A Short Bit About Winding Up Petitions And Corporate Insolvency

By James Hallam

County court judgments to collect debts are largely ignored and rarely enforced. This leaves a creditor little recourse for collection when other methods also fail. If the debt is enough to warrant legal action, the creditor's can choose to use Winding Up Petitions and Corporate Insolvency to collect debt.

There must be sound claim that the business will not and is incapable of paying back the debt before the application is filed with the court. All who are due monies can file this document. The creditor's goal with filing is to receive payment directly or through liquidation of the debtor's assets.

The creditor should seek legal counsel before presenting to the court. If due diligence is not done and the application is found to be erroneous, the petitioner can be held responsible for court costs. It is for the creditor to show that the debt had been attempted to be collected and that they perceive that the organisation is unable to pay.

Documents must be submitted to the court to show attempt of collection. After the court determines the claim is valid, the organisation will be notified. Soon after acceptance, the notice will appear in the newspaper. This will give additional creditors notice of the proceedings. At this time, the banks will also receive notice and accounts may be frozen.

When the entity receives notification, they can attest the validity of the petition or they can pay the debt. Obviously, payment can only happen if the organisation can find the finances to repay all debts. Attesting will, most likely, involve a law office and legal fees. If the company does want to protest, the banks may choose not to freeze the accounts. When neither of these options is available, the entity will have to allow the liquidation proceedings.

Company assets will be sold through a liquidation process to repay the vendors who are owed money. This process will also include an investigation into the directors and their activities. If any director is found to have traded with knowledge of the business' insolvency he or she may be restricted from fulfilling all other directorial positions. The directors may also become personally responsible for some debt if they were found to be trading with knowledge of insolvency.

Other than payment of debt and insolvency, the company has a couple of other choices. They can file a voluntary liquidation, giving them some say over who does the liquidating of assets. Another choice, called pre-pack liquidation, deems there is future worth in the company. A new entity can be created to buy the assets of the old and the old company is allowed to be wound up.

The companies have more options than the people who are owed money. Even if you are one of the petitioners, you may not receive payment as the assets will be liquidated and paid on a priority basis. Winding up petitions and corporate insolvency are serious actions. Search online for more information before your choose this option.

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