The usual process for debt claims against corporate debtors (Limited Companies and Limited Liability Partnerships) which exceed £750 is complex and time-consuming. For example, let’s consider a situation where you are owed £10,000 by a Limited Company.
- The due date passes without payment
- Internal credit control procedures continue for another 30 days (with fruitless letters and phone calls to the debtor)
- You instruct a solicitor (or possibly a debt collection agency)
- They send a 14 day ‘letter before action’ to the debtor, but still no payment is made.
- County Court proceedings are then issued, and assuming all goes well a judgment is received around 14 days after being requested (sometimes longer)
- When the judgment arrives back from County Court you transfer it to the High Court Enforcement Officer (HCEO) who sends another 14 day notice to the debtor.
- If the debt remains unpaid then the HCEO attends the debtor’s offices and tries to enforce payment or seize goods to the value of the debt (as seen on TV). If goods are seized then these are taken to auction before any monies are allocated back to you.
- In the worst case scenario you still may not have received any of your £10,000 debt more than 3 months after it was due. And what if your business has several bad debts and this process is followed time after time. Occasionally HCEO’s recover payment but what are the alternatives?
Else solicitors regularly act for businesses to recover debt using a quicker and far more effective process where debts are undisputed and the debtor is a Limited Company (or LLP).
We recently received instructions from a client who was owed over £40,000 by a debtor. We immediately served notice on the debtor’s Limited Company, stating that unless the full debt (plus interest, administration fees and legal fees) was paid within 48 hours the debtor would be deemed insolvent within the meaning of S123(1)(e) of the Insolvency Act 1986, and if payment was not made we would issue a winding-up petition.
Our client was paid in full directly into their bank account within the stipulated deadline. Although the client had exhausted a further 30 days after the original due date, our actions meant that payment was made swiftly without the cost, delay and uncertainty of using the County Court debt claims procedure and the laborious HCEO process. In the real life example the debt had created cash flow issues for our client which may have meant they suffered a potential insolvency situation themselves had we not forced the debtor’s hand.
We recommend this more pro-active process is used to recover bad debt. The threat of liquidation will grab the attention of your debtor. Our solicitors will be speaking to the director(s) of the debtor company to warn them that if they continue to trade whilst insolvent they may become personally liable. We are very direct in our communication with the debtor and their staff to ensure that your debt (plus interest and costs) is the most important item on their business agenda.
If you have any debtors or bad debt then please contact either Chris Else (firstname.lastname@example.org, 01283 526200) or Laura Charles (email@example.com, 01283 526210) to discuss how we can help you.