News Article

Debt Collection

Insolvency – the impact on enforcement

By CreditMan Friday, February 25, 2011

by David Carter, Managing Director of The Sheriffs Office

According to figures recently released by The Insolvency Service, a record number of people were declared insolvent across England and Wales in 2010. 135,089 people went bankrupt or took out an individual voluntary arrangement (IVA) or debt relief order over the year. This compares to 134,142 in 2009, which itself was the highest figure since records began 50 years ago. And just over 16,000 companies went into liquidation in 2010, with 31% of these compulsory.
It is a major problem facing both creditors and enforcement agencies.

Insolvency will mainly impact on enforcement in three ways:

* As a form of enforcement itself
* Insolvency initiated during the process of enforcement
* Insolvency initiated in the 14 days after money has been recovered

As a form of enforcement
A creditor may choose the option of pushing the debtor into insolvency.

The threat itself may be sufficient to convince the defendant to pay in order to prevent winding up. If the company is placed into insolvency, then the liquidator will realise all the assets available and these will be divided amongst all creditors. So, as means of enforcement, it might mean that some of the debt may be recovered, but it is unlikely to be all of it, and the creditor is one amongst many.

In the case of individual bankruptcy or an IVA, the creditor will need the permission of the Court to undertake any form of enforcement after bankruptcy or IVA.

During enforcement
If a company is wound up, goes into administration, receivership or a company voluntary arrangement, then all enforcement must cease as soon as the insolvency process starts. If a winding up petition has been presented but not yet ordered, the company or other creditors may apply to the court for a stay of execution. It is likely that the court will grant this to allow all creditors the opportunity to recover some or all of what they are owed.

In the case of an individual, bankruptcy or an IVA will also mean that all enforcement must cease.

It is very wise for a creditor to check whether the debtor is applying for a company voluntary arrangement or whether any winding up or bankruptcy petitions have been presented before commencing enforcement action.

After enforcement
Once enforcement is complete and money recovered, the HCEO will retain it “in suspense” for 14 days before payment is made to the creditor. This is stipulated in the Insolvency Act 1986 and the Enterprise Act 2004. If a winding up order is issued against a limited company or a bankruptcy petition against an individual or partnership during this 14 day period, then the money recovered is returned to the Liquidator or Official Receiver for the payment of all creditors, not just the judgment creditor. However, the judgment creditor can apply to the court to have the liquidator’s rights set aside in the creditor’s favour. This ruling does not apply to an Interim Administration Order.

If the goods have been sold, the official receiver or trustee of the bankrupt’s estate has no right to reclaim them from the purchaser who acquired them in good faith from the sale organised by the HCEO.

Disclaimer: The statements and opinions expressed in this article are those of the author and do not necessarily reflect those of Sheriffs High Court Enforcement Ltd, trading as The Sheriffs Office. Sheriffs High Court Enforcement Ltd does not take any responsibility for the views of the author. The author will not be held responsible for any comments posted by visitors to this site. Please note that this article does not constitute legal advice. The author has used his best endeavours to make this article as accurate and complete as possible, but requests that the reader be aware that the law of England and Wales frequently changes. The author strongly advises the reader to take legal advice before embarking on any enforcement action.