In this series I will explore the circumstances in which each enforcement mechanism may be used and why a judgment creditor may want to use a particular mechanism, and set out some of the advantages and disadvantages of each of these methods.

Enforcement mechanism 5: Insolvency Proceedings – individual bankruptcy and winding up of companies

While not mentioned in the Civil Procedure Rules, this method of debt recovery is nevertheless available to recover a judgment debt. Insolvency proceedings can be issued to compel a judgment debtor to pay or, if push comes to shove, to ultimately recover the judgment debt as a creditor in the insolvency.

When to use this method?

If the judgment debt exceeds £5,000 in the case of an individual or £750 in the case of a company and the judgment debt is unpaid for three weeks after a statutory demand is issued, the judgment creditor may issue a bankruptcy or winding up petition to start insolvency proceedings.

The threat of insolvency is often very effective to compel a judgment debtor to pay the judgment debt, and this alone might be a good reason to threaten insolvency proceedings if other enforcement mechanisms are not preferable. While not strictly necessary to begin bankruptcy or winding up proceedings for non-payment of a judgment debt, sending a statutory demand is an effective first step in signalling to the judgment debtor that it is the intention of the judgment creditor to issue insolvency proceedings and may avoid the need to issue proceedings all together.

However, for reasons set out below, judgment debtors will want to be cautious about initiating insolvency proceedings  before obtained a charging order or without otherwise holding any security over the assets of the judgment debtor.

Advantages and disadvantages

The key advantage of insolvency proceedings as a means of enforcing a judgment debt is the pressure that it places on the judgment debtor. If a company is otherwise solvent and profitable it may prefer to pay the debt rather than be wound up so that it can continue trading. Likewise, an individual won’t want to face the prospect of losing their home and otherwise suffering the indignity of being made bankrupt.

This can also be relatively quick, should the petition go all the way to a final hearing and the judgment debtor be wound up or made bankrupt.

However, if the judgment creditor does not have security over the judgment debtor’s assets, they may well find that their prospects for being paid out are slim as an unsecured creditor, and following bankruptcy or winding up they will have no further recourse to enforce the judgment debt: all unsecured creditors will share equally in what is left of the judgment debtor’s often heavily (or entirely) depleted assets after the preferential creditors have been paid in full. Consideration should therefore be given as to whether this method will actually achieve recovery of the judgment debt, particularly as the petitioning creditor will have to pay court fees of £332 and a deposit of £2,600 to start proceedings.

Timescales

As noted above, insolvency proceedings can be resolved quite swiftly, but this will depend on the degree of resistance from the judgment debtor. In principle it can take as little as six to ten weeks for a winding up order to be made. A hearing for a bankruptcy petition can be held any time after 14 days from the service of the petition, depending on court capacity.

The actual process of liquidation or receivership will then depend on the complexity of the company or individual’s affairs and will usually take much longer in the case of liquidation of a company.

This series provides a general overview of options for judgment creditors. For detailed advice and assistance with enforcing your money judgments contact Seamus Smyth at seamussmyth@cartercamerons.com, Head of Litigation and Arbitration, or Julian Smith at juliansmith@cartercamerons.com.