that are difficult to find in other procedures. The procedure offers an efficient means of closing a company, allowing directors to appoint an insolvency practitioner of their choice, and ensuring any assets are disposed of efficiently, with the proceeds going to creditors according to a repayment hierarchy. Once all distributions are made, the company will be wound up and removed from the Companies House register.

A CVL also affords directors certain legal benefits. First and foremost, once a company is entered into a CVL, it will be protected from creditors looking to take legal action. This can be a very helpful benefit for companies facing intense creditor pressure. As it is a voluntary procedure, closing a company via a CVL is a strong defence against accusations of director misconduct. Once all possible payments have been made, any remaining debts will be written off, with the exception of debts secured by a personal guarantee.

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How long does a CVL take?

The length of a CVL will vary from company to company. Some companies will experience a speedy procedure, especially if managed by a prudent director who prepared all necessary paperwork beforehand. Other, more complicated situations will require more time. As a general rule, you can expect a CVL to take several months, assuming your situation is not complicated. If your company is in a more complex position, your insolvency practitioner will likely be able to give you a rough time frame.

Consequences of a CVL for directors

A CVL can have a range of positive outcomes for directors, from a reliable method of closing a company, to certain legal protections. As part of the process, insolvency practitioners are legally obligated to investigate director conduct. Should evidence of misconduct be found, then specific penalties and negative consequences for directors can apply.

Several penalties can be applied to directors found to have engaged in misconduct. For example, directors could find themselves personally liable for the company debt, be compelled to pay a fine, and potentially lose their director’s license.

Is a CVL right for my company?

Whether a CVL is right for your company depends on your situation. Companies facing terminal insolvency could find the procedure incredibly beneficial, as it prevents the situation from spiralling any further. Similarly, companies struggling under the weight of creditor pressure could find a CVL helpful, as it ensures creditors cannot take any legal action against the company or its directors. However, companies with a viable business model may want to consider a Business Rescue plan before liquidation procedures.

Company administration

While not strictly a method of closing a company, administration is certainly a procedure to consider. Company administration aims to give companies a chance at recovery, and so is only available for companies with a viable business model. However, if recovery methods fail, then partial sale, complete sale, pre-pack administration, or liquidation of the company can be considered. If you choose to place your company into administration, you will be able to appoint an insolvency practitioner as administrator. This administrator will help you find the best path forward for your company.

Compulsory liquidation

Compulsory liquidation is an involuntary method of closing a company. This means that it is initiated by an external party, such as a court, rather than a company’s directors. This is often the end result of a winding-up petition served by disgruntled creditors who are fed up with waiting for repayment. Although the decision is out of the directors’ hands, is there much difference between voluntary and involuntary liquidation?

In short, yes – with voluntary liquidation being the better option. Voluntary liquidation affords an array of benefits, from allowing directors to appoint an insolvency practitioner of their choosing, to acting as legal protection. Compulsory liquidation does not have these benefits. In fact, it is often the case that the inverse is true. For example, an Official Receiver will be appointed by the courts to carry out the procedure, and the compulsory nature can be a negative mark on a director’s reputation. If accusations of misconduct are made, this can be brought up in court to show a lack of initiative from directors. As such, it is best to avoid closing via compulsory liquidation.

Winding-up petition

Winding-up petitions are the primary method by which a company will be placed into compulsory liquidation. They can be initiated by a company’s creditors, such as HMRC, for a fee. This fee is often off-putting for creditors, making a winding-up petition a last-resort method of debt collection. As such, they are usually only pursued by a few creditors, or creditors that have tried every other available method of debt collection. This makes winding-up petitions difficult, though still possible, to stop. If you suspect your creditors are considering the winding-up process, it is a good idea to take action first and seize the initiative.

How to close a company using a company strike-off

A company strike-off, also known as company dissolution, is a viable alternative to liquidation. It has the same aim of closing down a company, though it follows a different path to reach this goal. It can be initiated by directors voluntarily with the approval of a majority of the board. Directors will need to submit a DS01 form to begin the procedure, which costs £8 via the online portal, and £10 in a paper format. This makes company dissolution an exceptionally cost-effective method of closing a company.

Once the DS01 form has been submitted, a notice of your company’s upcoming dissolution will be published in the Gazette. This allows other parties to object to your company’s dissolution, if eligible.

Objections will generally happen if you have attempted to dissolve a company with debts, which is not allowed. Doing so can lead to penalties for directors, as company dissolution should not be used as a solution for a company which has debts.

Assuming no objections are made, you may proceed with the dissolution. All assets must be removed from the company before the procedure ends, and the company will be stricken from the Companies House register. At this point, the company will be dissolved.

