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On 1st October 2015, the minimum threshold for a creditor being able to start bankruptcy proceedings against a debtor rose from £750 to £5,000.
This means that a creditor will have to be owed at least this amount in order to be able to issue a statutory demand to the debtor for the collection of undisputed debts, in order to start the bankruptcy process.
This change is expected to have an impact on both creditors and landlords, especially commercial landlords.
The threat of a statutory demand has often been an effect tool for encouraging payment, but as this is now removed for debts below £5,000, creditors and landlords will find themselves going to court more frequently to obtain a judgment before they see payment.
Whilst going to court is an effective means of getting paid, it is a longer process than serving a statutory demand and then taking action 21 days later.
On a positive front, the credit crunch and recession have caused many creditors to tighten credit control procedures, reducing their exposure to bad debt.
Commercial landlords may also want to look at options to reduce their exposure, if they have not already done so. Larger deposits, monthly rather than quarterly payments and personal guarantees, are some of the options available.
To the best of our knowledge there are no proposals to increase the £750 threshold for issuing winding up petitions.
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