While the restricted use of statutory demands and winding-up petitions will provide a lifeline for many struggling companies, the move also forces creditors chasing overdue debts into an already overburdened court system.

As it stands, the only remedy to enforce payment of a debt is through a High Court enforcement officer. You may send out a bailiff or arrange a third-party debt order.

Alternatively, you may apply to the court to put a charge on any fixed property owned by the debtor. You will get an interim charge if you already have a judgment.

But a final charge may prove more difficult to obtain. This is because all the other creditors must be notified, and any 1 of them might object.

Whereas the consequences of Formal and Statutory Demands can encourage a debtor to pay quickly, county court proceedings take much longer, especially if the defendant tries to frustrate the proceedings by filing a contrived defence.

Weak defence

If the defence is weak, you can make an application for a summary judgment. But if the defence has merit, the court will give directions to set a timetable for the:

• Exchange of evidence
• Taking of witness statements
• Preparation of a trial

This process usually takes around 6 to 12 months. But a determined defendant can easily string that out for 12 to 18 months or more.

With only 54% of court and tribunal buildings in England and Wales currently open, legal experts predict the backlog of cases that built up during the first half of 2020 could take up to 12 months to clear.

In the long run, the changes being introduced to Her Majesty’s Courts & Tribunal Service, including video and phone calls, benefit everyone as better use of technology should vastly improve productivity.

But for now, creditors chasing overdue debts are faced with little option but to litigate and accept that payment is many months away.

The post Congested courts the only option for debt enforcement first appeared on Company Debt Recovery.

Dealing with disputed invoices can be challenging, especially if your customer is squabbling simply to avoid payment.

The most important thing is to take time to understand what the dispute is. Then, isolate and seek to resolve the issue as quickly as possible. If you believe the dispute is bogus, explain your reasons and press on with enforcement proceedings.

It’s essential that you act swiftly because you want to get paid. When you’re tolerant with overdue invoices there’s a danger that you may lose all of your money. The company you’re chasing could be insolvent, struggling on its last legs, and simply robbing Peter to pay Paul.

Disputed invoices must dealt with urgently because you don’t know if the company is doing the same thing with other suppliers. Never sit on a dispute because it won’t simply go away.

Still, you don’t want to magnify the problem by throwing oil on the fire or fanning the flames. When someone says they’re not paying, it’s very easy to become irrational, hot-headed and start exchanging threats.

Before you know it, you’re trading accusations, the issue remains unresolved, and no one’s suggesting a way to end the dispute.

Ask the customer to set out their dispute in writing

Avoid this and get straight down to business. Ask the customer to clearly set out their dispute in writing, supported with whatever documentary evidence they have.

You can give them 7 or 14 days (or less) to respond. If they reply without any documentary evidence there’s probably no need to take the dispute seriously.

Also, never accept a dispute verbally over the telephone. Always ask the complainant to articulate their dispute in writing. A person with a genuine dispute can do that. Someone with a spurious claim will struggle, unless they’re going to manufacture a dispute.

If the response comes back with supporting evidence; deal with the disputed invoices straight away. Grasp the issue and address it quickly. Sometimes you may have to concede some form of value (monetary amount of the invoice) in order to get paid, that’s just business.

To avoid these types of issues, it’s always best to ensure that your agreement terms and conditions clearly set out the process for dealing with disputes.

Ensure that both parties agree to the terms before trading takes place, so if there is a dispute they’ll automatically submit to the process set out in the agreement.

Disputes can be complex and it’s sometimes easier to let a third party handle these issues while you concentrate on running your business. For more information, visit our 123Pay credit management page.

The post How to deal with disputed invoices first appeared on Company Debt Recovery.

Issuing a Statutory Demand (or Stat D) is an effective way to encourage prompt payment of overdue invoices and debts, but it’s not the only method.

A Stat D is a formal document requesting payment of an outstanding debt within 21 days. By issuing one, you give creditors another 3 weeks to pay a debt that’s already overdue.

In that time, if the debtor is a limited company with debts; the director(s) may consider a formal insolvency procedure.

Try to avoid this because creditors in Company Voluntary Arrangements may get 30% of what they’re owed over 5 years. In a Creditors’ Voluntary Liquidation it’s likely they will end up with nothing.