Why might a company dissolution be rejected?

It is possible for a company dissolution application to be rejected. This is typically due to an unpaid debt, though other factors could be involved. For example, if your company is currently engaged in a legal dispute, has changed its name in the last three months, or you neglected to inform a related party before attempting dissolution, then your attempt may be rejected. You will usually be given a reason if your application for dissolution has been rejected.

If you are not paying your creditors the money they are owed, they might consider debt collection methods. This can include the hiring of bailiffs.

Bailiffs can visit your company’s location, attempt to communicate face-to-face with directors, or even seize company-owned assets. For this reason, bailiffs are often seen as quite intimidating, and perhaps even unstoppable. However, there are limits to the powers of bailiffs, and directors of limited companies do have options available.

In this article, Clarke Bell will provide a thorough overview of bailiffs, how they can interact with limited companies, and what you can do if your company receives a visit.

If you want to sort your company debt problems, once and for all – then give us a call on 0161 907 4044.

What is a bailiff?

Bailiffs, otherwise known as Enforcement Agents, are a means of debt collection available to creditors. Bailiffs are generally employed through a private contracting company or the courts, and can be considered a third party. Creditors can employ a team of bailiffs to recover an outstanding debt that has gone unpaid, either because the borrower cannot afford repayments, or refuses to make them. Bailiffs have certain powers that allow them to perform this role, as we will discuss later.

Although ‘bailiffs’ is a commonly used term, it is more of a catch-all than a specific role. There are four types of bailiff, each with the same goal of recovering an outstanding debt:

 

  1. High Court Enforcement Agents – This type of bailiff is commonly used in the case of business debts. A High Court Enforcement Officer can be appointed after a County Court Judgment (CCJ), provided the debt owed is greater than £600. These agents have more authority than most other bailiffs, as they are directly appointed by the courts and essentially work with a legal mandate. High Court Enforcement Agents are not typically the first port of call, and are mostly used in difficult cases that have escalated beyond other options.
  2. Certificated Enforcement Agents/Civil Enforcement Agents – Civil Enforcement Agents are not commonly used in business, other than to recover tax debts owed to HMRC. These agents often work on behalf of a local Council to collect Council Tax arrears, parking fines, and other such debts.
  3. County Court and Family Court Bailiffs – These two types are quite different, but fall under the same category as they are appointed by the courts. County Court Bailiffs usually recover unpaid CCJs, while Family Court Bailiffs focus on child maintenance arrears.
  4. Civilian Enforcement Agents – The final type of bailiff collects debts that arise due to criminal offences. This can include unpaid legal fees, fines and penalties, and payment orders given in civil court cases.

 

Is there a difference between bailiffs and other debt collectors?

Bailiffs and debt collectors are sometimes used interchangeably, but both terms describe two very distinct roles. Bailiffs are mostly appointed by the courts as a result of legal action. Once appointed, these bailiffs inherit a degree of authority from the courts, allowing them to perform their role decisively. With this authority, bailiffs are capable of directly visiting a company’s location, demanding repayment, and possibly seizing assets.

Debt collectors, while similar, work differently from bailiffs. Where bailiffs have a legal authority bestowed by the courts, debt collectors do not. They operate in a purely private capacity, and cannot usually force entry into a property or seize any assets without official court approval, or the express consent of the borrower. As such, the scope of what a debt collector can do is quite limited.

Has your company received a letter or a visit from a bailiff?

Bailiffs can pose a serious threat to your company’s finances, and may even threaten your personal finances in some cases. As such, it is crucial that directors act swiftly if bailiffs get involved. If you have received a letter or a direct visit from a bailiff, obtaining professional advice is a great idea if you are unsure what to do next.

Clarke Bell has a wealth of experience in helping companies in precisely this position. Our team of experts has successfully helped companies out of financial difficulty for more than 29 years, and we can do the same for you.

If you would like any advice regarding your situation, contact us on 0161 907 4044.

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Clarke Bell have been liquidating companies since 1994

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The powers of a bailiff

Bailiffs have a court-appointed status. This affords them certain powers that other debt recovery agents lack, giving them more options for forceful debt collection. The main powers afforded to bailiffs fall into two main categories:

  1. where and when they can enter
  2. what they can take

Do bailiffs have power of entry?

As bailiffs have the backing of the courts, they do have power of entry. Bailiffs can attempt entry into a property on their first visit, with or without the owner’s consent. If the owner does not consent, or is not present at the property, bailiffs are entitled to force an entry if they choose.

