The Government’s recent court fee increase for cases over £10,000 amounts to a rise of over 600% in some cases. Credit Managers will now have to seriously consider whether taking legal action is a cost effective alternative and make use of other forms of debt recovery available to them. Alternatives should be explored and exhausted so that legal action is taken only as a last resort.
We would advocate a full and detailed investigation of the debtor’s business assets and those of the director’s/owner’s. There is much more information in the public domain than many people realise including electoral roll data, land registry information, directorship searches and company house data. In-depth review and analysis of company accounts for current and failed businesses can often point to assets being moved or sold at under value, or evidence of wrongful or fraudulent trading. Armed with as much information as possible about your customer, you can often agree amicable repayment solutions backed up with a personal guarantee by a director or security for your debt in the form of a voluntary charge on property or other business assets.
Where negotiations fail for non-disputed accounts over £750 (£3000 for non-limited Scottish businesses), you could consider the use of insolvency/sequestration proceedings. Depending on the legal status of your customer this would involve serving a 72 hour winding up notice or serving a Statutory Demand under section 123(1)(a) or 222(1)(a) of the Insolvency Act 1986 (Limited Companies) or section 268(1)(a) of the Insolvency Act 1986 (individuals and non-limited partnerships). The key to success is to maintain dialogue with your customer throughout to try to agree an amicable solution as once a winding up petition is advertised all creditors will have knowledge of it and it may prove too late to reach a repayment agreement.
In respect of disputed cases, solicitor’s and court costs can quickly escalate to a point they outweigh the debt value. It is therefore important to establish all the facts and take steps to reach an out-of-court settlement before legal action is taken. Sometimes personalities get in the way and creditors often feel “It’s a point of principle”. Principles can be expensive and it is far better from a business point of view to negotiate and reach a settlement which is fair to all parties, rather than to press home a point of principle and end up with nothing.
Not enough creditors make use of the Practice Direction on Pre-Action Conduct which can be found on the www.justice.gov.uk website. Many believe it is a sign of weakness to show their hand prior to legal action being issued. This view is wrong as if you show your opponent how strong your case is, they are far more likely to settle out of court and save you thousands of pounds of legal fees.
There are only a handful of specialist debt recovery agencies who have the infra-structure to thoroughly investigate assets and resolve complicated disputes pre-legally. The best ones will undertake all the investigation work free of charge and only invoice for a percentage of any monies successfully collected by their efforts. If your customer is a business you can invoke Late Payment Legislation to pass their charges onto your customer. Alternatively if your terms of business allow you should be able to pass on charges to a consumer customer. It is always worth reviewing your business terms annually to ensure your rights are fully protected.
You could also consider Alternative Dispute Resolution as another way of avoiding legal action.