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Tactics Of Insolvency Procedures And Interim Applications Notes

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Tactics of Insolvency Procedures and Interim Applications When to use insolvency procedure Explain procedure which must be adopted to make an individual insolvent and to compulsorily wind up a company Disadvantage of litigation
? Could take weeks or months to obtain judgment
? Cost unlikely to be recovered in full
? Entering judgment does not guarantee payment
? Judgments can be ignored
??????Litigation is stayed if debtor becomes bankrupt/ is wound up and client ranks as unsecured creditor

Initiatin g

Personal Insolvency Statutory Demand s.267 IA 1968 owed more than PS750 liquidated sum debtor appears unable to pay or there is no reasonable prospect of being able to pay

Corporate InsolvencyDon't need statutory demand can just write a letter saying co can't pay debts as fall due and threatening winding up proceedings

R6 IR 1986

When it can be used?

s.268 - statutory demand served and debtor failed to comply judgment obtained against debtor, creditor has attempted to enforced the judgment and remains wholly or partially unsatisfied

S.122(f) company unable to pay debts S.123 above shown if
? Statutory demand unpaid
? Judgment and enforcement unsatisfied
? Co unable to pay debts as fall due
? Value of co assets less than liability Debt must be PS750 or more and at least
PS750 undisputed

Must do all that reasonable to bring statutory demand to attention of Debtor R 6.1 must do what's reasonable to bring to debtor's attention (ie personal service) R6.3 - personal service Recorded delivery/personal service are best

Use prescribed Form 4.1Docs &

Effect on debtor

IR 4.8 served at registered office or director, officer, employee, someone authorised to accept service, leaving it so likely to come to the attention of someone attending there effect on debtor

If unpaid for 21 days (starting day after service) then can petition for Debtor bankruptcy provided debtor doesn't apply to set it aside. Debtor can apply to have set aside within

Use personal service or recorded service as easier to prove proper service

Have 21 days to pay (if don't, deemed unable to pay s.123(1)(a) IA 1986 Ground for presenting winding up petition

18 days.

Advanta ge for creditor

Risk to Claiman t

Inexpensive, relatively quick - more likely to initiate response/payment Quicker than court proceedings IF Debtor pays without having to petition for bankruptcy

Debtor can't pay and goes bankrupt - Creditor becomes unsecured creditor and will get little or no money Debtor can apply to have the demand set aside:

1. Counterclaim, set-off or cross demand which equals or exceeds the debt

2. Debt is disputed on substantial grounds

3. Creditor holds some security in respect of debt which equals/exceeds full amount

4. Court satisfied, on other grounds, that demand ought to be set aside.

Inexpensive process, threat of bankruptcy usually means likely to get paid Effect of winding up petition under s 127 IA 1986 any disposition of property will be void unless court orders otherwise' which means company cannot trade without 'validation' order Will constitute an event of default which will trigger default of other finance agreements If they rank as unsecured creditor may only get a proportion or money owed or nothing at all Winding up petition: Advertisement Creditor to advertise petition in London Gazette 7 days after presentation + 7 days before hearing to alert other creditors What can debtor do in response?
Apply for injunction to prevent advertising or presenting petition (if dispute on reasonable grounds) What can creditors do?
Support or take over winding up petition


Risk: becomes public, other creditors may join in. If unsecured, may end up with little or nothing.

Options for client facing petition for bankruptcy Advise a client who is faced with one of the above procedures on how debtor can respond and their options WS 9 Petiti on

Can request to set aside within 18 days of service Use prescribed form plus affidavit

1. Counterclaim, set off or cross demand which equals/exceeds the debt

2. Debt is disputed on substantial grounds

3. Creditor hols some security in respect of debt which equals/exceeds full amount

4. Court satisfied, on other grounds, that demand ought to be set aside

No procedure to set aside demand as no demand BUT can apply injunction if petition would be an abuse of process

Tactical Steps where client is stalling/can pay/overdrawn Select in a given situation, the tactical steps which you could take on behalf of a client and explain why these steps are appropriate Reason s for debtor resistin g claim

D can pay but is stalling for time

Debtor can't pay full amount

D doesn't think they owe full amount and will resist paying

D is overdrawn but director of D co gave personal guarantee

Corporate insolvency

Claim Form +
Summary judgment

Claim Form +
Interim payment

Personal insolvency

Undisputed amount of PS750 or more,

No defence with real prospect of success, Claimant gets a quick judgment, can take enforcement action and become a secured creditor (third party debt order on bank account and balance on charging order)

Disputed debt but at least PS750 undisputed, best option to try and get some money while D and C argue/go to trial over full amount due

Piper will WANT to pay, and they CAN pay.

Advice to Claima nt

They won't they bad publicity/potential of going insolvent if they owe other creditors/ might make it difficult for them to trade/
Insolvency procedure takes time and costs money Could affect their trade and will be unable to trade without order from the court.

