Debt Recovery

commercial-debt-recovery




Claimant Debt Recovery

Pre-Proceedings

Three Graces Legal will request the full file of papers of proceedings so far carry out a full review of the matter and then draft and send a Letter Before Action to the Debtor demanding payment of the outstanding debt within 14 days. There is no charge for this aspect of the work.

If the payment is made within 14 days and the debt settled Three Graces Legal will deduct 15% from the total amount recovered. If any legal costs are recovered these will also be payable to Three Graces Legal.

We charge a minimal amount for sending a Letter Before Action of £2.00 + VAT.

Entitlement to Claim Interest

Under the Late Payment of Commercial Debts Regulations 2002 you may have a statutory right to claim interest for late payment of debts. Ideally, your invoices and contracts will already make clear that you will exercise this right if payment is not made on time.

This means that if a payment is late, i.e. outside of the terms stated on the invoice, then you can claim for the interest on the amount owed.

If your invoice or contract states that payment will be made in instalments, you can claim statutory interest separately on each instalment paid late.

Statutory interest runs payable from the date that goods or services are delivered if there is an agreement that payment is to be made ‘up front’.

Three Graces Legal will therefore claim the amount of interest based on number of days late using the relevant legislation.

Alternatively, you could include a contractual right to interest clause within your contract’s trading terms.

In addition, we can also seek to recover a fixed sum to compensate you for costs of collecting the debt which is:

  • £40, for a debt less than £1,000;
  • £70, for a debt of £1,000 or more but less than £10,000;
  • £100, for a debt of £10,000 or more.
Proceedings

Should the Debtor not respond then Three Graces Legal will review the prospects of the case again and look to issue Court Proceedings. We will draft the Claim Form and Particulars of Claim. The cost for doing this work is dependent on the size of the claim, and we will seek to recover these costs from the debtor as part of the overall claim.

If no response to the Claim Form, then Three Graces Legal will apply for a default judgement asking the Court to make an Order in the Creditor’s favour.

Once a Judgment is received if no payment within 14 days (or whatever time ordered by the Court) then we will take steps to enforce using one of a number of options, including:

  • Writ/Warrant of Control using a High Court Enforcement Officer
  • Attachment of Earnings
  • Examination Order
  • Charging Order
  • Third Party Debt Order
  • Statutory Demand
  • Bankruptcy Petition
  • Winding Up Petition

 

Defendant Debt Recovery

What to do if your company has been served with a Statutory Demand?

If you are based in England or Wales, you have to act within 21 days, otherwise this could lead to the Winding-Up of your company.

If the debt is genuinely owed, then steps should be taken to pay the debt or make arrangements with the Creditor to settle it. If you do not, then Insolvency Proceedings may be commenced.

There are situations where a Statutory Demand is served when it should not have been, such as the debt no being due or where there is a genuine dispute, or where there is a counter-claim equal to or exceeding the Creditor's claim. Even if this is the case, the Statutory Demand still needs to be dealt with by you, otherwise Insolvency Proceedings may be commenced.

Depending on how much time you have, you may seek to contact the Creditor to set out exactly why the debt is not owed. You need to seek an undertaking from the Creditor (or their agent) that they will not commence Insolvency Proceedings. You need to act quickly, however, because this will eat into what time you have to deal, and if the Creditor declines your request, you may struggle to prevent Insolvency Proceedings against your Company.

You may – in the absence of any undertaking to desist from Insolvency Proceedings – make an Application to the Court seeking an Injunction which restrains the Creditor from commencing Winding-Up Proceedings.

Remember, any undisputed debts owed to the Creditor should be paid where possible.

What if my Company disputes the debt?

You may challenge a Statutory Demand where you believe the debt is not due, as long as there are genuine grounds for dispute. A disputed debt for the purposes of a Statutory Demand is a debt claimed by the Creditor which the debtor says is not owed.

The Statutory Demand makes reference to a 'liquidated sum'. What is this?

A good petitioning debt is one which is a liquidated sum, payable now or in the future, and the debtor has no reasonable prospect of paying. It must be a specific amount and one which has been fully and finally ascertained.

The effect of an unsatisfied Statutory Demand is to create a presumption of Insolvency. If you dispute the debt and have genuine grounds to challenge it, then your position is that the debt is not due and your Company is not Insolvent. In such circumstances, then it is likely that the Statutory Demand route is not the right route to recover the debt.

How much is owed?

For corporate debtors, the minimum amount of debt which can be demanded by way of Statutory Demand is £750.

Steps you need to take

Once the Statutory Demand has been served on your company, you need to take immediate steps to deal with it. The process can become quite technical and the consequences for getting it wrong can be devastating. When a Winding-Up Petition is presented against your company and then advertised, this can have very serious consequences.

