Insolvency proceedings may be used as a debt collection tool!

The September 2019 High Court Case of Sell Your Car With Us Limited v Sareen may have seen a shift in the Court’s view that it is now possible to use insolvency proceedings as a debt recovery tool.

Mr Sareen used the services of Sell Your Car With Us to sell his £61,000 car. During the transfer of the money, a fraudster pretended to be Mr Sareen and caused a payment of funds to go to the wrong account leaving Mr Sareen out of pocket.

After Sell Your Car With Us did not pay Mr Sareen issued a winding up petition. Sell Your Car With Us sought to stop the winding up petition being advertised and so issued an injunction.

The merits of the injunction were dealt with swiftly by the court, but one of the previously held grounds for preventing the making of a winding up order, which may well have led to an injunction being granted, was rejected by the court.

They stated: While winding-up proceedings are a class remedy and it is an abuse of the process of the court to present a winding-up petition based on a claim in respect of which there is a triable issue, an unpaid creditor of even a substantial and prosperous company, whose debt is not disputed, is entitled to petition for its winding up. I do not therefore accept the Applicant’s contention that insolvency proceedings should not be used as a method of debt collection

It seems the court has taken the view that petitions for winding up and bankruptcy can now be used as part of the debt collection process and anyone receiving a petition is now in more grave danger than they were previously given that the advertisment of a petition can have catastrophic consequences on a company’s ability to trade.

Not only that, but it also seems that using the defence of petition should not be used as a debt recovery tool as a way of gaining an adjournment to make payment over a period of time is also now not available meaning debtors need to come up with the money far quicker than previously expected.

If you are owed a debt and wish to petition or are in receipt of a winding up petition or bankruptcy petition then contact us early on 0330 900 2000 to understand the implications – good or bad.

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