Bailiffs won’t come unannounced, however. Company directors should receive an enforcement notice at least seven full days before the bailiffs plan on visiting, and the visit should be conducted between the hours of 6 a.m. and 9 p.m.

Can bailiffs enter my home?

As with company premises, bailiffs can enter a private home if it is attached to a debt. For example, if company directors have signed a personal guarantee and cannot afford to repay, then bailiffs may attempt to collect the debt from directors instead. However, as private dwellings differ from company locations, certain rules must be followed.

Before entering a private dwelling, bailiffs require a “warrant of execution”, which acts as an official court order. This document allows bailiffs to enter a home, but bailiffs must have it on their person before entering. Occupants are entitled to demand evidence of this warrant, and bailiffs must comply before they can enter. To avoid any conflict, bailiffs will typically be accompanied by one or more police officers during this process.

Can bailiffs enter my home if I’m not there?

Bailiffs generally require the presence of an occupant before they can enter a home. Most bailiffs want to explain the situation to a debtor in person, gain their consent to enter the home, and then carry out their task. However, there are exceptions to this.

If bailiffs have a court order, they can enter your home with or without your presence. Some bailiffs may choose not to do so for the first visit or two, but they will eventually force an entry after repeated attempts. Another exception is a peaceable or peaceful entry.

What happens if bailiffs gain peaceful entry?

Bailiffs can attempt a peaceful entry if they suspect a debtor has intentionally left the home to avoid debt collection. In this case, bailiffs can look for an unlocked door or window to gain a peaceful entry.

Once bailiffs have gained a peaceful entry, they will typically only draft a list of what assets could be seized as repayment on subsequent visits. Some vital assets, such as clothing and workplace equipment, are not eligible for seizure. Any assets that are seized must be marked with a notice stating that the asset has been seized as repayment. If the debtor ignores this notice, it can result in legal penalties. However, bailiffs must exercise caution in their visits, and cannot cause any property damage whatsoever. If damage is caused, the homeowner may be able to take legal action.

Can bailiffs take my car?

While somewhat uncommon, bailiffs are able to take your car in certain circumstances. Following the rule of not causing undue financial hardship to a debtor, bailiffs cannot take a vehicle if it is essential to transport. For example, taking a car used for work commutes would violate this rule. Additionally, bailiffs must obtain evidence of ownership before even thinking about seizing a vehicle. Lastly, if a vehicle has been adapted to assist people with a disability, bailiffs cannot seize it. If your car does not fit these criteria, then bailiffs may be able to take it.

What can bailiffs take?

Bailiffs can take quite a wide array of assets, with certain limitations being imposed in some scenarios. When visiting company locations, there is very little off the table. Bailiffs can take almost any asset directly owned by the company, from equipment to furniture. However, bailiffs won’t generally seize assets on the first visit, instead preferring to document what can be taken later on. This gives directors some time to work out a repayment agreement, or seek professional advice.

In private dwellings, bailiffs must take a more restrained approach. Non-essential items, such as jewellery, electronics, and luxury furniture will be prioritised. Note that bailiffs will generally prefer high-value assets in small quantities, rather than lower-value assets in high quantities. Quite like with companies, bailiffs will typically avoid seizing assets on the first visit, giving debtors a chance to reach a repayment agreement and retain ownership over assets.

What can’t bailiffs take?

Bailiffs can take quite a wide range of assets, though they do have certain restrictions. These restrictions can be boiled down primarily to two categories: assets not fully owned by the debtor, and vital assets. The first is self-explanatory; if your company leases a piece of equipment from a third party, then bailiffs cannot seize it. This also includes items owned by children, such as games consoles or a phone.

The second category is essential assets. This refers to assets vital to a debtor’s personal finances, such as a vehicle for commuting or work tools, or assets needed to live. The latter refers to assets such as heating and lighting, medical equipment, cooking appliances, and basic furniture.

Company Lawyer

 

 

Costs of using bailiffs

Bailiffs can get pretty expensive, with repeated visits increasing overall costs. In most cases, bailiffs will have two sets of costs: one or more set fees, and a percentage of debts over a certain figure. This figure is usually £1,500, though it can increase depending on the specific bailiff. For High Court Enforcement Officers, these costs are typically notably higher.

As a general rule, High Court Enforcement Officers are more expensive than other bailiffs. High Court bailiffs can charge you for multiple visits, for the sale of your assets, and if you break an agreement. They can also charge you a compliance fee, if they are collecting for multiple debts. Non-High Court bailiffs are cheaper; they can’t charge for more than one visit, can’t charge for agreements, and generally have cheaper rates and fewer fees.

