The most well-known form of debt recovery is through the courts and is the same process for both individuals and businesses, but this should always be a last resort.
You should always try to negotiate a solution, even if this means accepting a reduction in the amount owed, because court and legal fees are not always recoverable and can be substantial. Also, you can come to your own unique arrangement with the debtor, whereas going to court will impose a solution on both of you.
If negotiations have failed, then a formal Letter Before Action should be issued. We usually advise clients to give just 7 days notice before issuing court proceedings, but it does depend on each particular situation. If you simply issued court proceedings without giving any notice then you could be criticised by the court if the matter was later disputed and potentially penalised by having to pay costs.
We usually advise against sending the letter by registered post or signed for delivery as the creditor is entitled to assume that the debtor still lives at the same address unless he knows otherwise. If the debtor is a company, it can be sent to the registered office, which you can find from the Companies House website.
Once the notice period has expired, we usually recommend that you issue court proceedings. If you do not then the debtor is likely to consider that you are not a “threat” and so is less likely to prioritise paying you compared to other more pressing creditors. However, we recommend first checking that the debtor can pay the debt in the event of a court judgement. If the debtor has no assets or is bankrupt or insolvent, then obtaining a court judgement against him would be ineffective as it cannot be enforced.
There is no guaranteed way of checking the debtor’s finances, but there are various internet based companies offering what is often referred to as “Pre Litigation Reports”. For substantial debts you could hire a private investigator – just don’t ask how he finds out the information he discovers!
About 1.4 million civil claims and petitions are brought to the county courts each year. Typically only about 3-4% of these require a hearing. In the vast majority of cases, either the defendant does nothing so the claimant can ask the court to order the defendant to pay the amount claimed, or the disputes are settled without a court hearing being needed.
Once court proceedings have been issued, the debtor has 14 days after receiving the claim form to Acknowledge Service, which means completing what is effectively a receipt of the Claim Form and sending it to court. If he does not do so then you can enter default judgement against him. The debtor then has 28 days to enter a Defence and again, if he does not do so then you can enter default judgement.
Unlike debt collection agencies, solicitors have experience in representing both creditors and debtors and can advise on all aspects of the debt collection process, from initial tactics to issuing proceedings and representing clients at trial. We will work with you to find a solution that recovers the money you are owed in a cost efficient and commercially sensible manner. We will consider with you your options for settlement and how to maximise the chance of keeping the matter out of court.
Coming up next month: Got a County Court Judgement that the debtor is ignoring? We look at your enforcement options.