There will always be the occasional unpaid invoice while doing business with other companies. It’s possible that these companies will ignore any and all debt collection efforts. If you have unpaid invoices, it could have a negative impact on your cash flow.
There are times when requests for payment are ignored. Taking legal action is often necessary in such cases, and experienced debt collection solicitors can be invaluable resources. Your company is protected to some degree by the Late Payment of Commercial Debts (Interest) Act of 1998. It protects your rights as a creditor to pursue payment of past due balances together with interest and legal fees. Furthermore, it reduces the likelihood of payments being late.
If a client fails to pay an invoice, your business has the right to pursue legal action to recoup the amount owing (plus interest, damages, and costs) and to terminate the relationship. In this article, How To Recover Debt From A Company, we consider the process and mechanism involved.
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For a free initial discussion with a member of our New Enquiries Team, get in touch with us today. We are experienced in dealing with all the legal aspects of corporate debt recovery and litigation, and once instructed, we will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help ensure you are on the best possible footing from the start. Simply call us on 0345 901 0445 or click here to make a free enquiry and a member of the team will get back to you.
What is the process of corporate debt recovery?
Below we set out the stages of debt recovery.
Pre-action correspondence
The first step in effective debt recovery, as with most sorts of legal action, is to try to settle the situation amicably without going to court. The courts hope that the parties will try to work out their differences on their own. The Pre-Action Conduct and Protocols Practice Direction lays forth the procedures that must be followed before a certain type of civil claim can be filed. Some examples are:
- By communicating well and establishing each other’s point of view
- Converging on an optimal plan of action
- Attempting to reach a settlement of the dispute (or the entire claim) prior to filing a lawsuit
- Considering alternative dispute resolution techniques like mediation
- Attempts to lessen the expense of settling the conflict
There is no established pre-action protocol for debt claims against a limited company. Businesses (including sole proprietorships) can only use the pre-action protocol for debt claims to pursue debt recovery from other businesses or persons.
Instead, the creditor company should use the Practice Direction as a roadmap for pre-suit discussions. The process of debt collection may also be affected by other laws and regulations, depending on the nature of the debt claim at hand.
Letter before action
A debtor will get a letter before action (“LBA”) in the event that legal action is going to be taken against them. An LBA is the initial step in the process of recouping monies owed, and it typically results in a success rate of over 85 per cent for payment at this stage.
A letter before action is a formal preamble to initiating legal actions that sets forth all of the relevant claim elements, such as:
- The grounds for making the assertion
- Synopsis of the situation
- The claimant’s request to the defendant
- How the debt was computed with interest and any other fees
- Essential documents
A “reasonable period” for the debtor to respond to the letter of claim is 14 days in simple instances and no more than three months in complex cases. Either the debtor should:
- Find out if they agree with the claim or not
- If they do not agree with the claim, explain why, and specify what exactly is in disagreement
- If they plan to file a counterclaim and what that claim is about
Legal proceedings
If you still have not received a response from your debtor that is satisfactory, the next step is to commence legal procedures through the County Court. You can do this if you have already sent your debtor a letter before action. The court will write the debtor a letter reminding them that they have 14 days to pay the amount, together with any interests and additional expenses that have accrued.
When a debtor ignores a letter of claim or fails to properly dispute the debt, legal action is often taken to recoup the money that is owed. The CPR also governs this procedure. The filing of legal action usually results in the debt being paid unless there are valid defences to the debt.
To formally initiate court proceedings, a claim form and particulars of claim must be created.
Include the following details in your claim form:
The claimant’s and the defendant’s full names and addresses, a brief summary of the claim, the amount of the claim, including interest and costs and the name of the court that should handle the court proceedings if the claim is contested.
The following details must be included in the particulars of claim:
- The nature of the claimant’s and defendant’s respective businesses;
- The specifics of the agreement between the plaintiff and the defendant;
- Specifics regarding the claimant’s compliance with the terms of the agreement;
- Specifics of the claimant’s unpaid bill(s);
- The failure of the defendant to settle the claimant’s unpaid invoices;
- Any claimed interest, as well as the foundation for such interest claim; and
- Tests for compliance with Practice Direction on Pre-Action Conduct and Protocols, including whether or not the claimant and respondent have followed them.
