Bankruptcy threshold changes
Don't be caught out by bankruptcy threshold changes
This week (w/c 28/09/2015) will see the first increase in 30 years of the minimum level of debt for which an individual can be made bankrupt. On 1 October 2015, the bankruptcy threshold will increase from £750 to £5,000.
Whilst it is widely agreed that the original threshold set by the Insolvency Act 1986 was too low given the extent of inflation since the 1980s, the seven fold increase has led some to question whether the intention was to set a new threshold which could last for another 30 years.
What does it mean?
The change in the threshold will protect debtors from being made bankrupt for unreasonably small debts and it is likely to see a fall in the number of personal bankruptcies. Whilst this is good news for debtors, it could be bad news for businesses, particularly those which have large numbers of customers who are private individuals or rely on personal guarantees to safeguard their debts.
In our view it is important that the insolvency regime maintains a balance between protecting the interests of debtors and creditors. The new regime is likely to shift the balance away from creditors and towards debtors as the ability to press for payment by way of statutory demands on small undisputed debts will be eroded. It won’t be long before debtors get wise to this and start delaying payments in the knowledge that creditors cannot bankrupt them for non-payment.
In reality, businesses do not want to bankrupt their customers but statutory demands give a business the ability to ascertain quickly whether their debtors have the means to pay the sums due, ensure prompt payment and avoid wasted time and costs in bringing County Court claims. Without the option of serving a statutory demand for debts below £5,000, many businesses will have to consider what other options are available to them to ensure that they collect the cash that they are entitled to.
What can you do?
One of the most important things that businesses can do is to put in place procedures and policies to improve credit management including:
• Review your terms and conditions to impose strict payment obligations
• Ensuring that terms and conditions are discussed and signed by customers for each transaction
• Credit checking all new customers
• Setting credit limits according to the level of risk
• Consider offering incentives for early or advance payment
• Ensure that you understand your contractual and statutory rights to recover interest and costs.
We can help ...
If you regularly use statutory demands to enforce payment of invoices and are concerned about the impact that the increase may have on your business, we would be happy to discuss and build a new strategy with you to keep cash flowing.
For more information please contact Andrew Frake, Associate, Dispute Resolution.
Published: 1 Oct 2015