Debt Recovery

Mark Fairweather, Rosy Border

• Publisher: Routledge-Cavendish
• Year: 2003
• Print ISBN: 9781859418581
• eBook ISBN: 9781135333492
• Edition: 2
• Topic: Law
• Subtopic: Law Theory & Practice
• Index: Law

First published in 2003. Does someone owe you money? Whether the debtor is an individual or a commercial giant, this book enables you to choose a course of action to recover the debt.

1
Spotting a doubtful customer

You are unlikely to want to supply goods or services – or indeed to lend money – to a person who is unwilling or unable to pay you. The best way of avoiding bad debts is to pick your customers with care. If you have serious doubts about a person’s willingness or ability to pay, you can check them out.

Much financial information about people is confidential, and is protected by the Data Protection Act 1998. There are, however, sources of information which are publicly accessible.

• The Register of County Court Judgments (see ‘Useful contacts’) is maintained by the Registry Trust Limited. For £4.50 per name (make out the cheque to Registry Trust Limited) you can get a print-out of any judgments against that name. You can also download an application form from the Registry Trust website, complete the form on-screen, print it and mail it.

Note that this register does not include High Court judgments (which do not figure on any register), so really big debts can go unrecorded.

• The Individual Insolvency Register, which came into operation in March 1999, keeps details of bankruptcy and individual voluntary arrangements (IVAs). You can apply free of charge

– in person at any official receiver’s office (listed in your local telephone directory), where you fill in a form and receive a print-out of the information; – in writing to the Insolvency Service;

– by telephone to the Insolvency Service, and they will tell you over the telephone whether an individual is bankrupt or is subject to bankruptcy proceedings or has entered into an IVA.

• The Insolvency Service helpline will also tell you whether a company has gone into compulsory liquidation or is subject to liquidation proceedings, or has entered into a company voluntary arrangement (CVA). There is no charge.
  The Insolvency Service Disqualified Directors Hotline was set up ‘to catch defiant directors and undischarged bankrupts who blatantly disregard disqualification orders made against them’. It is open 24 hours a day and will tell you free of charge whether someone is on their list of people who are disqualified from acting as company directors.
• You can also seek information from a licensed credit reference agency, most of which use ‘credit scoring systems’ and then allocate a pass mark to predict whether or not people are a good credit risk. See the Yellow Pages for your local agencies, or call Talking Pages (see ‘Useful contacts’) for a free nationwide trawl.

---

Using a credit reference agency will, of course, cost you money and may not be totally reliable.

---

---

If you are seriously doubtful about someone’s ability to pay and you don’t mind being unpopular, you can ask them to show to your satisfaction where they will get the money – or else insist on money up front.

---

Prevention is better than cure

If you must deal with potentially unreliable customers:

• ask for payment in cleared funds (cash, credit card, electronic transfer, bank draft or building society equivalent) in advance, or on delivery;
• hold on to the goods or the customer’s property (for example, the lawnmower which they have handed over to you for repairing) until you are paid;
• ask for, and obtain, security – such as a signed guarantee;
• think carefully about your standard terms and conditions of trade. For example, if you supply goods, do the goods remain yours until they are fully paid for? If you provide a service, are you entitled to instalments?

2
Where do I start?

Most debt recovery is a matter of organisation, persistence and good communication. Remember: going to court is always a last resort, and involves irrecoverable time and expense.

Here are the first stages on the road to debt recovery. To make things clearer, we have set this out in a flowchart on pp 8–9.