Resolving a debt with bailiffs

If you have received a visit from a bailiff, it is possible to retain ownership of your assets. There are methods available to resolve a debt, resulting in bailiffs leaving your assets where they are. However, while it is possible to reach a resolution, you need to take action immediately. Waiting too long will result in your assets being seized, whether you can use other methods or not.

Can I use a payment plan?

Payment plans are one method of resolving a debt with bailiffs. Ultimately, bailiffs and debt collectors don’t want to take your assets; their job is simply to ensure their client’s debts are paid. If you are willing to negotiate in good faith, there is a very good chance that you can reach an agreement. This can be accomplished by offering to make lump sum payments, or by offering a monthly repayment plan.

Can bailiffs refuse a payment plan?

Bailiffs can refuse a payment plan, and may even refuse attempts at negotiation entirely. Refusals will typically be due to suspicions that your company cannot afford the suggested repayment plan, but there are cases where bailiffs will act arbitrarily. If you have a viable repayment plan, you can negotiate directly with your creditors, rather than through the bailiffs.

Will bailiffs give up?

Some directors may be tempted to wait it out, hoping time resolves the issue. Unfortunately, this will not be an effective solution.

Bailiffs have no limitations on the number of times they can pay your company a visit. Additionally, some bailiffs can charge a fee for each visit, meaning there is no incentive for them to drop your case.

If negotiating a payment plan isn’t possible, there are other options available; don’t try to let the situation resolve itself.

Using insolvency procedures

If your company has received a visit from the bailiffs, but you can’t afford to sign a repayment plan, insolvency procedures may be a solution. Creditors’ Voluntary Liquidation, for example, could be a good solution.

Creditors’ Voluntary Liquidation (CVL) is a formal insolvency procedure for insolvent companies. It provides directors of struggling companies an efficient path to liquidation, with a series of strong benefits. Directors can initiate the procedure with at least 75% of the board’s approval, and the appointment of a licensed insolvency practitioner to the role of liquidator.

Once in this role, the liquidator will document the company’s assets, dispose of them for the best possible price, and distribute the proceeds amongst creditors. After all possible distributions have been made, the company will be wound up and removed from the Companies House register. If any debts exist after this point, they will be written off, except those secured by personal guarantees.

For a more detailed look at Creditors’ Voluntary Liquidation, read our complete guide to the procedure.

Clarke Bell can help

Managing a company in a difficult financial position is never easy. This scenario becomes all the more difficult when bailiffs get involved. If left unchecked, bailiffs can damage your company’s finances through the seizure of assets and possible reputational damage. For companies close to the edge of insolvency, this can be enough to finish them off.

A visit from the bailiffs isn’t the end of the line. While certainly a serious problem, you still have options at your disposal. Clarke Bell can help you identify and implement these options.

We have more than 29 years of experience in helping struggling companies find the best path forward, and we can do the same for you.

Contact us today for a free, no-obligation consultation and find out what we can do for you.

If your company has received a Winding-up Petition, and you want to sort your debt problems, once and for all – then give us a call.

This advice will not cost you anything, but it will help you to avoid making costly mistakes.

We have been helping directors deal with their company’s debt problems since 1994, and we are regulated by the ICAEW. So, you can feel assured that we can help you.

If you would like to read more about Winding-up Petitions and the effects they can have on you and your company, we have a range of articles for you here on our website.

However, if you would rather deal with things straight away, just give us a call on 0161 907 4044

Why would a company receive a winding-up petition?

Winding-up petitions are primarily used as a means of debt recovery. Creditors of insolvent companies, that is, companies that cannot pay their liabilities once they come due, may use a winding-up petition to recover their debts. While serious, creditors will typically use a winding-up petition as a last resort, once they are convinced that no other action will bear fruit. In other words, a winding-up petition is the last step in an escalating line of debt collection methods, and can usually be seen coming.

Although they do not always spell the end for a company, winding-up petitions are a deathly serious affair. A company being served with a winding-up petition may be closed by court order, with little room for negotiation. As such, you must act swiftly and carefully to gain control over the situation if you suspect your creditors to be considering a winding-up petition.

Who can serve a winding-up petition?

Creditors of any kind can serve a winding-up petition, including banks, suppliers, private lenders and HMRC. Winding-up petitions are expensive and time-consuming, with court fees and legal representation being two significant expenses. As such, even the most aggressive of creditors will leave this option until they believe no others can work.

When might creditors consider a winding-up petition?

As we mentioned, winding-up petitions tend to be considered at the end of many fruitless attempts to recover debt. This tends to have a fairly unobtrusive start, involving no more than letters and phone calls. Assuming creditors cannot contact their debtor, they may escalate to in-person visits, bailiffs, and other forms of action. Should these fail to recover the debt, then creditors may turn to a winding-up petition.

