Debt Recovery Lawyers, Liverpool
If you are looking to recover sums owed to you under a commercial contract, the solicitors at Three Graces Legal can help. Here, our Debt Recovery Lawyers explain what a liquidated sum is and how you can recover this if payment is not forthcoming from your debtor.
Liquidated sum – a definition
A liquidated sum is a compensation figure for a breach of contract. Many commercial contracts will include a liquidated damages clause to deal with potential breaches. If one of the parties breaches their obligations under the contract, they are obliged to pay the liquidated sum to the other by way of compensation. The liquidated sum must be agreed in advance and written into the contract.
It is important to note that the liquidated sum is not a penalty – it represents pre-determined damages established at the time the parties enter into the contract. The liquidated sum is based on an estimate of the actual losses that a breach of contract will cause. If the court finds that a liquidated damages clause constitutes a penalty, it will be unenforceable.
What if the other party cannot pay the liquidated sum?
If your debtor does not pay, you can file a winding up petition with the court under the Insolvency Act 1986. To do this, you must be able to show the court that the debtor is unable to pay the amount they owe you. You can demonstrate this by serving a statutory demand on the debtor for the outstanding sum. You will need to show that the debt is based on a liquidated sum of over £5,000.
What is a statutory demand?
A statutory demand is a formal, legal warning from a creditor against a company, which can represent a crucial part of a serious debt claim. It outlines the creditors claim against the debtor and can be relied upon in future legal proceedings against the debtor company. A liquidated sum statutory demand will show that your debtor is insolvent and allow you to petition for the company to be wound up to recover the debt.
A statutory demand must:
- provide details of the sums owed, including any interest due;
- be served on the debtor either personally or by post; and
- tell the debtor what they need to do to comply with the demand, have it set aside, and what will happen if they do neither.
What happens after the statutory demand has been served?
After serving the statutory demand, the creditor can petition for a winding up order after 18 days. In certain situations, the debtor company may request undertakings from the creditor that they will not issue a petition. Failing that, they can seek an injunction preventing the creditor from issuing a winding up petition.
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