The law relating to debt recovery can often be complex, with comprehensive procedural rules that must be complied with. If these procedural rules are not followed, you risk receiving significant penalties from the courts by way of costs or other sanctions. However, by instructing an experienced team of debt recovery solicitors, you can prevent procedural failures from delaying or even defeating the successful recovery of a debt.
At Three Graces Legal, our specialist debt recovery lawyers can help you to avoid falling foul of the law when taking action to recover outstanding payments. Get in touch with us today to find out how we can help.
Serve notice on the correct debtor
It is not uncommon for a creditor to misname a debtor on a claim form when seeking to pursue a debt through the courts. This can easily happen if you misspell the debtor’s name or if you sue the wrong corporate entity within the same business structure as the intended defendant.
These kinds of mistakes can not only lead to potential delays in court proceedings and the recovery of the debt, but they also run the risk of claims being struck out altogether.
While there are provisions under the Civil Procedural Rules (CPR) that will permit a party to apply to the court to amend any mistakes, a favourable outcome is not necessarily guaranteed. As such, it is always best to leave the task of issuing proceedings in the hands of an experienced lawyer, not least when it comes to identifying the correct party to sue.
Avoid seeking debts over six years old
Typically, the law will give creditors a deadline to start court proceedings to recover a debt. Therefore, if you wait too long, you may not be able to recover the debt at all. This is known as being "statute-barred", whereby the debt effectively becomes unenforceable through the courts.
In England and Wales, you will be statute-barred from recovering most debts after six years. This is primarily because it would be unfair for a creditor to wait several years to take action to pursue any outstanding payment, not least when a debtor could have lost important paperwork at that stage.
This means that although the debt still exists, the law can be used to prevent you, as the creditor, from getting a court order to recover it. As such, if you seek to issue proceedings for a debt that is more than six years old, and the debtor raises the issue of limitation by way of defence, the court is likely to strike out the claim on the basis that it is statute-barred.
Don’t ignore the costs of debt recovery
Before you seek to recover any outstanding balance from a debtor, it is vital to evaluate the costs you will incur in so doing, not least if you intend to issue legal proceedings as means of debt recovery.
Obtaining a judgment in the county court can often represent just one stage of the legal process, whereby you may also need to instigate proceedings to enforce payment of any judgment sum, including instructing bailiffs to retrieve assets equalling that amount. As such, you must balance the cost of this entire process against the size of the debt involved.
Further, both the creditor and debtor will be expected by the courts to act in a reasonable and proportionate manner in all dealings with one another, in particular, avoiding running up costs that don’t bear a reasonable relationship to the sums in issue.
You will also need to ensure that the intended defendant has the means to pay any judgment sum. If they are bankrupt or their company is in liquidation, it would be entirely futile to seek a court order against them, given that you will be unable to enforce a judgment against a debtor with “empty pockets”.
Exhaust all informal options
Perhaps one of the most common procedural failures when chasing debt is a failure to exhaust all possible options before issuing a claim through the county courts. It is important to note that by prematurely issuing legal proceedings, is not only likely to create hostility with a customer with whom you may want to do business in the future, but it can also attract penalties from the courts.
As such, you should always first consider the following:
- Invoicing the customer more than once by way of reminder of the outstanding payment
- Chasing any outstanding invoices through email, letter and/or telephone calls
- Where appropriate, place a credit hold on the customer’s account or stop doing work for them due to lack of funds
- Provide a final notice in writing, highlighting the time within which payment must be made and setting out the consequences of any failure to pay, for example, the issue of court proceedings
- Enlisting the help of a debt collection agency. This could be a third party who liaises with the debtor on your behalf.
Comply with regulatory rules
There are several regulations that as a creditor, you must adhere to when seeking to recover debts, especially from consumers where certain behaviour may be tantamount to harassment.
This can include, for example, contacting a customer several times a day or out of office hours, pursuing them on social media, issuing more than one debt collector at a time to chase payment, or misleading the customer as to their legal rights.
The Financial Conduct Authority (FCA) has rules and guidance about debt collection and, if a debtor makes a complaint, it can penalise creditors who fail to comply with the regulatory rules.
Recovering debt from a business
Where you are seeking to recover debt from an individual, the Pre-Action Protocol for Debt Claims as set out under the CPR is intended to complement any regulatory regime to which the creditor is subject.
While the Pre-Action Protocol for Debt Claims does not apply to business-to-business debts, unless the debtor is a sole trader, the recovery process between two businesses is still subject to the procedural regime set out under the CPR, as well as the same principles of fairness and proportionality that are embodied in the Protocol relating to recovery of debt from an individual.
Be calm and understanding – be in control
When a debtor indicates that they require time to pay, you should always endeavour to reach an agreement for the debt to be paid by instalments, based on the debtor's income and expenditure. If you do not agree to a debtor's proposal for repayment of the debt, you must provide reasons to the debtor in writing, and be able to give an explanation to the court as to why.
How will the courts penalise procedural failures?
When a matter ultimately leads to litigation, the court will expect the parties to have complied with the provisions of the CPR, as well as the Pre-Action Protocol for Debt Recovery, or any other relevant Practice Direction or Protocol. Further, the court will almost certainly take into account non-compliance when giving directions for the management of proceedings.
Although the court will primarily consider whether all parties have complied in substance with the terms of the CPR and is not likely to be concerned with minor or technical infringements, any breach of the rules can have a detrimental impact on the successful recovery of the debt.
How can proceedings be delayed?
In some instances, if a creditor has failed to comply with a specific provision or rule, such as disclosure of certain documentation, this may result in a significant delay in proceedings, for example, a revised timetable or even, in some cases, an indefinite stay.
If, on the other hand, a creditor has conducted themselves in a way that is wholly contrary to the principles embodied in the rules, the court may seek to impose financial penalties, including costs sanctions or penalising the claimant in an award for interest on any money recovered against the debtor.
Preventing procedural failures when chasing debt can help to expedite the payment recovery process, and promote the successful recovery of the debt in full, together with interest and costs.
Contact Our Debt Recovery Solicitors
Three Graces Legal can provide you and your business with a tailored strategy to guide you through the debt recovery process, from negotiation with debtors to enforcement of county court judgments.
We can also advise you on what steps to take procedurally to avoid sanction by the court, and more importantly, in an attempt to resolve the whole matter satisfactorily without recourse to legal proceedings.
To speak with one of our expert debt recovery solicitors, call 0151 659 1070 or complete our online enquiry form. We will endeavour to assist you in every way possible, helping you to recover outstanding payments as quickly and cost-effectively as possible.