Creditors can consider a winding-up petition if the outstanding debt is over £750, the debt has existed for less than six years, and they have tried other recovery methods first. If these criteria are met, then creditors must be able to prove the debt to the courts. This is most often done using a statutory demand, which essentially demands the debt to be repaid in full, or that an agreement with creditors is reached, within 21 days. If this is not accomplished, then the debt will be recognised in the eyes of the law, and shows that the company is insolvent. This allows creditors to serve a winding-up petition if they so choose.

What is a Winding-Up Petition & How Does The Process Work?

When a company owes a creditor money, and their payment demands have gone unfulfilled for more than 21 days, they are entitled to issue a winding-up petition to the court.

The winding-up notice asks the court to liquidate the company as it is believed that it is insolvent. Once liquidated, the proceeds and funds are used to pay back creditors what they are owed.

Unlike voluntary liquidation, which is initiated by the company director and is a completely voluntary process, those who are issued a winding-up petition will be forced to go into Compulsory Liquidation. This is the most serious form of action that can be taken against a company.

Read More >>> What Is a Winding-Up Petition & How Does It Work

How Does the Winding-Up Petition Procedure Work for Limited Companies

The winding-up procedure begins when all other forms of debt collection fail. After attempting to recover a debt through other means, creditors may use the winding-up procedure as a last resort. This is usually preceded by a statutory demand, which is a requirement in order to prove the existence of a debt, and prove that the company in question cannot or will not repay. Once this evidence is obtained, the creditor can approach the courts and submit a winding-up petition.

Depending on the size of the debt, petitioners must approach one of two courts. Smaller debts will be heard in a local court near the debtor company’s headquarters, while larger debts in excess of £120,000 will be heard in the High Court. Assuming the court accepts the winding-up petition, a hearing will be scheduled in which both parties can make their case. This will result in one of three outcomes, depending on who the court sides with.

If the court rules in favour of the company, then the winding-up petition will simply be thrown out. The company will be able to continue operating as normal, and can pursue insolvency procedures if need be. However, if the court rules in favour of the petitioners, then the company in question will be ordered to repay the debt in full. Typically, the court would serve the company with a winding-up order, which effectively forces the company into compulsory liquidation. An Official Receiver will be appointed as liquidator, and director-control over the company will be overridden. The company will then be liquidated and closed, with the proceeds going to repay outstanding creditors. Additionally, it is possible for directors to be investigated for mismanagement, which could result in legal and financial penalties depending on the outcome.

Read More >>> Winding-Up Petition Procedure For Limited Companies

Can a Winding-Up Petition Be Served For My Company’s Bounce Back Loan?

Being served a winding-up petition is a real possibility for insolvent companies. This petition is the typical route to initiating a compulsory liquidation. A process that can be forced upon a company by any creditor owed at least £750. This will bring the issue of repayment to the courts, with a view to determining whether the company is truly insolvent. If it is determined to be so, the company will be forced into a compulsory liquidation, with the courts appointing an Official Receiver to execute the procedure.

Read More >>> Can a Winding-Up Petition Be Served For a Company’s Bounce Back Loan

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Can a Winding-Up Petition Be Stopped?

When a creditor is owed money by a company, it can often be frustrating to be met with no response. If the creditor has exhausted all the avenues available to them and the creditor has been unresponsive for 21 days or more, then they are entitled to issue a winding-up petition to a court as a way of getting back what they are owed.

However, it is possible for directors to stop a winding-up petition, both before the procedure even begins, and after a company has been served a petition. The way in which a winding-up petition can be stopped will depend on the specifics of the situation at hand. For some directors, contesting a winding-up petition in court is sufficient. For others, it will be best to ensure a winding-up petition cannot be served in the first place. This can be achieved through a Creditors’ Voluntary Liquidation (CVL), as it prevents a company’s creditors from taking legal action once the procedure begins.

What Are the Costs to Dismiss a Winding-Up Petition?

The costs of dismissing a winding-up petition are directly tied to the case at hand. Some can be pretty inexpensive, such as if an agreement is reached outside of court. However, if a winding-up petition is disputed in court, it can get quite costly. Legal representation is not cheap, and if a company’s directors wish to fight the petition to the end, costs can grow exponentially. It is difficult to place an estimate on how much this can cost, as the costs of legal representation and the time required for a case vary wildly. That said, it is certainly expensive enough that contesting a winding-up petition should not be a decision made lightly.

Winding-up petition: What’s Next?

