Business Law Basics: Debt Recovery in the United Kingdom
In the current climate, businesses are struggling to survive despite the rumours of a recovery, and small businesses are feeling the pinch in a more acute way. One of the key reasons for this is that with purse-strings being tightened, payments for the provision of services and goods are delayed sometimes for too long. There is a slight domino effect in that your customers cannot pay you (the business owner) and you cannot pay suppliers, utility providers, even investors that have put their money on the line for you; and then they cannot do the same for their customers/suppliers/contractors and it goes on. Want to know the reason why small businesses fail? Cashflow. A small business can be profitable but can fail due to not having enough money. So the problem of non-payment is a serious one. So what can you do when someone, despite numerous attempts on your part to get your money, refuses to pay up? Well, as a last resort, we go to court.
So what court would that be then?
The small claims court. This is a fairly inexpensive and uncomplicated way to deal with debts of up to £5,000. If it's for amounts over £5,000 and up until £25,000 then you can use what is called the fast-track process. If it is over £25,000, then you can use what is known as multi-track process. However the judge may also refer larger debts to the small claims courts, depending on the different circumstances of the case or with the agreement of the person who owes the money.
There must be other options...
There are--and court is, in the vast majority of cases, a last resort because taking a customer to court may mean losing their custom. There is:
- Mediation - this can be cheap and simple and may save you time, money, effort and inconvenience when it comes to late payments. It can also help to maintain the business relationship.
- Renegotiating the debt - you both can become flexible in the way it is paid--e.g. lowering the monthly payments.
- Debt collection agency - They have the resources, time and energy and, in most cases, are very professional so there is a higher chance of retaining the customer. However, you will not get the whole amount, as they take the proportion of the amount owed to cover their fees.
If those do not work, then it is off to the courts.
So what happens when I get to court?
This is where most cases like these are resolved. When the case gets to court and the merits established, then the judge will allocate it to one of the tracks (see above) depending on how much is being claimed. Then there is the high court that deals with more complex cases--but they must be at least £25,000.
You must send a final warning letter to say that this is what you are doing. This usually does the trick!
Do I need a lawyer?
Not necessarily. But if the case is complicated, then you may need a solicitor. Remember, legal aid is not usually available for these cases and any legal costs are not recoverable. If you choose to have a solicitor, ask yourself:
- How will I be charged?
- Will be charged court costs?
- Do they do mediation too?
I have put a claim in. So what happens now?
Well the defendant has 14 days to reply to the claim. They can request an extension to the 14 days if necessarily but the limit is 28 days. They may:
* Do nothing when they receive the claim
* Ask for more time
* Pay the amount owed
* Defend the claim
* Defend part of the claim and then pay that part or ask for more time to pay that part
Most either do the first one or do nothing. Just one word for you that you may need to consider this - COUNTERCLAIM!
Do all cases need a hearing?
No. Cases can be resolved using written evidence. Preliminary hearings can determine if there is a case or not.
If the defendant does not defend the case, then what you have to do is wait for the permitted time and apply for a judgment. If it has been done online, you can enter the judgment online. Then there will be no hearing and judgment will be made in your favour, but this does not mean you will get the money straightaway. So you have to enforce the judgement.
How do I enforce the judgement?
This is often more difficult. It has to be proved that the debtor can or cannot pay. Ask the courts to draw up an order for them to see the state of their finances. So how can you get your money? Well there are:
Warrant execution order - this will allow court bailiffs to take possessions from the debtor's home or business. There are some things that cannot be taken. After a certain amount of time the goods will be sold at auction. Fees and expenses will be taken from the total and you will get the rest.
Attachment of earnings order - The employer can make deductions from wages to help pay off the debt.
Third-party debt order - This means freezing the assets (i.e.money) of the defendant until the courts decide how much of the money should be paid to you.
Receivership - if the above methods do not work, then you can go to the court and ask them to approve a receiver (selected by you) to conduct what is known as an equitable execution which means they collect any monies owed. Be careful when using this.
Winding up or bankruptcy - As a last resort (and if you have evidence that the debtor is solvent), you can ask for the courts for a winding-up or bankruptcy order to stop the business functioning. Personally, I wouldn't go there unless I really, really, really had to. So think carefully before using this.
So there you have it. This is not a fun area of business, but one that must be covered. I hope you and all businesses and customers associated with you never have to use this.
Take care and God bless readers...
© Ngozi Nwabineli - October 2009