Insolvency application

There may come a time when one of your debtors no longer appears able to satisfy payment obligations as they fall due. In this situation, you may wish to consider applying for the debtor to be declared insolvent.

An insolvency application requires at least two separate creditors to identify themselves, providing full details of the outstanding amounts owed to them. The requirement for a second creditor can also be satisfied by what is known as a supporting claim. In any event, the existence of at least two debt claims will need to be demonstrated to the court’s satisfaction.

The proceedings

The insolvency application may only be submitted by an attorney registered with the district court. Our law firm is able to provide you with an attorney who is registered for this purpose. The application is made by submitting an application notice. The district court can hold a hearing to deal with this application notice three weeks after it has been submitted. This three-week period runs from the time that the debtor is notified of the application, which notification may take place either by a confirmation of receipt of a recorded delivery letter from the district court or by a writ of service served by the bailiff.

Processing of the insolvency application may be suspended during the proceedings. This most commonly occurs where the debtor indicates a wish to negotiate with the creditor regarding payment of the debt claim. Most district courts will permit suspension of the proceedings up to a maximum of four times within a period of eight weeks. The other guidelines issued by the district courts regarding insolvency applications can be found here.

There is a possibility that an insolvency application will be refused if the debtor is able to raise doubts about whether the debt claims on which the application is based have become payable on demand. The situation in which this is most likely to arise is where the debtor has already made objections to your invoices and demands in good time at an earlier stage. In other words, it must be established to the court’s satisfaction that the debt claims are payable on demand. If that is not the case, civil proceedings before the district court or sub-district court remain an option.

Documents required

• statement detailing the debtor’s name and address;
• statement detailing the names and addresses of at least two creditors;
• the invoices for the outstanding amounts that have become payable on demand;
• the quotations associated with these invoices;
• any correspondence with the debtor on this subject, including any payment demands and agreed payment arrangements;
• an extract from the commercial register of the Chamber of Commerce (for companies) or the population register (for natural persons) – alternatively, we can apply for this on your behalf.

Effectiveness

In practice, an insolvency application often turns out to apply just the right degree of pressure to ensure that payment is finally received without more delay. An insolvency application also often provides an opportunity to agree a payment arrangement.

The costs of applying for an insolvency declaration are initially payable by the applicant. If it turns out when the debts of the insolvent company or person are being settled that there is anything left to recover from the debtor then one of the first purposes for which the remaining assets are required to be applied is the repayment of the costs of the insolvency application to the creditor who made the application.

The principle behind this is that debtors who are no longer able to pay their debts themselves should apply for their own insolvency.