Disputes
A liquidator chasing your loan account, a statutory demand, or a debtor who won't pay? My Nexa insolvency colleagues deal with these disputes every day.
Insolvency disputes are the arguments that follow when a company or a person can’t pay their debts, which covers statutory demands, winding-up and bankruptcy petitions, and the claims that a liquidator, administrator or trustee in bankruptcy brings afterwards. If you’re reading this page it’s probably because you’ve been served with a demand or petition, or you’re a director who has had a letter from an insolvency practitioner, or you’re a creditor wondering whether insolvency proceedings would get you paid.
I don’t run insolvency litigation myself, so I refer this work to my colleagues at Nexa Law, Alistair Haggerty and Femi Ogunshakin, who act in insolvency and bankruptcy disputes for directors, creditors, individuals and insolvency practitioners. If you send me the details I’ll put you in touch with whichever of them suits the matter and has the capacity to start, and they’ll then act for you and quote their own fee. I’m in Leicester, they act across England and Wales, and there’s more about my Nexa colleagues here.
A statutory demand needs dealing with straight away, as the deadlines are short and they run from the date of service.
If the demand is against you personally, an application to set it aside must be made within 18 days of service (rule 10.4 of the Insolvency (England and Wales) Rules 2016). The usual grounds are that the debt is genuinely disputed, that you have a counterclaim or set-off, or that the creditor holds security. A creditor can only petition for your bankruptcy if the debt is at least the bankruptcy level, currently £5,000 (section 267 of the Insolvency Act 1986).
If the demand is against a company, a debt of more than £750 that goes unpaid for three weeks after the demand allows the creditor to say the company can’t pay its debts and to present a winding-up petition (section 123). There’s no set-aside procedure for a company, so if the debt is disputed on real grounds the remedy is to ask the court to stop the petition being presented or advertised. That has to be done quickly, because once a petition is advertised the company’s bank will usually freeze the account.
Once a company is in liquidation or administration, the office-holder’s job is to recover what they can for creditors, and the directors are usually the first people they look at. The claims which come up most often are as follows.
The first is an overdrawn director’s loan account, which is a debt you owe to the company and which the liquidator will ask you to repay. I’ve written about that in can a liquidator make me repay my director’s loan account?
Then there are claims for misfeasance or breach of duty under section 212, fraudulent trading under section 213 and wrongful trading under section 214, which is about carrying on when you knew, or should have known, that insolvent liquidation couldn’t be avoided.
There are also what are called antecedent transactions, which are transactions at an undervalue (section 238) and preferences (section 239), where assets were moved out cheaply or one creditor, often a connected one, was paid ahead of the rest.
Finally there is re-using the name of a liquidated company, which section 216 restricts and which can make a director personally liable for the new company’s debts. My article on phoenix names explains how easily that can happen.
Directors’ disqualification proceedings often run alongside these claims. Many of the claims are negotiable, and it’s best to take advice when the first letter from the liquidator arrives and before you reply, as an explanation given in a reply can amount to an admission. Directors in this position have often given personal guarantees too, which is a separate problem that I’ve written about.
A statutory demand followed by a winding-up or bankruptcy petition can be an effective way to get an undisputed debt paid, because few businesses will risk a petition. It shouldn’t be used where the debt is genuinely disputed, as the court will dismiss the petition and probably order you to pay the costs, and an ordinary claim through debt recovery is the better route. Creditors also get involved after a company has gone into an insolvency procedure, for example by challenging a liquidator’s rejection of a proof of debt, enforcing security, relying on retention of title, or opposing a company voluntary arrangement (CVA) which they think is unfair.
The Corporate Insolvency and Governance Act 2020 made the biggest changes to this area in years, and older guides (including the previous version of this page) pre-date it. It added a standalone moratorium in Part A1 of the Insolvency Act 1986, which gives a struggling but viable company a breathing space from creditor action under the supervision of a monitor. It also introduced the restructuring plan under Part 26A of the Companies Act 2006, which can bind dissenting classes of creditors, and it restricted suppliers from ending a supply contract simply because the customer has entered an insolvency procedure (section 233B of the 1986 Act). The temporary restrictions on statutory demands and winding-up petitions which were brought in during the pandemic have ended.
For insolvency practitioners, my colleagues also act on recovery claims, book debt collection and applications in the course of a liquidation, administration or bankruptcy.
Insolvency disputes go to my colleagues, but a solvent reorganisation is work that I do myself. There’s a page on company restructuring, and I’ve written a piece on members’ voluntary (solvent) liquidations.
If a deadline is running, send me the details today and let me know what the date is, and I’ll pass it straight to Alistair or Femi.
Also in this section
Related writing
A sole director who let his loan account and tax bill grow was ordered to pay his liquidator £190,153.99. What went wrong, and what to learn from it.
Read it
A director was excluded, the company was liquidated and the business bought back for £100. What Padun v Dickinson means for owners in a dispute.
Read itA director who liquidates a company and then reuses that name without the Court’s permission can be personally liable for debts. Here’s a recent case on section 216 and how you can do it better.
Read itSwipe for more
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StevenAI answers from this website. It gives general information rather than legal advice on your situation, and using it does not make me your solicitor.