Cashflow is the lifeblood of a business and has become even more important since COVID-19 hit the UK. With concerns as to how long the pandemic will last and with much uncertainty ahead, maximising debt collection will be many peoples priority to secure their interests at this particularly difficult time.
We often hear of cases where debtors are trying to avoid payment owing to COVID-19 related reasons, despite them being fully operational and able to meet their payment obligations. Knowing what practical steps can be taken and applying the right debt recovery methods is more important than ever. Below we set out some useful pointers to help steer you in the right direction.
We appreciate that 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. If the debtor is unable to satisfy any claim, it makes recovery of the debt unlikely.
Before taking any court action you should write to the debtor setting out your legal position. If the debtor has cash flow problems, you may consider offering a payment plan as a short-term measure. If this does not provide a solution, the next step will be to instruct lawyers to draft a pre-action letter before action, requesting payment of the debt.
“Adam was very impressive with how he acted in recovering a large commercial debt for our business. He was attentive to what we wanted to achieve and was robust in his approach to successfully resolving the case on incredibly favourable terms. We would definitely recommend instructing Adam and look forward to working with him again in the future. 5/5 rating for sure. He is our go to man. Thanks again Adam.”
Letter Before Action
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.
We will draft the Claim Form and Particulars of Claim and send it to the court to be issued. Interest will be sought at 8% per annum, along with the court fee and legal costs you are claiming, provided the debt is more than £10,000 in value. For claims, below this threshold, costs are usually paid by both parties themselves.
The debtor must respond to the claim within 14 days from the date the court deems the Claim Form to have been served, unless they file an acknowledgement of service, allowing the debtor an additional 14 days to respond.
The debtor at this stage of the process will have the following options:-
• admit the debt and pay in full – if payment is made after the claim has been issued by the court, the debtor must also pay the interest and costs claimed.
• admit the debt and offer to pay by instalments – if you choose to accept the proposal we will 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. We will advise of the best course of action to take. If we are required to attend a hearing, this will be charged at our normal hourly rate.
• defend the claim – a defended claim will either be settled out of court or proceed to trial in due course. Our charges for acting for you in a defended debt claim will be charged at the relevant hourly rate.
We will discuss the likely timescales and costs with you if the debtor files a defence to the claim.
Enforcement of the Judgment
Once a Judgment is obtained against the debtor, payment will be ordered to be made within 14 days of the date of Judgment. If the debtor fails to make payment of the ordered amount, we can advise of the most appropriate enforcement option to take. Below we set out the main enforcement options at your disposal.
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 at 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 or not 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.
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 on the property and other encumbrances. An order for sale application can be made to compel the sale of the debtors property, after a charging order has been successfully obtained so that you are able to realise your money.
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.
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).
Following up with winding up and bankruptcy proceedings is an expensive process. Our hourly rates will apply if the winding-up or bankruptcy petition is contested. You may consider serving a statutory demand if the debt is several thousand pounds or you are certain that the debtor is in a position to pay you and would do so upon service of the demand, to prevent you issuing such proceedings.