The threat of bankruptcy has always been a useful tool when dealing with stubborn debtors but new changes to insolvency proceedings will force creditors to seek other options for low-value debts.
Previously when someone has refused to pay, creditors have been able to apply to make a debtor bankrupt for any outstanding debt over £750. This has been particularly effective for business owners dealing with smaller businesses, sole traders and partnerships.
However, the new insolvency proceedings which came into effect on October 1, mean that creditors can only apply to make a debtor bankrupt if the money owed is above £5,000.
While the old limit was wildly out of date and the change has been brought in by the government to help decrease the number of people declared bankrupt, the sevenfold increase is much higher than the industry was expecting. This will force business owners to use alternative methods of recovering outstanding debt.
Those who are owed a low sum now can’t use the threat of bankruptcy as a bargaining tool when trying to negotiate a repayment or settlement. Instead they should now consider other options such as court judgments.
Creditors also need to be aware that canny debtors could pay small bills to reduce the balance owed to just below the £5,000 threshold, solely to prevent a creditor being able to submit a petition for bankruptcy.
Business owners also need to ensure that they are doing everything they can to protect their business from bad debts, including undertaking credit control audits, effectively managing cash flow, and ensuring sufficient internal credit control procedures are in place.
At WHN our debt recovery specialists have many years’ experience and can offer advice on the most commercially viable and appropriate methods of recovering monies, keeping your business running efficiently.
For further information on the new insolvency proceedings or any debt recovery matter, please contact Sara Beaumont on 0161 761 4611
