October 30th, 2012 / Insight posted in

My partner won’t pay what he owes

WJ writes: I sold my shares in a small firm to my former business partner, but it has been six months since the initial payment was made and the final payment is overdue. He says he can’t pay yet because business is poor. What can I do?

Your former partner probably feels he agreed to pay too high a price because business has taken a turn for the worse, but that doesn’t affect what he contractually owes you, writes Ian Robert, insolvency partner at Kingston Smith LLP.

You may not want to take formal recovery action, but you must do so if you need him to pay you, as his personal wealth may decline if he needs to prop up a floundering business. You may be able to negotiate, but I suspect your former partner feels he has paid too much already and won’t pay more.

If he has a house, it may have some equity, so threatening bankruptcy may be an option. You would need to serve him with a statutory demand and then petition for his bankruptcy. You would need a lawyer if the statutory demand didn’t have the desired effect, and any subsequent recovery proceedings would cost you money. His shares in the business may now be worthless and, unless he has equity in his house, you may not want to incur the additional cost.

Depending on your circumstances, you might prefer to buy back your share of the business at a much reduced cost to settle the residual debt. This will be attractive if you believe you can build the business back up again. Also, you will have made a profit along the way.