Regardless of the size of your business, late payment of invoices can be highly stressful, taking up valuable time and resources to deal with. An effective strategy when a client refuses or delays payment beyond a reasonable period is crucial to any business, even more so for smaller businesses whose survival may depend on quick payment of invoices.
Should efforts to secure payment of unpaid invoices fail, various legal options are available for debt recovery or seeking payment. The appropriate route will depend on several factors, including the total amount of the outstanding debt, if the party being pursued is an individual or a company, and whether the debt is disputed or undisputed.
At Bridge McFarland LLP, we have worked with businesses of all sizes across all debt recovery stages, including advising on litigation, liquidation or bankruptcy proceedings. In this post, we look a little closer at disputed debts, pursuing debts through the courts and applying and enforcing a County Court Judgment.
Pursuing disputed debts in court
Typically, there are four stages to this debt recovery process:
- Stage 1 – Letter before Action
A letter before action (LBA) states what is owed from the debtor to your business and how long your debtor has to pay it and informs the debtor of the consequences of non-payment.
- State 2 – Legal Action
If the LBA does not resolve the debt, or if the debt is disputed, the next step is to take legal action. The process involves issuing court proceedings at the county court to obtain a Count Court Judgement (CCJ). When another business owes you money, you can add late payment interest and compensation under the Late Payment of Commercial Debts (Interest) Act 1998.
How do you issue court proceedings?
Depending on the claim’s value, you or your solicitor can file a CCJ at the County Court, and you will need to pay a court fee. To ensure each case is managed correctly, it must first be assigned to a specific “track” before proceeding to a court hearing. Each track represents a distinct process a case must undergo to reach a resolution. Three types of tracks are available: small claims, fast track, and multi-track. To determine which track your case will be assigned to, consider the following differences between each track:
- The County Court
Different tracks within the County Court system handle different types of debt disputes.
- The small claims track is typically used for cases involving disputed debts of up to £10,000, meaning that legal costs are not recoverable.
- The fast track is used for debts between £10,001 and £25,000.
- The High Court
For debts exceeding £25,000, the High Court’s multi-track is used. This track involves more formal and complex procedures.
- Alternative Dispute Resolution
Before initiating court proceedings to recover an outstanding debt, parties should explore alternative dispute resolution (ADR) options, such as negotiation or mediation. Even if court proceedings are ultimately deemed necessary, the possibility of reaching a settlement should continue to be evaluated, even after the proceedings have begun. It is important to note that the ADR process can run simultaneously with formal proceedings.
Legal costs may be recoverable for claims going through the Fast Track and Multi-Track process. However, it is important to note that there may be a shortfall in recovery, which will be explained to you during the appropriate stage of the claim. We will work with you to understand the details of the case and determine what remedies may be available to you. Our goal is to guide you through the most efficient and cost-effective resolution process for your specific situation.
- Stage 3 – County Court Judgment (CCJ)
A successful claim will result in a CCJ (unless settled before this stage is reached – as many claims are). A CCJ confirms that the debtor is liable to pay your debt and provides you with the legal right to enforce recovery of monies owed. The CCJ is recorded against the debtor’s credit record and will remain on the debtor’s record for six years. However, the CCJ will be removed if they pay the debt in full within 30 days of receiving the judgment.
- Stage 4 – Enforcement
Once a county court judgement has been obtained, the debt can be ‘enforced’ if the defendant still refuses to pay or ignores the CCJ. There are several ways in which this can be done, but the most common methods of enforcing a County Court Judgment include the following:
- Warrant of Control (taking direct control of goods);
- Third Part Debt Order
- Attachment of Earnings
- Charging Order
- Insolvency Proceedings
Debt Recovery Solicitors
The team of debt recovery solicitors at Bridge McFarland LLP understands the impact that debt can have on businesses.
We work carefully to recover debts quickly and cost-effectively. If you are uncertain about what the next steps are in the debt recovery process, please call our friendly team today on 0800 987 8800.