If the amount of the debt is under £750, including any contractual interest or late payment interest and compensation, then you can only issue a claim in the County Courts.
If the amount of the debt is over £750 then you have the option to either commence insolvency proceedings or commence a claim in the County or High Courts.
Commencing a Claim
Advantages
- The costs of commencing a claim are fixed and comparatively low compared to the amount of the debt;
- Most of the costs incurred are capable of being recovered from the debtor;
- Once Judgment has been obtained there are a range of enforcement options:
- Many debtors do not want a county court judgment (CCJ) against them and will often pay;
- Where a debtor is delaying and refusing to pay, issuing a claim ensures that the debtor is subject to the Court’s compulsory timetable.
Disadvantages
- You need to obtain a Judgment before you can undertake any enforcement action against the debtor;
- A debtor may not be deterred by the threat of a CCJ;
- If the debtor has no money or ability to pay the debt then a Judgment is unlikely to be enforced and may not be worth “the paper it’s printed on”.
Commencing Insolvency Proceedings
Advantages
- It is likely to concentrate the debtor’s mind immediately of the threat of winding up their business or making them bankrupt. The consequences of becoming insolvent are far reaching and last for a number of years;
- A debtor who wishes to remain in business will often find the money which previously was not available to them (or claimed to be available to them);
- The public advertisement of a Petition can be a powerful deterrent to further delay.
Disadvantages
- They may only be used when there is no dispute;
- More expensive than issuing a claim;
- There is a two stage procedure for bankruptcy because a statutory demand is always needed. The costs of the statutory demand are not always recoverable if the debtor then pays;
- The debtor’s ability to pay will be affected once a petition is presented. The publishing of a petition is likely to affect a debtor’s credit rating and result in their bank accounts and credit accounts being frozen;
- You do not have complete control of insolvency proceedings once a petition has been presented.
Which method should you use?
The normal procedure where a debt is outstanding would be to:
- Issue a Claim in the County or High Court;
- Obtain a Judgment;
- Instruct a High Court Enforcement Officer/bailiff or take the necessary enforcement action; and
- Only if those steps fail, then consider whether insolvency would be an appropriate method of enforcement.
Where the level of the debt is much higher, and where there is either no defence or the debt has been accepted as being due, then insolvency proceedings may be appropriate as a first resort.