• invoice the customer
  Make sure the invoice is consistent with your contract. It is helpful if the invoice re-states the contractual period for payment (such as 28 days) and, if applicable, reminds the customer that you can charge interest. Consider also putting on the invoice a note on what the customer should do if they are unable to pay immediately (such as letting you know at once).
• first reminder
  We give a sample letter on p 112.
• stiff letter – the ‘yellow warning’. See our sample letter on p 113.
• ring the debtor – be polite, be firm and keep a careful note for your file of what is said and agreed. You may think you’ll remember what was said, but we guarantee that in a week’s time your memory will be as hazy as anyone else’s. On-the-spot notes, which professionals call ‘file notes’ or ‘attendance notes’, are an invaluable record and could help you win your case. Try to find out why you are not being paid and do a deal if you can – for example, for payment by instalments (with interest, if chargeable, on the late money). If appropriate, follow up the call with another letter confirming what was said. We give a sample letter on p 115 which summarises the debtor ’s proposals for payment.
• final warning – the ‘red card’! We give a sample Letter of Claim on p 114.
• ongoing enquiries – from the beginning, try to find out what you can from the debtor about their financial circumstances, such as ownership of property, savings, employment and, of course, other debts. Keep good file notes of this information – you may well need them.

Decision time

You have issued your final warning and you still haven’t been paid. You need to know why.

Can’t pay?

You can’t get blood out of a stone. If your debtor is genuinely unable to pay, consider whether any further action would involve throwing good money after bad.

---

In particular, do not waste time and money taking court proceedings against

• an individual without checking on the Individual Insolvency Register (see p 1) whether they are already bankrupt, or
• a company without checking with the Insolvency Service (see p 2) whether the company has already gone into liquidation.
  In either situation, you could sue them and get your judgment, but the court can make you apply to set the judgment aside (cancel it) – at your expense!

---

But people’s financial circumstances can change, so:

• keep the file open;
• ask the debtor to provide a statement of means (see the sample on p 123);
• try to persuade the debtor to pay at least nominal instalments;
• review the case periodically in case the debtor comes into money;
• keep an eye on the time limit for court proceedings.
  You can’t sue on a contract debt more than six years after the date of the contract.

Can pay, won’t pay?

There are two possibilities here. We have all met people who are quick to order goods and services but slow to pay for them, and it may be your misfortune to be dealing with one of them.

The second possibility is that the person is withholding payment for a good reason. Do they have a genuine cause for complaint or dispute? If so, you will make the task of collecting the debt a lot easier if you resolve the dispute before you go to court. What’s more, it may well be that with the dispute out of the way you will get paid in any case. Consider whether your standard terms and conditions of business should include a complaints procedure.

Debt recover: the early stages

3
Choosing your weapon

If you have security over any of your debtor’s assets, now is the time to get your money by realising the security. You may still need a court order to do this – take legal advice.

Otherwise, you have two choices:

• bankruptcy/liquidation proceedings, or
• court proceedings for recovery of the debt.

Let’s consider bankruptcy or liquidation first. Insolvency cramps everyone’s style, and members of some professions are actually barred from practising if they are insolvent. The threat of bankruptcy (for an individual) or liquidation (for a company) may therefore concentrate your debtor’s mind wonderfully, and you can do the threatening free of charge with a statutory demand (see Chapter 14), but remember:

• bankruptcy proceedings are limited to debts of £750 or more, and the same limit (with exceptions) applies to liquidation proceedings;
• bankruptcy/liquidation proceedings are not suitable where the court might find that the debtor has genuine grounds for disputing your claim;
• the threat – particularly the statutory demand – is often more potent than the deed itself.

This is because taking bankruptcy/liquidation proceedings does not get you to the front of the queue of creditors.

If you have security of some kind, such as br...

Table of contents

• Cover Page
• Title Page
• Copyright Page
• Disclaimer
• About the authors
• Acknowledgments
• Welcome
• Buzzwords
• Frequently asked questions (FAQs)
• 1: Spotting a doubtful customer
• 2: Where do I start?
• 3: Choosing your weapon
• 4: The nitty gritty: filling in the claim form
• 5: Claiming online
• 6: What happens next?
• 7: Slugging it out in court
• 8: Making it stick: enforcement
• 9: Warrant of execution
• 10: Attachment of earnings
• 11: Third party debt order
• 12: Charging order
• 13: Bankruptcy for beginners
• 14: Sabre rattling: the statutory demand
• 15: Serious swordsmanship: the bankruptcy petition
• 16: Liquidation
• Sample letters
• Sample forms
• Official forms
• Useful contacts