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[Litigation] Commercial Debt Recovery during COVID-19

22 January 2021

Adam Haffenden


Cashflow is the lifeblood of a business and has become even more important since the advent of COVID-19. With it being unclear how long the pandemic will last, and with so much uncertainty ahead, maximising debt collection will be many businesses’ priority to secure their interests at this difficult time. 

We keep hearing of cases where debtors are trying to avoid payment by citing COVID-19 related reasons, despite their being fully operational and able to meet their payment obligations. Knowing what practical steps can be taken in these, and other situations, and applying the right debt recovery methods at the right time, is more critical than ever. We set out below some guidance to help steer your business in the right direction.

We appreciate that the cost of recovering debts must be proportionate to the value of the debt itself, and what you are likely to recover from the debtor. It is essential 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 to recover your debt, you should write to the debtor setting out your legal position. If the debtor has cashflow problems, you may consider offering an instalment payment plan as a short-term measure. If this does not provide a solution, the next step will be to instruct lawyers to draft what is known as a ‘letter before action’, requesting payment of the debt. 

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. In our experience, this is often a very cost-effective and speedy mechanism for recovering debts. It is vital, however, to comply with the relevant procedural rules; otherwise, you might eventually face unexpected legal costs. The wording of the letter is therefore important. If the letter is ignored, and the debt not paid, then we can assist you to commence a claim through the courts. 

Court Proceedings 

A claim form setting out the ‘Particulars of Claim’ would be drafted and sent to the court. Provided the debt is more than £10,000 in value interest will be sought at 8% per annum, along with the court fee and legal costs you are claiming at this stage (for lesser claims, costs are usually borne 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 the debtor files 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 court has issued the claim, 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 to decide the rate of payment 

• defend the claim - a defended claim will either be settled out of court or proceed to trial in due course. 

3CS will discuss the likely timescales and costs with you if the debtor files a defence to the claim.

If you need help with recovering your unpaid debts, please get in touch.

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Adam Haffenden

Senior Associate and Head of Dispute Resolution/Litigation