What is debt recovery?

A debt can arise in various circumstances, commonly when a debtor has been issued an invoice for works done or goods supplied, and the invoice is not paid in accordance with the payment terms. It is quite common for a debtor to not engage in correspondence once a debt has become due which is when it may be necessary to seek legal assistance.

Following receipt of a debt recovery enquiry, our team will check through the relevant documents and confirm the debt is due together with the applicable interest and confirmation as to whether the Late Payment of Commercial Debts (Interest) Act 1998 applies.

A Letter of Claim is sent to the debtor which confirms the amount due and provides our bank details so that the debtor has a final chance to pay. If the debtor doesn’t respond within the time frame specified, we can make the application to the Court asking for an Order against the debtor. A Letter of Claim needs to be in a specific format and failing to send the right letter can lead to you being responsible for your own legal costs, and even those of the debtor.

If the debt is for under £10,000.00, it will be allocated to the Small Claims Track which means that legal costs are not recoverable from the Defendant. It is often not economical to have legal assistance when allocated to this track as the legal costs involved can be similar to the amount in dispute and so would result in a pyrrhic victory.

If the debt is over £10,000.00, the amount of legal costs that are recoverable would depend on the track allocated to which would either be the Intermediate or Fast Track where recoverable legal costs are capped, or the Multi-Track where legal costs are generally recoverable from the losing party unless an adverse costs order is awarded. It is imperative that documents are filed with the Court in the time frame and the format that the Court requires, and so it is crucial to have the necessary legal advice to ensure that a simple mistake does not result in adverse costs order being made against you.

Once the claim has been made, the Defendant has 14 days from the date of service to file an Acknowledgment of Service or a Defence. If no response is received, we make an application for default judgment which is an Order against the debtor for the sum claimed. The Defendant still must not have responded by the time the Judge is reviewing the application for judgment in default in order for it to be successful.

If the Defendant does respond, they can either admit the claim but ask for time to pay, admit part of the claim or defend all of the claim. If the claim is defended, the Court will provide “directions” as to how the rest of the proceedings will follow which must be correctly followed. The documents required by the Court can be complex and the timeframe between making a claim and receiving a final trial significantly varies but is often between one and two years. Your legal representative will keep an itemised file of the claim, will be on hand to answer any questions and will ensure that the documents filed with the court strengthen your claim so that the desired result can be achieved.

If the debtor is a commercial one, an application to wind up the company can be made if the debt is over £750.00. The threat of insolvency is often enough to make the debtor pay, but if not, creditors can be entitled to a dividend upon the winding up of the company. If the debtor is an individual, the debt needs to be over £5,000.00 for a bankruptcy petition to be made. The bankrupt’s assets can be sold to repay the debt owed to you.

Once an Order has been awarded in your favour, there are various methods of enforcement that can be followed and our team will advise on the most appropriate course of action depending on the circumstances of the debtor.

For further advice and assistance please contact our Litigation and Dispute Resolution team on  01604 344562 / 01908 916096 or email info@franklins-sols.co.uk.