Bizarrely, issuing a Stat D may deter a company director from paying quickly. 20 days after it’s been issued, they can file in court a Notice of Intention to Appoint an Administrator.

This acts as a moratorium preventing creditors from taking oppressive action against the company for 14 days. After 2 weeks, the director is free to repeat the process.

Breach of payment terms

Filing 2 notices buys the director(s) extra time in addition to the 21 days offed by the Stat D. Despite breaching your payment terms, they may have benefited from 7 weeks of interest-free credit.

In these circumstances, director(s) have 21 to 49 days to consider their options. During that time, they can easily remove assets from the company and place them beyond the reach of creditors.

And this is the primary reason why it’s sometimes best to avoid Statutory Demands if the debt is undisputed.

If you really want companies to pay swiftly, ensure your initial contract with them includes a watertight enforcement provision. This should inform creditors that you may take action 14 or 28 days after the due date.

Once this provision is included and the specified period has elapsed, you can refer them to the provision and say:

“If this debt remains unpaid after 24 hours, I may petition for the Winding-Up of your company.”

As soon as the court issues your Winding-up Petition, Section 127 of the Insolvency Act 1986 comes into effect. This forbids directors from taking several actions, including making payments from the company’s bank account(s) without first obtaining the court’s permission.

But there’s no guarantee their application will be granted. So the director must pay the invoice immediately if they want to regain control of the company’s assets.

Whereas Stat D’s offer a 21-day reprieve; an enforcement provision accompanied by a 24-hour notice motivates debtors to pay faster.

The post Stat Ds and undisputed, but overdue invoices first appeared on Company Debt Recovery.

Sometimes, you may need to issue a County Court Judgment (CCJ) or a Winding-Up Petition on an insolvent company that owes you money. But what’s the difference?

County Court Judgments usually come about when a company refuses to pay an overdue debt. The creditor (claimant) who’s owed money commences proceedings by visiting the Government’s website, and issuing a County Court claim online.

In many instances, if the debtor (defendant) fails to respond, the court may grant the claimant a default judgment order.

If a defendant provides a good reason, a default judgment can be set aside. For example: they couldn’t offer a defence because they never received the summons.

If the court is satisfied with the defendant’s application, the claim will proceed to a trial so it can be tested. Claimants would be unwise to oppose a defendant’s application as everyone has a right to defend themselves.

Sidestep the county court

A claimant with a judgment debt is free to issue a Winding-Up Petition to enforce payment. But if the debt is undisputed, they can sidestep the CCJ and petition for the debtor-company to be wound up.

The issuing of a Winding-Up Petition immediately triggers Section 127 of the Insolvency Act 1986. This forbids directors from taking several actions, including making payments from the company’s bank account(s) without first obtaining the court’s permission.

For example, directors may not use the account(s) to pay for a customer’s coffee during a business meeting. As a result, they must pay the debt quickly to regain control of the company.

After applying online for a County Court claim it may take 7 days for the summons to be dispatched. The defendant will then have an additional 28 days to file an acknowledgement of service, and a defence.

It could take 6 months for the defence to be tested in court. Crucially, they will have the benefit of the claimant’s money during that time.

In contrast, if you decide to wind-up the company, the issuing of a Winding-Up Petition costs around £3,000 including legal fees, insolvency expenses, and other disbursements. But you’ll get to claim that sum back when the debtor pays.

Winding-Up Petitions are useful when dealing with insolvent companies. But the insolvency courts must never be used as a debt collection instrument because that’s an abuse of process.

The post CCJs, winding-up petitions and undisputed debts first appeared on Company Debt Recovery.

Earlier this year, I&L received a phone call from a distressed subcontractor (subbie). They claimed that for months, West Midlands construction firm the Shaylor Group had been ignoring their requests for payment of an overdue invoice.

After a brief consultation, they instructed us to recover the debt on their behalf. Although we were made to jump through a lot of hoops and loops, eventually the Shaylor Group paid £44,000 to settle the invoice, and cover our expenses.  

Then, just a few months later, the Shaylor Group fell into administration owing almost 700 creditors £47m. The sad thing is; most of those creditors are small companies who unknowingly provided labour and goods they purchased virtually interest-free.

In effect, they became defacto lenders, supplying labour and materials, even though their invoices will probably remain unpaid.

