When a company is trying to recover a debt, creditors have several legal options to recover outstanding debts:
1. Statutory Demand
A statutory demand is a formal request for payment served on a company or individual. It gives the debtor 21 days to settle the debt. If they fail to pay or dispute the demand, the creditor can use it as the basis to initiate bankruptcy proceedings (for individuals) or winding-up proceedings (for companies). It also acts as an official warning that legal action is imminent.
2. Compulsory Liquidation
If debts remain unpaid, creditors can petition the court to place the company into compulsory liquidation. The petition is advertised in the London Gazette, so can have a detrimental effect to the company’s trading position. If a winding up Order is made, the liquidation process usually takes between 10 and 24 months and ends with the company being dissolved and removed from the Companies House register. The company’s assets are sold, investigations are carried out by the liquidator and should funds permit, there may be a return to creditors. While this is often a last resort for the company, it can be a strategic option for creditors seeking repayment.
3. Administration
Administration is designed to either rescue the company as a going concern or achieve the best possible outcome for creditors. A company can be placed into administration voluntarily by its directors/shareholders or by creditors via the Court. The Administrator (a licensed Insolvency Practitioner) takes control of the company with one or more of the following goals:
- Rescuing the company
- Realising assets to repay creditors
- Achieving a better result for creditors than an immediate liquidation
