We recently acted for a client that was threatened with the near immediate presentation and early advertisement of a winding-up petition by an unregulated debt collection company acting for a creditor.
Many of these debt collection companies appear to suggest or imply, by using words such as “legal” or “law” in their company name, that they are law firms however often they are not (law firms in England & Wales are usually regulated by the Solicitors Regulation Authority). Such organisations may take advantage of the likelihood the company or partnership they are pursuing for monies knows little about the statutory demand or winding-up petition process.
This article provides information useful to those that fall prey to such debt collection agents.
Examples of Abuse of the Process of the Companies Court
» Pre-action conduct:
Usually a demand for payment in the form of a letter before action or statutory demand should be made prior to issuing a winding-up petition and this should allow a reasonable period for payment or response prior to commencing winding-up action. This ought to be in a form that satisfies Section 123(1) of the Insolvency Act 1986 (“the Act”) and the Insolvency Rules 1986 (“the Rules”).
» Using winding up proceedings for debt collection:
This is frowned upon by the Companies Court. It may amount to an abuse of process to present or threaten to present a winding up petition in order to put improper or undue pressure on a party (Cadiz Waterworks Co v Barnett (1874) LR 19 Eq 182) to make payment.
» Early advertisement:
There is a procedure for service of a petition and then advertisement in the London Gazette. If you face a threat to forward a copy of the petition to your bank this is likely to be an abuse of the process of the Companies Court. You should note that if a petition is not advertised in accordance with provision 4.11(5) of the Rules, the court can dismiss the petition (Bill Hennessey Associates Ltd  BCC 386) as an abuse of the process of the Companies Court.
» Unjustified Costs:
The debt collection company may ask for its costs. If the pre-action conduct is unreasonable and in non-compliance with the Civil Procedure Rules 1998 in particular PD Protocol 4.2 then, pursuant to CPR Rule 44.2(4)(a) and (5)(a), the party not in compliance may be unable to recover any of its costs. In addition in certain other circumstances there may be no entitlement to costs under the Insolvency Rules. Lawyers with expertise in winding-up petitions can advise on this issue.
How to Deal with Debt Collection Companies
If you face any of the issues above from a debt collection agent company or any other person it may be that you could apply for an injunction restraining presentation of a winding up petition if, in all the circumstances, a petition would be an abuse of process. You may be able to recover the costs of any such application from your opponent if the abuse set out above exists. See our page on aggressive debt recovery actions with case studies of how to respond.
It is of course best, if economically viable, to instruct a specialist SRA regulated law firm to correspond with the debt collection company and manage any negotiations on the issues. That way you are likely not to become a victim of the debt collection companies aggressive and abusive tactics. It is worth reading our client case study where we managed to not only set aside the statuary demand but force the other side to pay our client’s legal costs of and occasioned by making the set aside statutory demand application.
WARNING: DEBT RECOVERY AGENCIES
Debt recovery agencies that are not SRA authorised solicitors should be avoided as they are not lawfully entitled to manage a winding-up petition or any court litigation in the UK (an offence under the Solicitors Act 1974) and may engage in sharp practice both against their client and the other side for which you could be punished by the Court.
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WARNING – OBTAIN SPECIFIC GUIDANCE & ADVICE
The information on this website is not legal advice; you should always obtain specific advice on the circumstances of your case. Our Winding-up Petition Solicitors & Barristers provide specialist legal advice based on decades of expertise. Click here or call +442071830529 to get in touch. For regulatory reasons we do not take on low value cases nor provide free legal advice, information or guidance and our team cannot answer questions from non-clients.