Invariably in these types of situations, unsecured creditors get shafted and the big companies end up benefitting from all the resources without ever having paid for them. 

Update terms and conditions

To avoid this happening to your company, make sure all quotes, sales orders, and contracts include a provision that states counterclaims nor any monies you owe may be set-off against an overdue payment.

These conditions are essential because they compel the debtor to pay the invoice promptly. They also ensure the overdue payment remains independent of any claim made against your company.

Without these stipulations, it’s relatively easy to circumvent payment of an invoice; simply fabricate a dispute. If debtors repeatedly ignore your invoices, why not consider instructing a third party to recover the funds on your behalf?

Factoring in the cost of a third party to manage credit procedures can be a good idea. In many instances, they’ll collect payment for overdue invoices more professionally and dispassionately than you.

Furthermore, removing the burden of invoice-chasing frees up valuable time that can be spent building your business.

Feel free to send I&L examples of your company’s sales contracts and orders for us to assess their effectiveness in credit management and commercial debt recovery.

The post Tips for collecting long-standing debts first appeared on Company Debt Recovery.

Pre-action letters and Statutory Demands (also known as Stat Ds) are useful tools for chasing longstanding and undisputed debts. But how do they differ?

Firstly, the names of the participants involved.

Whoever issues the Statutory Demand is an ‘applicant,’ but the sender of pre-action letter is a ‘claimant’. Likewise, the recipient of Stat D is a ‘respondent,’ but someone who receives a pre-action letter is a ‘defendant’.

Secondly, Statutory Demands and pre-action letters have completely different outcomes.

A pre-action letter is a formal notice requesting payment of an overdue debt within 14 days. Ignoring this letter results in civil proceedings, which is a County Court money claim.

In contrast, a Stat D informs the respondent that unless the debt is paid, insolvency proceedings will commence.

Responding to a Stat D

Statutory Demands are precursors to formal insolvency proceedings, and can lead to the Winding- Up of a company or person. There are 3 main ways to respond to a Stat D:

1. Arrange to pay all or part of the debt
2. Dispute the debt either partially or completely
3. Pay the debt swiftly.

Similarly, an application may be submitted to the court for a Winding-up Petition if the debt is:

1. Undisputed
2. £750 or more
3. Unpaid after 21 days.

After 3 weeks, the applicant is free to issue a Winding-Up Petition because they now have evidence of insolvency.

A respondent who disputes the debt must reply in writing within 21 days, setting out their grounds for contention. If this is followed by an invitation to withdraw the Statutory Demand, the applicant must oblige.

An applicant may issue a Stat D for a debt that’s less than 6 years old.  Legally, if they want to bankrupt the respondent, a Stat D must be served first. But this isn’t always necessary when Winding-up a limited company.

The post Statutory Demand vs Pre-action letter first appeared on Company Debt Recovery.

When chasing a business or person for a debt, it’s usually a good idea to send a letter before action – also known as a pre-action letter – before commencing legal proceedings.

A letter before action is a formal notice requesting payment of an outstanding debt within 14 days in accordance with Part 7 of the Ministry of Justice’s Civil Procedure Rules.

A pre-action letter informs the recipient that a creditor is threatening to take legal action. If the creditor is in anyway unhappy with the response, they are free to make a County Court Claim.

In many instances, it can be foolish to commence legal proceedings in the absence of a pre-action letter.

For example, the creditor’s case will weaken if the debtor can say to the court: “I’ve incurred costs having to attend these proceedings, and these costs are totally unnecessary because if I’d received a formal letter explaining the debt, I would’ve happily paid.”

Courts are usually sympathetic in such cases and may order the creditor to pay the debtor’s costs.

Pre-action letters are powerful and useful tools that can help to bring out any previously unknown disputes relating to the debt.

For example, the recipient of a letter before action may respond by saying: “This debt isn’t due to you because it’s the subject of a dispute.” And if they are really savvy, they will utilise Part 36 of the Civil Procedure Rules, which encourages parties to settle disputes without going to trial.

Furthermore, under Part 36 rules, if one party rejects an offer and the debt claim goes to court; that party will probably have to pay the other side’s costs.

The post Why pre-action or letters before action are essential first appeared on Company Debt Recovery.