Keith Tully explains the different routes by which a creditor can recoup monies owed.

Creditors have a range of options when trying to recoup a debt. Once all standard avenues of payment collection have been exhausted, such as reminders and statements, creditors can take action through the courts.

A letter must be sent to the debtor company, informing them of the intention to take legal action, and advising where payment should be sent.

Here, we look at the different types of action available to creditors, and when they may be taken.

County court proceedings

The first step is often to issue county court proceedings. This provides 14 days in which the debtor can pay the amount owed or make arrangement to pay by installments.

A debtor can defend the claim if the debt is disputed, but if the defence fails, or the debtor does not reply to the claim form, a CCJ will be entered against them.

The judgement is lodged with all credit reference agencies, and the fact that the debt is now official means that creditors can take further action, if they choose.

Forms of enforcement

Various forms of enforcement are available if the debt remains unpaid:

Controlled goods agreement

Creditors can instruct a bailiff company to recover the debt on their behalf. This entitles bailiffs to seize various assets and sell them at auction, with the resulting funds being paid to the creditor, minus the bailiff’s costs.

Attachment of earnings

An earnings attachment may be an option if the debtor is an employee. A fixed amount will be taken from their earnings by the employer over a period of time to repay what is owed.

Charging order

Creditors can apply for a charging order to be placed on an asset, usually premises or land, which works in a similar way to a mortgage. In certain circumstances, the court will order that the asset to be sold and the proceeds of the debtor's share, after the payment of costs and any other mortgage, is paid to the creditor

Statutory demand

A statutory demand provides the debtor with 21 days to pay, or 18 days in which to apply to have it set aside. It is a formal demand for payment, and must be sent in the correct format, providing the reason why it has been sent, when the money is due, and what will happen if payment is not received.

Winding up petition

This generally follows an unpaid statutory demand and can be used by one or more creditors owed over £750. It is a formal request to have the debtor company wound up, its assets liquidated, and the company removed from the register at Companies House.

If the petition is successful, a winding up order will be granted by the court and liquidation proceedings commenced.

Although only a short notice period is provided prior to some of these enforcement actions, a debtor has the opportunity to make some form of payment towards their debt at all stages of these processes.

About the author

Keith Tully has worked in the field of corporate insolvency since 1992 and specialises in advising company directors who are facing financial distress. He offers this support through Real Business Rescue. You can follow Keith on Twitter @RealBizRescue.