The current economic crisis seems to have avoided a deep recession, however growth is limited as factors such as inflation have not returned to the former low rate. Many businesses are experiencing increasing late payment, with their debtors delaying payment of outstanding invoices, not only beyond the terms of the agreement but to the degree that creditors are compromised.
Olu Ajasa, a partner, comments “there are a number of remedies open to a creditor when an invoice considerably exceeds the due date. Assuming that there has been contact with the debtor in the form of a statement and telephone calls to request payment.” Olu points out “depending on whether you wish to continue the relationship with the debtor and whether there are an assets of value within the debtor’s business, there are several options open to a creditor. A creditor should take expert legal advice before taking action to ensure that the best option has been decided upon.”
The following steps are open to the creditor:
Late payment reminder/demands
Depending on the circumstances and the relationship with the debtor an offer of staged payments in settlement of the debt could be extended.
Alternatively, a letter that requests immediate payment within a certain period stating that if payment is not made at the end of the time frame it will result in the issue of a Letter Before Action (LBA).
An LBA is a formal letter that requesting that the debt should be paid, usually within seven days, failure to do so will result in the imminent issue of claim through the courts.
Understandably most creditors wish to avoid legal action but an LBA often has the effect of prompting payment.
County Court Summons
The next step if the LBA is ignored is to take legal action to issue a County Court Summons. A claim can be made in the Small Claims Court if the amount is £10,000 or under, it is possible to claim online through the Money Claims Service. When the claim is issued your debtor has 14 days to respond, either to pay or present an argument as to why the request for payment is not valid and challenge the invoice.
If your debtor does not pay and does not respond you can ask the Court to issue a judgment to compel the debtor to pay. Court Order will then be issued.
Mediation
Alternatively, there is the opportunity of mediation which the Court will offer if your claim in under is £10,000 or under. If both sides are agreeable a mediator appointed by HM Courts and Tribunal Service (HMTCS) will negotiate and attempt to agree a settlement.
A creditor also has the option of appointing their own mediator.
County Court Judgment
If the debtor does not pay or present an acceptable defence a County Court Judgment (CCJ) can be issued against your debtor. If the debt is paid within 30 days of the Judgment together with any costs awarded, the CCJ will be set aside and your debtor will not suffer any detriment with the credit reference agencies.
If your debtor does not pay you must consider the range of enforcements available.
Appeal
Your debtor can appeal the Judgment if they do not agree and have 21 days in which to do so.
Enforcement Action
In the absence of payment, a Notice of Enforcement can be sent informing the debtor that a bailiff will attend their premises, after a Warrant of Control has been issued which enables the bailiff to inform the debtor that following a period of seven days they will take control of the debtor’s goods which will be sold to cover the outstanding debt. Another option is that the bailiff arranges an agreement to pay the debt in instalments and requests the debtor to sign a Controlled Goods Agreement listing the company assets that the bailiff can sell if the agreement is not adhered to.
Statutory Demand
A statutory demand can be issued once the debt has been proven, to pay the debt in full within 21 days. Failure to do so can lead to a Winding Up Petition against your business.
Winding Up Petition
The Issuing a Winding Up Petition against your business could lead to the liquidation of the debtors’ business if the debt is not paid. There are only seven days following a Petition before the situation becomes public and the debtors’ bank accounts are frozen. Following a further ten weeks after the Petition has been issued a court date is set to decide whether a Winding Up Order will be granted resulting in the liquidation of the company.
Company Voluntary Arrangement
All legal action is stalled and the debtor is permitted to pay the debt over a period of time. This enables the possibility of restructuring the debtors’ business, unless the business is no longer viable.
Administration
An Administration Order is an agreement between the debtor and all their creditors allowing the debts to be paid back over a set period of time that has been approved by your creditor and the Court. The Court will look into the debtors’ financial position and decide how much the debtor must pay each month. The money is paid into the Court and it is distributed by the Court to the creditors.
Giambrone & Partners experienced insolvency lawyers will set out all the alternatives and advise on the best course of action.
Sources
https://www.gov.uk/make-court-claim-for-money