Legal Actions Explained Company Version (note I will do a personal Version over the next few day and this should only be used by Companies)

Here you will find legal actions described - hopefully understandably.

This is not a legal lesson or is it comprehensive - rather it is intended to guide you through the maze of actions that a creditor can take against the company. There are some practical tips on what to do when these actions occur.

The key in all situations is communication. Provided your creditors are kept fully involved and informed most will go along with deals to achieve a satisfactory outcome. In our experience taking legal action is the action of an exasperated creditor (or one with a proper credit control procedure that is rigorously applied).

County Court Summons

Meaning - A creditor has tried to recover their debt from your company but without success. You may have offered an informal deal but now their patience is wearing thin.

Your company may have tried to stave payment off claiming the debt is invalid or issued a counterclaim. They have issued an action to commence recovering their money in the County Court

What can I do, what should I do? - You have time to pay the claim of the creditor. Try to offer a payment deal sensibly before the action will be heard in the court. Try to do a deal or pay the debt. If you cannot pay it look at Insolvent? page. If you cannot pay it the company could be insolvent.

You can dispute the claim if it can be proven the debt is not correct. Look, carefully, at the forms for detailed instructions on how to defend the claim.

County Court Judgment

Meaning - Having pressed for payment the creditor has now got the court to agree that there is a valid claim for the money. You have 30 days from the date of the Judgment to pay in full plus any costs incurred. Otherwise the Judgment will be registered at the courts and with credit reference agencies.

Remember an outstanding Judgment is proof of a company's insolvency and allows a creditors to wind the company up. See Insolvent? for further details. There were over 193,000 CCJs issued against businesses in 2000 in the UK, so they are quite a common tool to tackle late payment offenders.

What can I do, what should I do? - If possible always try to pay the debt within 30 days of Judgment. This will ensure that the Judgment is "set aside" and will not be registered with credit reference agencies. If you cannot pay it then this of course further proves insolvency. If it is registered then getting credit in future becomes much more difficult.

If you are under real cash flow pressure but are attempting to trade out call the creditor/ their solicitor or the bailiff and try to agree a phased payment. Often they will agree but they may use the non-payment to push for further action such as distraint or winding up.

You may be surprised at how long a time you can spread payment through this type of deal. Think about it, the creditor just wants paid, even at £50 per week this is better than liquidation - because they will, inevitably, lose the whole amount in liquidation.

Warrant

Meaning - As the creditor has not been paid under the judgment the creditor can apply to the court for a warrant of execution. If the debtor is in another area the court can forward this to the local court. A notice of warrant will be issued to the debtor. If payment is not made a bailiff of the court can be sent to collect payment or seize goods.

What can I do, what should I do? - As always a deal can be struck with the creditor and or the bailiff to repay over time. Your have demonstrated an inability to pay the debt and are offering to settle in a period to be agreed. For small debts this is often acceptable to the creditor.

Statutory Demand

Meaning - Usually this action is taken after a creditor has obtained a Judgment. It is a formal demand for payment of an undisputed debt (over £750) - the debt must be paid within 21 days of the demand being issued.

Failure to pay a stat demand can lead to a winding up petition being issued. In any event, the creditor has to pay to issue this document/action and it is now becoming much more serious.

What can I do, what should I do? - Warning! This action means the creditor is serious about getting the debt paid. If you don't pay the debt in the 21 days they can go to the final step of issuing a winding-up petition against the company.

If you cannot pay the debt, talk immediately to a turnaround practitioner, review the contents of this website and make a plan for survival - such as a CVA, Administration or urgent refinancing. Or if the company is simply not viable talk to an insolvency practitioner.

Walking Possession

Meaning - A bailiff (for the County Court) or Sheriff (for the High Court) has visited your premises and obtained entry. He /she has asked for payment of the proven debt. If you have not paid this plus the court and his costs he can "take possession" of the goods, equipment, fixtures, stock etc on the premises.

Effectively if you do not reach a deal or pay in full he can remove and sell the assets in 5 days. To sell the assets after they are covered in this way is a criminal offence.

If the bailiff has obtained a walking possession he can force entry to recover the goods after the 5 day period

What can I do, what should I do? - Unknown to most people unless in debt; Sheriffs and bailiffs are an unusual breed. They will rely upon ancient laws to obtain entry to your property - such as open doors and windows. But they cannot force entry. Simply: your best defence is to close and lock all doors and windows where they can gain access.

It is also not usually possible for the bailiff to possess or remove goods that do not belong to the company - if you have a debenture the goods therefore are charged to a bank. Whilst this is not possession bailiffs do not (usually!) want to get embroiled in arguments with high street banks. If the goods are subject to HP then they cannot be taken.

In reality this may just deferring the inevitable? The company is probably insolvent if a bailiff is calling or you need to sort out how you are managing money.

Once walking possession is in place it is STILL possible to do a deal with the bailiff to keep the goods whilst making regular payments - default and he may remove them without notice.

Distraint

Meaning - A popular tool for landlords where rent or other payments are not made. If the landlord has agreed a payment deal and the company is not keeping to it the landlord has various powers.

Distraint means that an agent of the landlord can effect entry to remove goods or assets for sale to pay for the debt due. He /she does not need to wait for a long period for this to happen. In theory 1 week after a rent payment is due they can distrain. Nor does he/she need a judgment.

What can I do, what should I do? - If you cannot pay the debt, you need to point out that the goods belong to the bank or other secured creditor. You should really take professional turnaround or insolvency advice. The company is plainly insolvent and you could be breaking the law by continuing to trade. It is possible for a turnaround practitioner to help in these circumstances - BUT you have left it very late.

Proposing a CVA or entering administration is a solution, but having demonstrated the inability to deal with the cash flow problems are you sure the company is viable?

Winding Up Petition

Meaning - The most serious action that can be taken against the company. Clearly the company has breached any trust the creditor had, deals have failed, cheques bounced and generally the directors have not kept their word.

If a creditor elects to wind the company up it is serious in its intent to recover the money it is owed and / or to put the company out business. Remember, typically a WUP costs over £1200 to action.

What can I do, what should I do? - Other than pay the debt very little. On payment the debt will have increased because of the costs of the plaintiff (creditor). If the action is clearly unfair or an abuse then you MUST take legal advice immediately. See compulsory liquidation section

If the petition is fair and indefensible, then in due course the petition hearing will be published. At this stage the bank will find out and they will FREEZE the company's bank account to prevent any misfeasance or sale of assets at undervalue or other illegal acts by the directors. Clearly, once advertised a fair petition will lead to a court appointed liquidator taking over.

Make very sure that all board and management actions have been carefully noted and the assets of the business have not been disposed of.

A very good piece of info.

This section is certainly taking shape and is a hive of info already

Bob on Zooman

Company Law and debt is my area but I know mostly everything about consumer debt form dealing with sole traders rights which in the eye of the law are consumers. I did this a year ago for my own website to repeat questions.

Ashley,your knowledge and input will undoubtably prove invaluable in addressing many issues that come up for questioning.

In the case of bank penalty charges and defaults the 2 are very often manifested together as far as the claimant is concerned in that many want to address the 2 at the same time,so invariably the 2 subjects end up being discussed at the same time.

Equally in the bank forums the debt and default issues come up together.

The addition of the baliff and debt section has only just been put in position as you know and was something that has been shown to be well supported.

There are so many areas that are entwined with different legislation as in the case of debt and default.

Many people are of the opinion that the data protection act covers everything

yet there are sections of the consumer credit act that people need to be conversant with.

Its a great learning curve and at the same time digest snippets of knowledge that one day may come in useful.