Issuing Insolvency Proceedings
In recent years we have seen a dramatic increase in the number of our local authority clients adding the instigation of "insolvency proceedings" to their recovery arsenal.
As the average petition debt tends to be in the region of £2,500 - £5,000 and is often the only bankruptcy debt, the trend has not gone unnoticed by the courts, the insolvency service and the ombudsman who have at times questioned the appropriateness of the instigation of insolvency proceedings by local authorities in certain situations. We can advise on the suitability of any referred matter to avoid such issues arising at a later date.
At present in excess of 50 of our local authority clients instigate insolvency proceedings to some degree. This ranges from London Boroughs who issue an average of 20 bankruptcy petitions a month to small rural authorities that issue one or two a year.
From feedback we receive and assuming only home owners are targeted, the following results may reasonably be expected:
- 75% of debtors will discharge the debt or enter into an acceptable arrangement following the service of a statutory demand.
- Of the 25% that fail to respond and are subsequently served with a bankruptcy petition 80% will discharge the debt and costs or enter into an acceptable repayment plan prior to the bankruptcy petition hearing.
- The remaining 20% will be adjudged bankrupt. It is usually at this point that many non responding debtors suddenly realise the seriousness of the situation and are keen to secure an annulment of their bankruptcy order on the grounds that their debts have or will be secured to the satisfaction of the court.
Although insolvency proceedings may be adopted for any debt owed to a council, the vast majority of our clients use bankruptcy proceedings only for the collection of outstanding council tax. The outstanding debt must be a liquidated and an undisputed sum in excess of £750. Several smaller debts may be combined to reach this figure. In respect of council tax a liability order should always be obtained first.
Authorities considering the use of insolvency proceedings should contact head of department, Jon Lewis for references from other authorities who either issue in-house , use external lawyers, or a combination of both.