What we will do

If time permits, we would send a letter to the creditor setting out the grounds on which the debt is disputed and that issuing a Winding-Up Petition is not appropriate. We would seek a solicitor's undertaking that the Winding-Up Petition will not be issued. If it has already been issued, then we would seek an undertaking that it will not be advertised.

What is meant by “being advertised”?

Where a Winding-Up Petition has been issued at the High Court, it follows that the Petitioning Creditor must also advertise this in The Gazette. This is because, as mentioned above, the unsatisfied Statutory Demand creates the presumption of Insolvency, i.e. that a Company cannot pay its creditors. Therefore, in view of the Winding-Up Petition being issued, the Petitioning Creditor is effectively notifying your Company's other creditors, including your bank, that it has fallen into a perilous financial situation and they need to take steps to protect themselves against any loss which stemming from the Insolvency. This could include seeing your Company's assets frozen.

What if my Company's bank account or other assets are frozen?

Where the Company bank account has been frozen, owing to the lender being notified of the Petition via the Gazette, then you will need to apply for a Validation Order to authorise the bank to release funds to make any payments that fall due from the frozen account.

The application must follow a specific form and so legal assistance should be sought. The application must be made at the same Court where the Petition is being heard. So if the Petition has been issued at Leeds District Registry, then just because you are based in Liverpool is irrelevant – the application must go to Leeds, even though your home District Registry, as Debtor, is Liverpool.

The Court will consider the application and its enclosures, which should include things like a cash flow forecast and a list of proposed payments detailing why they should be paid. The Variation Order will usually only be granted where the Court is persuaded the Petition will be dismissed, either because the Company is solvent and so the Petition is not appropriate, or where a Company Voluntary Arrangement (CVA) has been agreed.

What if the Undertaking is not given?

If, following our letter, the Undertaking is not provided within the time requested, then we shall apply to the Court seeking an Injunction restraining the Petitioning Creditor from issuing a Winding-Up Petition, under the Insolvency Rules 1986, SI 1986/1925.

If the application succeeds, that will effectively 'buy' you more time to determine whether the debt is due, in which case, payment arrangements should be made, or whether the debt is disputed. If there are genuine grounds to defend the debt, then we will ask that you gather all necessary evidence together in order to present to the Court and seek the Petition be struck out. If such a finding is made, we are able to seek our wasted costs from the Petitioning Creditor so that you are not out of pocket for their actions.

Can I challenge the Petition against my Company?

If the Creditor does not agree to withdraw the Petition then a Defence needs to be filed with the Court at least 5 days before the Hearing. The Defence is a vital legal document and so care should be taken to ensure it is properly drafted in the appropriate form. For this, you should seek legal assistance. The purpose of the Defence is to challenge the claim referred to in the petition. If any part of the claim is not in dispute, then you should take steps to pay this and any costs.

What if I pay the Petitioning Creditor?

You must ensure you are clear as to what you have agreed to pay and whether this is in full and final settlement and whether it includes legal costs.

Even if you pay the Creditor, where the Petition has been advertised does not necessarily spell the end of the matter. This is because another Creditor who is able to issue a Petition against your Company can adopt the existing Petition.

Can I get more time to pay the Debt?

As soon as is possible you should try to reach an agreement with the Petitioning Creditor over terms of a payment plan and to get them not to advertise the Petition.

If a payment plan can be agreed then you must also seek agreement to have the Petition withdrawn as it is unlikely the Court will allow an adjournment beyond 12 weeks to facilitate a payment plan.

If the Petitioning Creditor will not agree to a payment plan, then you may ask the Court for time to pay. However, this is a discretionary remedy, and without any agreement with the Creditor, the Court is only likely to adjourn for six weeks.

What if I need more than six weeks?

If you are unable to settle the debt within the period agreed then you have no option but to enter a formal insolvency procedure.

This will take effect by considering one of the following options:

  • Company Voluntary Arrangement (CVA) which will allow your company to continue to trade
  • Administration, whether trading, non-trading or Pre-Pack
  • Creditors' Voluntary Liquidation (CVL)
Can I not simply let the company go into liquidation?

Yes. In such an instance, you would allow the Petition to succeed and the Court would simply grant the Winding-Up Order for the Company to be placed into compulsory liquidation.

The Official Receiver will then make contact with you to take control of the company's assets and require you to provide information via a Questionnaire, before summoning you to a meeting. At the meeting, the Official Receiver will look into the reasons for the insolvency and find out what has happened to the assets. You should seek legal assistance with completing the Questionnaire and ensure all accounting records are up to date.

Next Steps

Whenever your company receives a Winding-Up Petition, we would always recommend you perform a business and financial review to establish continuing viability. If it is the case that the company will be viable if sufficient funds are provided, or that it requires restructuring, then contact us and we shall be able to liaise with one of our trusted partners who can advise you on this. This can also include looking at a number of options including those explained above such as a Company Voluntary Arrangement or Pre-Pack Administration.