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Commercial Debt Recovery

20 March 2020

Adam Haffenden

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 to recover your debt you should write to the debtor setting out your legal position. If the debtor has cash flow 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 a pre-action 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). If you fail to comply with the relevant procedural rules, you may be penalised in costs.


If the debt is paid within the specified time then you will only be responsible for our professional fees for sending the letter before action. If the debt is not paid, we can assist you to  commence a claim through the courts.


Court Proceedings


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 at this stage ,provided the debt is more than £10,000 in value. 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 the court deems the Claim Form to have been served, 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.


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 (if the value of the debt is above £10,000 in value 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 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, usually 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.


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 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.


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).


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.


If you wish to instruct us to assist you with recovering your unpaid debts, please contact us.

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Adam Haffenden

Senior Associate and Head of Dispute Resolution/Litigation

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