There can be no denying that the UK is in a severe cost-of-living crisis coming off the back of the COVID-19 pandemic, the further economic uncertainty caused by the war in Ukraine, and how this has impacted interest rates and general living costs across the country.

Never has it been more important to ensure that you preserve your business assets and keep your cash flow in a healthy state, as this will ultimately determine the success of your business.

What is commercial debt recovery?

If you are owed money by an individual, business, or client, and they won’t pay you, you will need to initiate what is known as ‘debt recovery’. As the term implies, this is the process through which a creditor tries to get someone who owes them money to pay.

The cost of recovering debts must be proportionate to the value of the debt and what you are likely to recover from the debtor. It is fundamental to consider your debtor’s financial position before commencing court action.

Step 1 – Letter Before Action

You should write to the debtor, setting out your legal position and attaching evidence of the debt. If the debtor has cash flow problems, you may consider offering an instalment repayment plan as a short-term measure. If this does not provide a solution, the next step will be to instruct an experienced debt recovery lawyer to draft a letter before action requesting payment of the debt which complies with the relevant pre-action protocol.

A letter before action informs the debtor that court proceedings will be commenced if the debt is not paid within a specified period (usually 14 days for business debtors and 30 days for individual debtors). If you fail to comply with the relevant procedural rules, you may be penalised in costs, so it is always advisable to seek legal representation when doing this.

Step 2 – Issuing Court Proceedings

If the debtor fails to reply to the letter before action or the reply is inadequate, you have the option to commence court proceedings to recover the sum owed, along with interest and, depending on the value of the debt, your legal costs. Legal costs can be sought from the debtor where the debt is £10,000 or above. For claims below this threshold, costs are usually borne by both parties themselves.

The debtor must respond to the claim within 14 days from the date of deemed service of the claim form unless they file an acknowledgement of service, allowing the debtor an additional 14 days in which to respond, giving a total of 28 days to reply to the claim.

At this stage, the debtor will have the following options: –

• admit the debt and pay in full – if payment is made after the claim has been issued the debtor must also pay the interest and costs claimed (if the value of the debt is £10,000 or above you can seek recovery of your costs associated with recovering the debt, for small claims of less than £10,000, both parties usually bear their own legal costs).

• admit the debt and offer to pay by instalments – if you chose to accept the proposal you can then apply for a judgment to pay by instalments. If you do not accept the proposal, a court hearing will usually be required to consider the debtor’s financial position and decide the rate of payment.

• defend the claim – a defended claim will either be settled out of court or proceed to trial.

Step 3 – Enforcing a Court Judgment

Once a court judgment is obtained against the debtor, payment will usually be ordered to be made within 14 days of the date of judgment. If the debtor fails to make payment of the ordered amount in this timeframe, you have different enforcement options at your disposal so that you can realise the debt owing.

 The main enforcement options that you would have at your disposal are as follows: –

Order to obtain information from a judgment debtor

This is a court order that the debtor must attend court to answer questions about their financial status. This will enable you to assess what assets the debtor has. You may obtain information which will enable you to decide the best method of enforcement.

Obtain a warrant of execution-county court bailiff

The bailiff will attend the debtor’s property in an attempt to recover goods which can be sold at auction to satisfy the judgment debt. The court fee is payable regardless of whether any money is recovered. If the bailiff is successful, he will attempt to recover sufficient goods to cover this fee.

Attachment of earnings

This is a court order that a debtor’s employer must pay some of the debtor’s earnings into court. You will be paid on a regular basis until the debt is paid in full. This is usually an effective method of enforcement if you have the right details. The disadvantage is that it can take a long time to pay off the debt and will depend on the level of earnings. This option is not appropriate if the debtor is self-employed.

Charging order

If the debtor owns a property, you may consider securing your debt against the property. You must be careful that there is sufficient equity in the property to discharge the debt after the payment of existing mortgages and other encumbrances on the property. An order for sale application can be made to compel the sale of the debtor’s property after a charging order has been successfully obtained so that you are able to realise your money from the proceeds of sale.

Third-Party Debt Order

If you have the debtor’s bank details, you may seek an order to recover money directly from the bank account to satisfy the debt.

Statutory Demand

This is a demand for the money you are owed under the judgment, stating that you will issue winding-up or bankruptcy proceedings against the debtor if the debt is not paid within 21 days. Winding-up or bankruptcy proceedings can only be issued for debts over the statutory minimum level (currently £5,000 for an individual and £750 for a company).

You may consider serving a statutory demand if the debt is several thousand pounds or you are certain that the debtor is able to pay you and would do so upon service of the demand, to prevent you issuing such proceedings.

Summary

So, in summary, there are a few options available to you if you want to recover a debt owing. Given this is a complex area of law that must be handled correctly with specialist legal advice, you should always seek professional advice as to your best options if you are uncertain on any of the technicalities.

Adam Haffenden is a Partner and Head of Dispute Resolution at TV Edwards Solicitors LLP who has significant experience in this area of law. Should you have any questions or require assistance please do not hesitate to contact us on 0203 440 8123 or at enquiries@tvedwards.com.