A winding-up petition begins the process of the compulsory liquidation of a company. This is a procedure initiated by creditors who are owed money as a means of retrieving payment.

If your company receives a winding-up petition, you will need to act quickly if you wish to stop it.

Read More >>> What Happens After Receiving a Winding-Up Petition

Can A Winding-Up Order Be Reversed?

If your company is struggling to repay its debts, you may be pressured into closing it down. Often, this pressure will come in the form of a winding-up order, which can feel incredibly intimidating, particularly if you’re unsure what to do next.

A winding-up order can be used by creditors to force a company to repay its debt, often after numerous failed attempts to recover money that is owed.

Read More >>> https://clarkebell.com/blog/can-a-winding-up-order-be-reversed/

How to Create and Issue a Winding-Up Petition After a Statutory Demand

Winding-up petitions generally require a statutory demand to be issued first. Once a statutory demand has been issued, and its 21-day time frame has elapsed, then creditors can issue a winding-up petition.

Submitting a winding-up petition can be done using a Form 4.2, which can be completed either in paper format, or downloaded from the UK government website. This document will require information regarding the company in question, the reasoning behind the winding-up petition, and a few other information points. With the form completed, it can be submitted to the appropriate court, and served to the debtor directly.

What is the Difference Between a Statutory Demand and a Winding-Up Petition

Although the two are linked, there is a great deal of difference between a statutory demand and a winding-up petition. Statutory demands give a debtor an ultimatum: either pay the outstanding debt in full, reach an agreement to do so over time, or the situation will escalate. Winding-up petitions, on the other hand, are the escalation.

Rather than make a demand to pay an outstanding debt, winding-up petitions bring the issue to the courts. There, the debtor will be forced down a path of the court’s ruling, without much say in the matter. This is in stark contrast to a statutory demand, which affords some control, albeit very limited, to the debtor.

How To Stop a Winding-Up Petition From HMRC

Stopping a winding-up petition from HMRC is a difficult task. That said, HMRC isn’t likely to launch a winding-up petition that isn’t certain to stand up in court. This makes contesting a winding-up petition from HMRC quite difficult, but not impossible. Mistakes can still be made, and you may be able to find flaws in the winding-up petition. This can help you dispute the details of the petition in court, and possibly result in the court ruling in favour of your company.

Does a Winding-Up Petition Require a Deposit

A winding-up petition does require a deposit before the submission of the form. This deposit will be used to secure the services of the Official Receiver, or court-appointed liquidator, in order to carry out the winding-up of the company. Once the deposit has been paid, petitioners will receive a receipt that can be used as proof. This will be required upon the submission of the winding-up petition, and the procedure cannot begin without evidence of payment.

A statutory demand can be a severe threat to a company. It demonstrates the willingness of a creditor to escalate their attempts at debt recovery, and can culminate in the compulsory liquidation of a company if left unchecked. For directors of struggling or outright insolvent companies, receiving a statutory demand can be a nightmare.

While the threat posed by a statutory demand is clear, what might not be is how it works. Statutory demands sit partway down the debt recovery process, and spark an entirely new process when filed. To properly respond to a statutory demand, directors would be wise to know what a statutory demand means.

In this article, Clarke Bell will cover exactly what a statutory demand against a company means, how the overall process works, and what implications it can have on you.

What is a statutory demand?

Statutory demands are legal documents demanding the full payment of an outstanding debt, or an agreement to repay the debt over a period of time fully. It is typically delivered to a company by an outstanding creditor after other means of debt recovery have failed to bear fruit.

Statutory demands have a 21-day time frame in which a resolution must be reached. Whether in the form of repayment or an alternative agreement, a company’s directors must act quickly to reach one of these outcomes. Failing to do so can lead creditors to escalate the issue, causing more problems down the line.

What does receiving a statutory demand mean?

Receiving a statutory demand is a serious move from creditors, and has two key meanings. First, your company is now in a position where it has a legal obligation to pay the specified debt. Unlike other forms of contact, a statutory demand is a formal, legal demand for repayment, and carries weight as such. Failing to adhere to this demand generates a legal record both of the debt, and of your company’s failure to pay. This can be used to justify further action, such as a winding-up petition.

Secondly, and perhaps more importantly, a statutory demand implies a creditor’s mindset toward debt recovery. Statutory demands are typically the first part of a legal cascade; other creditors may take notice and file demands of their own, and the initial creditor is almost certainly willing to serve your company with a winding-up petition. In other words, creditors that have issued a statutory demand are not concerned with a company’s future, and want their debt repaid as soon as possible.

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When can a statutory demand be issued?

