Insolvency proceedings | Bankruptcy and Winding Up
When a tenant owes more than £5,000 in rental arrears, the landlord has an option to apply to make them bankrupt.
If the tenant is a company, then the landlord can apply for the company to be wound up if the debt is more than £750.
A Statutory Demand is used to start this insolvency process. A Statutory Demand is a legal form which is served either personally on the individual debtor (in bankruptcy) or on a director or representative of a company (in winding up) and demands payment within 18 or 21 days to avoid insolvency action being commenced.
If payment is not received from the debtor in accordance with the demand, and if the debtor does nothing to dispute the Statutory Demand, the landlord can move on to the next step in insolvency, which is the presentation of a bankruptcy or winding up petition.
After a bankruptcy or winding-up order is made, the judgment debtor’s assets will be collected by a trustee in bankruptcy or liquidator, and distributed among all the creditors, in priority order according to whether security is held.
This is another illustration of why The Lettings Hub recommends that Agents offer Rent and Legal protection on every tenancy, as unfortunately, bankruptcy can be expensive and time-consuming and may not ultimately lead to recovery of lost rent. If the debt is genuinely disputed or if the judgment debtor has a genuine cross-claim or right of set-off, then the courts may not only dismiss petitions, but also penalise those bringing them in costs. Therefore, bankruptcy should only be considered for clearly undisputed debts.
Our Legal Service providers, Woodstock, have successfully recovered debts from tenants by serving a statutory demand and the debtor has been in touch to arrange payment of the outstanding money, which can be paid either as either clearing the debt in full, or by arranging a payment plan. The threat of insolvency itself can sometimes in itself be enough to encourage tenants to make payment, so they can avoid bankruptcy or winding-up proceedings.
This content was exclusively prepared in collaboration with The Lettings Hub by Nikki Gates at award-winning Woodstock Legal Services.
Woodstock Legal Services are specialists in legal advice and solutions for the Private Rental Sector.
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