Bad News For Creditors- Liquidation Petition Deposits Are Rising

Earlier this month The Insolvency Service rocked the financial world with its announcement that creditor bankruptcy and liquidation petition deposits are going to rise. This might have been just the latest in a string of big news for the finance industry, but it’s one of the bigger blows because it will likely make it more difficult for creditors to reclaim money owed to them through the court system. The fees haven’t changed since April 2016, and with insolvency case numbers falling to a historic low, you may be wondering why increasing the fees really matters.

Why Is There A Deposit?

If a company owes you money and you know they are unable to pay it and may never be able to pay it, one of the more extreme options available to you is seeking an order for creditor bankruptcy or compulsory liquidation. This means approaching The Insolvency Service and requesting to seek an order against them. This process has never been free – there has always been a deposit involved in seeking the order, before anything else is done.

The reason for the deposit is simple. Each creditor bankruptcy or liquidation case administered by an Official Receiver is funded, at least in part, by that deposit to start the process. This deposit is to cover the administration costs of processing and enacting the order. All other costs incurred by the receiver are recovered through fees charged against assets that are realised during the bankruptcy or liquidation proceedings.

If there are enough assets recovered during proceedings to recover all the fees and costs, then the deposit is returned to the creditor who initiated the insolvency. If there is not, then the deposit will be retained to cover the administrative burden.

How Much Is The Deposit Going Up By?

It’s important to note that the deposit fees have been the same since April 2016. Since then, insolvency cases have fallen to an all-time historic low, and the majority of cases have found that there aren’t enough assets recovered in each case to pay the administration costs. This means deposits are being retained, but as administration costs have been rising the deposit is being stretched further and further.

To combat this, the deposit amount required to submit a creditor bankruptcy and liquidation petition will be rising from November 1^st 2022.

Creditor’s bankruptcy petition deposit – Was £990, Now £1,400

Company liquidation petition deposit – Was £1,600, Now £2,600

The Insolvency Service have confirmed that there will be no change to the adjunction petition deposit, where the individual applies for their own bankruptcy.

This increase will allow Official Receivers to adequately cover their administrative costs for liquidations and bankruptcies, without making a loss in the process. This step allows them to continue to operate effectively moving forward, making it a necessary step.

How Will This Affect Me?

Many people have already asked if increasing deposits makes it harder for creditors to seek recovery of their debts. And while it may seem that way on the service, the difficulty in recovering debts hasn’t really changed at all.

All increasing the deposits will do is transfer more of the cost onto the company initiating the service. The process of recovering assets has not changed, and if enough assets are recovered to cover all of the fees and costs, then the deposit is still repaid to the petitioner. It may serve as a deterrent if creditors are unsure of the assets their debtor has on hand, but it will not make the process more difficult in itself.

The real impact it will have is to encourage creditors to explore other avenues of debt collection. After all, bankruptcy and compulsory liquidation should always be a last resort, and by making it more of a financial burden (though a temporary one). Negotiated settlements, attachment of earnings, charging orders and controlled goods agreements should all be considered first if a debt is so large and so overdue to warrant them.

If you have a debt to recover but aren’t sure where to start, we are always happy to help. Just get in touch with the team at Debtcol today to arrange your free, no obligation consultation.