Statutory demands cannot be issued whenever a creditor wishes. Certain criteria must first be met, and the process must be followed to the letter for it to have any power as a legal document. If a statutory demand is not filed correctly, it is likely to be dismissed in court, regardless of the debt. For a creditor to properly file a statutory demand, they must adhere to the following criteria:

  • For company debtors, the sum demanded must be in excess of £750
  • The debt must not have existed for longer than six years. If the debt is in excess of this time frame, other legal avenues can be pursued.
  • The creditor must not owe any money to the debtor
  • There must not be a payment plan already in effect
  • The creditor must not have a lien on collateral assets equivalent to or in excess of the debt

While these are official requirements, there is another, more subtle, requirement that must also be met. Filing a statutory demand costs money, within the region of £250-£500, demands time, and often is little more than a precursor to further action. Any creditor considering a statutory demand knows this, and will not be too eager to dive into this process without having exhausted other, less strenuous options. Naturally, this is not an official requirement that must be met, but it certainly acts as a solid barrier to entry for many undecided creditors.

What happens if I ignore a statutory demand?

Once a statutory demand has been issued, the recipient has 21 days to adhere to it. Failing to do so does not have any immediate effects, with the exception of producing legal evidence of the debt’s existence and the failure of the debtor to repay. As such, it can be easy to think there is little consequence to ignoring a statutory demand. This is far from the truth.

Failing to properly resolve a statutory demand begins a series of events that are incredibly damaging to a company. First, the creditor is entitled to serve a winding-up petition. This essentially requests that the courts get involved to compel a debtor to repay, either through an agreement, or through compulsory liquidation.

Once a winding-up petition has been submitted, the debtor will have seven days in which to respond before a notice is posted in the Gazette. This allows other creditors to join the petition, giving them the opportunity to claim their debts. Additionally, banks will see this notice and may freeze company accounts to ensure money cannot be removed from the company. Eventually, a court hearing will be held, allowing both sides to make their case. 

If the court rules in favour of the petitioners, then the company will receive a winding-up order and soon enter compulsory liquidation. This will mark the end of the company, and can have a severe knock-on effect on directors.

How to respond to a statutory demand

Responding to a statutory demand is difficult, but possible. In essence, there are three main methods of response, with the best depending on your specific circumstances. These are as follows:

Company Voluntary Arrangement

Entering into a Company Voluntary Arrangement (CVA) can be an effective response to a statutory demand. It is a formal insolvency procedure, one that aims to facilitate a new repayment agreement that benefits both creditors and the debtor. Negotiations can be handled by a licensed insolvency practitioner, who can be appointed to increase the odds of reaching a beneficial agreement. If both parties settle on a new repayment agreement, then it can be signed and will typically take effect for five years. The debtor will be expected to make repayments each month, and can be taken to court once more if the agreement is not precisely followed.

Legal dispute

Entering into a new repayment agreement with your creditors depends on a viable business model and the approval of creditors. While this can be an effective solution, it is not always a possibility. If an agreement cannot be reached, contesting the statutory demand could be a viable alternative.

Submitting a legal dispute is always an option, but it should not be done frivolously. A dispute is a serious allegation, as you will be disputing the legitimacy of the statutory demand. This can cause problems for your creditors, and could lead to penalties and legal punishments. As such, making a claim in bad faith, or casting allegations without evidence, will likely backfire and cause more problems later on.

Creditors’ Voluntary Liquidation

If you suspect your creditor is preparing a statutory demand, and the other two responses aren’t likely to cut it, then a Creditors’ Voluntary Liquidation (CVL) could be your best solution. 

A CVL is a formal insolvency procedure, one that allows directors to take the initiative before creditors do. While the procedure has a range of advantages, which you can read about in our complete guide to CVLs, we’ll focus on the main one pertinent to statutory demands. 

Once a company is entered into the CVL procedure, this stops any action being taken by any bailiffs – which will give the company’s directors a great deal of comfort. Creditors can still submit a statutory demand or a winding-up petition, so it is important to move as quickly as possible to get the company into liquidation. 

As part of the process, the company will be liquidated by a licensed insolvency practitioner, with any proceeds going to outstanding creditors. All in all, this provides directors with an effective way to voluntarily wind up an ailing company, while also offering protection from creditors looking to take legal action.

Clarke Bell can help

Receiving a statutory demand adds a new layer of difficulty to an already strenuous situation. Not only does it put creditor pressure clearly on your radar, but it can also be difficult to discern exactly what it means for you. This can make finding the right response a challenge, though it isn’t a challenge you have to face alone.

