If you’re applying to the Insolvency Service for either a Creditors’ bankruptcy or a Company liquidation against someone who owes you money, a deposit is charged. This may or may not be returned, depending on the assets available. The charge for deposits has been stable since 2016, but next month it will be rising substantially. So what does this mean, if you’re considering applying?
What Are Petition Deposits?
If all negotiated means to recover a debt have been exhausted, you can apply through the Insolvency Service for the courts to grant an insolvency order. In the case of an individual (including a Sole Trader business), this would be a Creditors’’ bankruptcy, while if the debtor is a company, you’d apply for a Company liquidation.
In either case, this allows for any non-essential assets to be liquidated, and the resulting funds to be distributed among the creditors. The fees charged by the Insolvency Service are also taken from these liquidated assets.
However, it’s impossible to know before the process begins where there will be sufficient assets to cover the fees. Because of this, the applicant is required to pay a deposit. If the assets cover the fees, the deposit is returned at the end of the process, but if there are insufficient funds, it’s retained.
How and Why Are Deposits Rising?
Petition deposits will be rising sharply from 1st November 2022 for petitions filed after that date. The increases will be:
- Creditors’ bankruptcy petition deposit will rise from £990 to £1,500.
- Company liquidation petition deposit will rise from £1,600 to £2,600.
The fees covered by the deposit include the costs incurred by the Official Receiver for administering the estate. These steep increases are considered necessary, because the current levels of fees have stood unchanged since 2016. At the same time, partly due to the government’s protection measures during the Covid-19 pandemic, insolvency rates have fallen to a record low, impacting the Insolvency Service’s income.
The purpose of the fee increases is to ensure that the Insolvency Service can continue its effective investigation and administration of insolvencies, without having to worry about its budgeting levels.
What Does This Mean for You?
In the short term, the main effect of these price rises is going to be a rush to get petitions registered before 1st November, leading to delays. In the longer term, however, many creditors could be put off applying. Even if the deposit is repaid eventually, which isn’t certain, they may not be able to tie so much money up.
Fortunately, there are many approaches to recovering debts before going for the insolvency option, whether the debtor is a “can’t pay” or a “won’t pay”. Give me a ring to find out how I can help you recover your debts without needing to pay a deposit to the Insolvency Service.