Court claim or insolvency proceedings?

Company A is owed £50,000 by Company B. Company B “dithers and delays” in making payment. Promises are made and broken. Company A’s patience rightly wears thin.

Before issuing proceedings, Company A reviews the accounts of Company B. Company B is solvent, just. They have some assets but other significant liabilities.

Should Company A 1) sit back and wait for Company B to go bust? 2) issue a claim in the usual way seeking a judgment or 3) issue either a winding up petition or an administration application?

The Court fee for issuing a £50,000 claim is £2,500. Legal fees are likely to be two to three times that amount depending on the complexity of the issues. Even after issuing the proceedings, there are multiple hoops for a claimant to jump through to obtain a judgment and even once obtained, there are even more hoops to jump through to enforce that judgment so the claimant can be paid. 

Insolvency proceedings can be a cheaper way of placing the defendant into insolvency

Issuing insolvency proceedings, especially an administration application can be a much cheaper way of placing the defendant company into insolvency than the usual court route. The consequences for the directors of a company placed into administration can be personal liability for the company’s debts so directors will often do all they can, i.e pay up to avoid the administration order being made. 

An administration application isn’t suitable in all circumstances and ought only be pursued when one of the three purposes of administration can be achieved and it is likely there will be realisations to enable the claimant to be paid but the process is underused by most practitioners who act on behalf of clients when recovering debts.

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