Sole trader in cash flow crisis overturns bankruptcy order

A sole trader has won a long running battle against a bankruptcy order after his business got into difficulties due to a cash flow crisis.

 The trader, Mr Rafferty, bought and sold packaging machinery. Some his customers were late settling invoices, so he was unable to pay £14,000 to a company called Sealants International Ltd.

Sealants served a statutory demand on him and obtained a bankruptcy petition. Mr Rafferty submitted invoices of £200,000 to one of his customers. Once he received that money, he would be able to pay his debts.

However, the judge refused to adjourn the case and made the bankruptcy order. Mr Rafferty then applied to annul the order.

He exhibited the invoices and a bank statement showing that a customer had paid him approximately £71,000, which was enough to settle the petition debt and Sealants’ costs.

There then followed a series of adjournments due to Mr Rafferty’s ill health.

Following more health-related delays, the judge refused a further adjournment and dismissed the application to annul the bankruptcy order.

The High Court reversed that decision. It held that something had clearly gone wrong in the case. The question of Mr Rafferty’s health had not been contested and the question of the further adjournment being refused was open to appeal.

An annulment was justified on condition that the debt and Sealants’ costs be paid.

The case illustrates the need to stay on top of debt control and cash flow to ensure that situations like this do not arise to threaten the viability of your business.

One early warning sign that a customer may be in trouble is the late payment of invoices. If they become insolvent and fail to pay, they can jeopardise the viability of otherwise successful enterprises. 

Firms need to be ready and willing to take early action when necessary to ensure prompt payment of invoices to protect their own future. Quite often, a letter from a solicitor is enough to ensure payment; if not, there are other legal avenues available up to and including court action.

Please contact Neil O’Callaghan if you would like more information about the issues raised in this article or any aspect of debt collection and credit control.