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Collecting Your Debts - Some Options
When deciding to pursue a debt, there are a number of options available to you about how you go about it.
Letters Before Action – Demanding Payment from your debtor
The usual approach is to send a Letter Before Action, which is a letter demanding payment within a set period of time. It is important that a Letter Before Action is sent to allow you to reclaim the costs of the proceedings.
Court Proceedings
If payment is not made following the Letter Before Action, proceedings are issued in the County Court. This is likely to eventually lead to a Judgment for the debt if you can prove that debt or if the debtor fails to respond to the Claim Form.
There is also a risk when issuing the County Court proceedings that the debtor completes the forms sent to them by the Court setting out a spurious defence. This delays the obtaining of the Judgment, and it may be necessary to apply for Summary Judgment, which is an application for Judgment based upon written evidence only, or have the matter decided at a Trial (for claims valued at over £5,000). A Trial will involve both considerable delay and costs.
For claims of £5,000 or less, the process is speedier and less costly, but it can still take at six to nine months for the court to decide the matter at a Small Claims Hearing.
However, obtaining a Judgment is only half the battle, and it is then necessary to enforce the Judgment unless the debtor pays voluntarily.
Statutory Demands
It is possible to serve Statutory Demand upon your debtor. This is a written document requiring payment within 21 days of service of the Statutory Demand.
If the debtor fails to pay, it allows you to proceed by way of a bankruptcy petition for an individual, or a winding-up petition for a company.
Issuing a Statutory Demand without first obtaining a Judgment comes with risks, and an individual who receives a Statutory Demand is entitled to apply for it to be set aside. This will involve a court hearing and if the debtor succeeds, the likelihood is that you will be required to pay the costs of the application.
As regards a company, the company could potentially apply to the Court to restrain you from issuing a winding-up petition. The costs of this application are very substantial, and therefore, it would be recommended to obtain a Judgment first unless there is good evidence that the company is in financial difficulty and cannot pay its debts and as when they fall due. For example, if the Company has dishonoured a cheque.
Bankruptcy Petitions and Winding-Up Petitions
Where a Statutory Demand expires without payment by the debtor, you are entitled to issue a Bankruptcy Petition (in respect of an individual) or a Winding-Up Petition in respect of a Company.
Whilst a Statutory Demand appears more threatening, it does come with more risk. The general advice is that Courts do not like to see insolvency proceedings used as a method of debt recovery, although plenty of creditors use Statutory Demands, Bankruptcy Petitions and Winding-Up Petitions for this purpose.
Whilst this may represent the biggest threat to your debtor, it is not an inexpensive process. The out of pocket expenses for each petition, leaving aside solicitor’s fees, are in the region of £1,000.
Being the party who petitions for the bankruptcy or winding-up of the debtor does not improve your position as a creditor. If you are an unsecured creditor, you will remain an unsecured creditor. The only priority you receive is in respect of the costs of presenting the petition (and you are not guaranteed to recover these).
It is possible where a debt is owed to you by a company to “miss out” the Statutory Demand and to petition for a winding-up order based upon evidence that the debtor cannot pay their debts as and when they fall due.
If you would like to discuss your options for recovering a debt, please contact Greg Hollingsworth at Bradshaw Hollingsworth on 0116 204 2500 or by email on greg.hollingsworth@bhlaw.co.uk
Bradshaw Hollingsworth provide specialist legal advice in the areas of Employment Law, Litigation, Commercial, Insolvency, Debt Recovery, Wills & Probate and Property, including residential conveyancing, house sales, house purchases and re-mortgages. For more information about our services please contact Greg Hollingsworth of Bradshaw Hollingsworth Solicitors, 19 New Walk, Leicester on 0116 204 2500 or by email at greg.hollingsworth@bhlaw.co.uk.
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