Clarke Bell has more than 29 years of experience in helping companies in such a situation. Whether it be finding the best response to a statutory demand, or tweaking an existing business model, our team always strives to reach the best possible outcome. We can do the same for you. 

Don’t hesitate to contact us today for a free, no-obligation consultation and find out exactly what we can do for you.

How can a director spot the warning signs that their company is insolvent?

Ernest Hemingway wrote in his novel, The Sun Also Rises:

“How did you go bankrupt?” Bill asked. 

“Two ways,” Mike said. “Gradually and then suddenly.” 

It can be like that for a company facing insolvency, which is the corporate equivalent of going bankrupt.

In this article, Clarke Bell will provide an overview of insolvency, its main causes, and what you can do if your company is facing financial difficulties.

What does insolvency mean for a company?

In essence, insolvency is the situation where a company that have fewer assets than debts – i.e. it is unable to repay its debts. Sometimes it can be reversed, but it many cases it means the end of the company.

The warning signs of an insolvent company

To prevent your company from falling into insolvency, you’ll need to spot the signs beforehand. In doing so, you’ll give yourself much more time to act, and increase the odds of achieving a favourable outcome. While there are several signs that indicate impending insolvency, we will focus on the mains ones:

Creditors demand repayment

Slipping into insolvency can be difficult to notice while in the thick of it. A responsible director will be busy working to stabilise their struggling company, and it can be easy to miss otherwise clear red flags. That said, receiving demands from creditors for loan repayments, repayments your company cannot make, is a sign of potential insolvency.

Creditor demands for repayment are simultaneously the clearest and most alarming sign of insolvency problems. This is especially true if one of your demanding creditors is HMRC, as they are quick to take action against insolvent companies. If you are slow to react to these demands, you risk having your company served with a winding-up petition and placed into compulsory liquidation.

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Difficulty in paying operational costs

Another indicator is difficulty in paying operational costs. Companies that struggle to purchase new stock, pay staff, and cover other vital costs are certainly in financial distress. While potentially not as threatening as direct demands from creditors, struggling to pay operational costs needs swift action.

Reaching borrowing limits

If your company has reached its borrowing limits, or been refused further credit, then insolvency could well be around the corner. This can manifest in several ways, from simply having applications for new loans be declined or reaching the limit on business credit cards.

Cash flow test results

Another warning sign of an insolvent company comes in the form of a cash flow test. In essence, this test uses loans due in the near future as a benchmark. It considers three main factors, whether you can:

  1. pay a statutory demand within its 21-day time frame
  2. make a loan repayment if it were due within a given time frame, and 
  3. comply with a court order. 

If your company couldn’t meet all three of these criteria, then your company would be considered insolvent. 

Continuing trading as an insolvent company can result in far-reaching implications, making swift action paramount.

Your options if your company is insolvent

If your company is insolvent, you have pro-active options at your disposal. 

The right one will depend on the specifics of your situation, and what you’d like as an outcome. Whichever you choose, remember that it’s vital to act swiftly once you know your company is insolvent. Two of the main option are:

Creditors’ Voluntary Liquidation

A Creditors’ Voluntary Liquidation (CVL) is a very common solution used by insolvent companies to reach the best possible outcome for the company, its directors and its creditors. While it does result in the closing of the insolvent company, it ensures directors fulfil their obligations to creditors, while also providing certain legal protections and other advantages.

As a voluntary procedure, directors can appoint an insolvency practitioner of their choice to liquidate their company. The liquidator will take the reins of the company. They will identify any company assets, sell them at the highest price possible, and distribute the proceeds amongst outstanding creditors. Once all possible distributions have been made, the company will be wound up and struck off from the Companies House register. If any debts remain at this stage, they will be written off, with the exception of debts secured by personal guarantees. 

If you would like more details about Creditors’ Voluntary Liquidations, read our CVL guide.

Business rescue

For directors of insolvent companies who have a solid business model underneath their financial issues, business rescue could be an option. In essence, this process seeks to restore an insolvent company to profitability, though how it does so can vary.

For some companies, a business rescue plan could involve selling off unprofitable segments of the company, cutting costs and raising cash. For others, business rescue will involve refining a viable business model, streamlining processes, and making operations more efficient. In any case, a business rescue plan can help improve a company’s finances, allowing it to repay its outstanding creditors and return to solvency.

Clarke Bell can help you

If your company is showing any signs of being insolvent and you want to know what to do now, just give us a call.

Clarke Bell have more than 29 years of experience in helping directors to deal with the debt problems of their company. 

We have helped companies of different sizes, across a wide range of different sectors. So, we will be able to help you.

Call us now for your free advice on how you can deal with your company’s debt problems.