Advice to Defend ant

Less time consuming and costly than claim form and summary judgment Pay the debt now before a winding up petition is issued to prevent bad publicity

Don't want to do use corporate insolvency as will tell other creditors that Debtor doesn't have enough money to pay everyone Risks: bankruptcy/winding up petition by another creditor - proceedings stayed and enforcement proceeding void and costs wasted

Attempt to negotiate with creditor Accept payment by instalment and higher interest rate Could offer security if repayable within 2 years otherwise voidable as preferential treatment of creditor

Must have met grounds under 7.1 a) that debtor has admitted to pay liability to pay damages.

D must have some assets otherwise you wouldn't have accepted the personal guarantee. Company is overdrawn so proceed on the guarantee. He can apply to have it set aside.

(no reason not to go for summary judgment at same time as procedure and time limits are the same that claimant has claim with no real prospect of success or defence)

Negotiate over the amount due Or payment over period of time

We can't advise D personally as we represent company (O3.5 conflict of interest) tell the director to go and get independent advice We can continue to represent company.

Grounds for interim applications - summary judgment, interim payments, applications to strike out a statement of case and security for costs. Advise a client on the grounds for interim applications - summary judgment, interim payments, applications to strike out a statement of case and security for costs. Interim Application

When should it be used

Strike out statement of case

Claim Form
+Summary Judgment CPR 24.2

Claim Form +
Interim Payment CPR 25.7

Security for costs (Defendant only!) CPR 25.13

When there isn't any legal basis for the other party's case

When the opposing parties case isn't very strong
*Can be used where amount of the claim is uncertain because can get judgment for damages to be assessed CPR 24.2 Claim has no real prospect of success

24.2(a)(i) Defence has no real prospect 24.2(a)(ii)

When you want to force D to make an early payment of damages

When D is worries that C will not be able to pay costs Defendant against Claimants or Part 20 Defendant against Pt 20 Claimant

CPR 25.7(1) (a) D admitted liability to pay damages (ie in previous correspondence) ; or (b) C has obtained judgment against D for damages to be assessed ( ie SJ); or (c) C would obtain judgment of a substantial amount of money if went to trial

Court must be satisfied that it is just to make such an order, plus one of the CPR

25.13(2) grounds:

1. C is resident outside of the EU (company or individual)

2. C is a company and there is reason to believe that it will be unable to pay D costs if ordered to do so (impecuniosity ground)

CPR 3.4 - strike out statement of case on grounds that:

1. it discloses no reasonable grounds for bringing/defen ding claim

2. it abuses courts process Grounds


1. Try to resolve with other side first OO

2. Serve N244 with WS (CPR

24.7) on party at least 3 days before hearing (CPR

23.7(1) - unless other time limits given

If judge refuses summary judgement application then Claimant can apply for a conditional order if give Defendant notice of intention to do so before hearing and judge will order that D pay full amount of % of C's claim against D

CPR 24.2 (1)(a) D has to file ack of service or defence

24.4(3) C must give 14 days notice of hearing +issue to be decided

24.5(1) D can serve evidence at least 7 days before hearing

24.5(2) C can serve response at least 3 days before hearing

COURT has discretion

Wait until end of period for filing acknowledgement of service (25.6(1) CPR 25.6(3) application notice and evidence served at least 14 days before hearing CPR 25.6(4) D may serve written evidence in response at least 7 days before hearing CPR 25.6(5) C respond by written evidence before

Must provide detailed breakdown of costs incurred to date and those likely to be incurred (discretionary) C must provide Bank guarantee Pay money into court Pay money into joint account held by parties solicitor By a particular date

hearing Other

- Early end to proceedings saves time and costs No extended timetable for serving evidence Risks:
- Could may allow opposing party to amend it statement of case

Adv: Enforce judgement over premises +
turn into a secured creditor Risks to C: Other creditor may start insolvency, litigation will then be stayed D may not have any assets Can it be obtained where claim for unspecified damages?
Yes - judgment would be for damages to be assessed Damages enquiry where court assess amount to be paid by D Conditional order:

5.2 A conditional order is an order which requires a party: (1) to pay a sum of money into court, or (2) to take a specified step in relation to his claim or defence, as the case may be, and provides that that party's claim will be dismissed or his statement of case will be struck out if he does not comply.

Advantage: Better for business relationship - won't

Interim payments How much might D be ordered to pay?
CPR 25.7(4) No more than a reasonable proportion of likely final judgment taking into account contributory negligence and any set off or counterclaim that would reduce the amount
- rule of thumb usually 60% of the lowest estimate of damages trial judge will not find out about interim payments until issues of liability and quantum resolved r29.5 What if C awarded less than interim payment?
CPR 25.8 Court can award interest on the overpaid amount from the date he made the interim payment CPR 25.8(1) Court has power to adjust interim payment If C loses: He will be ordered to repay the interim payment r25.8(2) Consideration of tactics Client will receive percentage of money owed or damages before trial May have to repay money if they recover less at trial Incentive for defendant to make settlement proposal Interest will stop running on the amount paid.

Factors: Strength of claim and defence Claimant's ability to provide security Cause of claimant's impecuniosity Property within jurisdiction Will be based on defendant's costs and can be made up to a particular stage NOTE: if security not provided, claim likely to be struck out

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