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Higher Court fees for civil claims could lead creditors to look again at petitions for bankruptcy

13th April, 2015

On 9 March 2015, Court fees for some civil litigation claims rose significantly.

For instance, the Money Claim Online (MCOL) fee for a £95,000 money claim was £815.  Now it would be £4,275 plus a further fee of either £545 or £1,090 would be payable for the hearing.

In contrast, the Court fee to enter a creditor’s petition to make someone bankrupt is £280 and there is no additional hearing fee. The petitioning creditor will also have to pay the Official Receiver’s deposit of £750 but that would be returned to him if no bankruptcy order is actually made (perhaps because he withdraws his petition after payment is made).

On the face of it this is an attractive option, but one needs to look more closely.

Not all debts qualify for this process.  To be the subject of a petition for bankruptcy the debt must be for an undisputed liquidated sum payable immediately, and for at least £750 (in October 2015 that minimum debt rises to £5,000).

Before entering a petition for bankruptcy, the creditor must serve a statutory demand on the debtor. This should be by way of personal service if practicable. Using an independent agent or process server for this task is not essential, but often helpful and cost effective (from about £85 plus VAT). The creditor is under an obligation to do all that is reasonable for the purpose of bringing the statutory demand to the debtor’s attention.  If personal service is not possible then an advertisement in the local newspaper might be appropriate, incurring more cost.

Once the statutory demand has been served or advertised, the debtor has 18 days to apply to Court to set it aside. The Court may do this if the debtor appears to have a counter-claim, set-off or cross demand which equals or exceeds the debt specified in the statutory demand.  Alternatively, the Court may set aside the demand if the debt is disputed on substantial grounds or if the creditor holds sufficient security in respect of the debt, or if the Court is satisfied on other grounds that the demand should be set aside. If the Court does so, it is likely to order the creditor to pay the debtor’s costs in bringing the application, as well as his own.

The act itself of serving a statutory demand can shock a debtor into paying the debt, rather than face bankruptcy.  It is usually a cheap option and therefore a useful weapon in a creditor’s arsenal if care is taken.

If the debt has not been paid within 21 days from service or advertisement of the statutory demand, then the creditor can enter a petition for bankruptcy, which must also be personally served if practicable.

However, a petition for bankruptcy is a class action on behalf of all unsecured creditors. The petitioning creditor can find himself on a train that is not entirely at his control.  Once a petition has been filed at Court and a date set for the hearing, the petition cannot be withdrawn until that hearing.  By that time, another creditor may have learned about the petition. If the petitioning creditor has managed to secure payment by then and wishes to withdraw the petition, the second creditor can step into his shoes to keep the petition live.

If the debtor could not pay everyone, it is likely that the petition would result in a bankruptcy order.

When a bankruptcy order is made, any disposition of property made by the debtor after the petition for bankruptcy is void except in limited circumstances.  This means our petitioning creditor would have to hand back the debtor’s payment to the Trustee in Bankruptcy (less his petitioning creditor’s costs).

The hike in Court fees may spark more interest in bankruptcy proceedings. However, skill and judgment needs to be used to achieve the maximum recovery.

For more information on this subject please contact Jan Chillery on 01244 405441 or email [email protected].

 

 

 

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