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The Scale of Creditor Action

The Scale of Creditor Action

Directors of insolvent businesses may, sadly, be all too aware of the stresses caused by debt and the resulting creditor action. Creditors are within their rights to remind you of an outstanding debt which you owe them. So, understanding the different forms of creditor action will help you deal with them, and hopefully, limit their effects on your business.

Nudges and Reminders

Reminders are often the first step a creditor can take to recover what you owe them. These reminders could come as letters, emails, or telephone calls. While a reminder can easily upset or unsettle people, it’s important to remember the distinction between reminders to repay your debts, and harassment on the creditors’ part. Generally, reminders have boundaries: They should only be sent to addresses related to your debts (home for personal debt, workplace for business). Reminders should also be sent sparingly. These reminders become harassment when phone calls, letters, and visits occur multiple times a day, or if creditors contact you at home in relation to a business-related debt, and vice versa.

Court Orders and Statutory Demands

If reminders don’t convince you to repay your debts, your creditors may resort to more persuasive action. This action often comes as statutory demands, and county court judgements (CCJs). Both can be filed against companies or individuals, though a statutory demand must be for at least £750 for a limited company and £5,000 for personal/sole trader debt. CCJs can’t force you to repay your debt, but they can affect your credit rating; with the judgement staying on your file for six years if not repaid or challenged within 30 days. Similarly, statutory demands must be addressed within 21 days of their date of issue. If left unaddressed, both open the door to even more severe creditor action.

Debt Collectors and Bailiffs

Failing to repay a CCJ not only means it stays on your credit file for six years, but it can lead to visits from bailiffs or debt collectors. The sight of these people at their doors can strike fear into business owners and individuals, but it’s important to remember collectors and bailiffs are not the same. Debt collectors act on your creditors’ behalf and don’t carry the same legal powers. If bailiffs gain peaceful entry to your premises, they can seize items equal to the debt’s value.

Winding-up Action

Winding-up petitions are the most severe form of debt recovery, often used when all other options prove unsuccessful. Creditors file a winding-up petition to the court, with proof that the company in question cannot repay more than £750 of debt. The petition is then advertised in the London Gazette, allowing other creditors to “piggyback” on it. If the courts accept the petition and issue a winding-up order, your company’s bank accounts will freeze, and trading effectively ceases. After this, the company will be placed into compulsory liquidation, unless you can attain a “validation order” to unfreeze your accounts temporarily.


Creditors are within their rights to remind you to repay what you owe and seek further action if said reminders are ignored. If letters, phone calls, and emails aren’t enough encouragement to repay, creditors can pursue court orders and can issue statutory demands. After all other options have been exhausted, creditors can apply for a winding-up petition, which can lead to a company going into compulsory liquidation if unchallenged. If you find your company struggling to keep on top of its debts, you should seek help from a licensed insolvency practitioner to help limit the effects of debt, and potentially save your company.

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by Brian Perry // Brian Perry is a contributor to Businessing Magazine.

Opinions expressed by contributors are their own.