After finalising the claim form and particulars of claim, they are filed with the court. When the case is filed with the court, a fee called an “issue fee” must be paid. Payments will start at £35 and go as high as £10,000, depending on the claim’s value.
The defendant only has 14 days from the day the court proceedings were issued and served on the defendant to file a response. If the defendant does not appear in court for a hearing, a default judgement might be filed against them.
County Court Judgement, often known as a CCJ
A CCJ, or county court judgement, is a court ruling that confirms a debtor’s failure to make payments and will have an effect on the debtor’s credit file. You are able to conduct enforcement action in order to recover the debt once you have obtained a CCJ.
Enforcement
After a CCJ has been obtained by the claiming creditor, various enforcement options are open to them. These can include:
- A judgement can be enforced by bailiffs from the county court or from the High Court by High Court Enforcement Officers, who can enter a property to recover money and confiscate or control things to cover the debt.
- Getting a charging order filed against the debtor’s property. If the debtor ever has to liquidate their assets or declare bankruptcy, the creditor will have a better chance of getting paid back because of this secured debt.
- The debtor’s assets might be frozen and the creditor can access the money by obtaining a third-party debt order.
Insolvency proceedings
A debtor is termed insolvent if he or she cannot pay the obligation when payment is due without contesting the validity of the debt.
You can claim priority for payment by initiating winding-up proceedings against a company or bankruptcy proceedings against an individual if you have cause to believe that the debtor has other creditors who are attempting to acquire payment from them. Sending a draft winding-up petition to a company or a statutory demand to an individual will initiate the insolvency procedure. You can file for insolvency using one of these documents. In excess of 80 per cent of cases are settled at this juncture, eliminating the need for additional insolvency procedures.
In order to file for insolvency against a firm, the debt owed must be at least £750 and undisputed by the business.
On your behalf, our debt recovery solicitors will draft a petition to wind up the company, which will be accompanied with a letter detailing the debt and requesting payment within a certain time frame. The letter also serves as a warning, indicating that the petition will be filed with the court if payment is not received. Most cases are settled at this stage because the debtor wants to avoid more court costs and the stress and inconvenience of having to attend.
If the draft petition fee has not been paid or a CCJ has been obtained, a petition to dissolve the company can be filed with the court right away.
The court will finish the petition and provide details on when a hearing will be held. Petition copies are then delivered to the debtor or business. The court will rule on the petition and schedule a hearing before the court at a later time. The next step is to provide the company with a copy of the petition.
Do you need a solicitor or a debt collection agency?
The process of recovering a debt can often be quite complicated. Our solicitors will work closely with you to determine which course of action is most appropriate given the specifics of your situation. Debt collection agencies are unable to provide the full range of services. In the event that their requests are not met, they would typically recommend you to a solicitor for possible legal action. We will handle the collection of the debt from beginning to end, which will make the process more efficient and save you money.
Our debt recovery solicitors may assist you in recouping the funds that are rightfully owed and because we are debt solicitors, we are able to provide a larger variety of solutions than debt collection agencies.
On numerous occasions, debt recovery companies are unable to handle the complicated legal circumstances that arise during the collecting process whereas an experienced solicitor can manage the various legal processes that are involved.
How we can help
We have a proven track record of dealing with corporate debt recovery and litigation. We will guide you through the process and ensure all checks are carried out swiftly and efficiently and we firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
Please click here to find out more about our Commercial Litigation services.
How to contact our Commercial Litigation solicitors
It is important for you to be well informed about the issues and obstacles you are facing. Expert legal support is crucial in terms of reducing risk, saving you money and ensuring you achieve a positive outcome.
To speak to our Commercial Litigation solicitors today, simply call us on 0345 901 0445, or allow a member of the team to get back to you by filling in our online enquiry form. We are well known across the country and can assist wherever you are based. We also have offices based in Cheshire and London.
Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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