Debt Recovery

We’ll issue a letter before action (LBA, also known as a letter of claim) to recover and enforce any outstanding debt against an individual. We’ll add on to the claimed sum any interest and other charges that you’re entitled to, either contractually or by law.

We aim to either seek payment in full or at least bring the debtor to the table to discuss payment options.

As well as the principal debt owed, you’re also likely to be entitled to interest — either under your contract with the customer or the snappily titled Late Payment of Commercial Debts (Interest) Act 1998 (the Act’), which provides for interest of 8% over the Bank of England base rate on commercial, invoice-based debts. 

This can legitimately and significantly increase the amount you’re owed — especially if the debt has been unpaid for a number of weeks or months.

The Act ensures that you aren’t left out of pocket if you’re obliged to engage professionals to collect monies that are properly due and owing to you. 

If all goes to plan at the pre-litigation stage, you’ll recover all of the debt owing, plus interest — with the debtor covering our costs.

If the Late Payment of Commercial Debts (Interest) Act 1998 (the Act) applies, there’s the right to charge the debtor for compensation on a per invoice basis or our reasonable debt recovery costs. The amount of compensation is between £40 and £100 per invoice, and we can add that amount to the debt or, if it’s less than our debt recovery costs, we’ll add those to the debt instead — maximising your potential recoveries.

The principle under the Act is that you shouldn’t be out of pocket if you are obliged to engage professionals to collect monies that are properly due and owing to you. Therefore, if the Act applies, you have the contractual right to be paid your debt recovery costs by the debtor, together with the appropriate amount of interest under the Act. Therefore, if all goes to plan at the pre-litigation stage, you’ll recover all of the debt owing, plus interest — with the debtor covering our costs. 

If a debtor doesn’t pay once we’ve written to them to demand payment, there are usually two choices — issue a County Court claim (the first step in getting a CCJ) or consider an insolvency process. 

The County Court route involves preparing, filing and serving documents (a claim form and Particulars of Claim) that detail the legal and factual basis of the claim. In debt recovery claims, these details are reasonably brief and tend to refer to the details of the outstanding invoices, any relevant terms of business and attempts to recover the monies. 

The defendant then has up to 28 days to defend the claim by submitting a defence. If no defence is filed and served within the prescribed period, we can apply for default judgment to be entered against them.

If a defence is filed, the claim will then move into the ‘contested’ court stream and case management directions will be handed down.

This depends on whether or not the debtor engages with the process.

If no response is received to the LBA, we’ll issue a claim as soon as we’re instructed to do so. The debtor has 14 days after service of the claim to acknowledge it (by filing an acknowledgment of service) and a further 14 days thereafter to file a defence. So, if the debtor fails to file an acknowledgment of service, we can apply to enter judgment 14 days after the claim is served. If an acknowledgement of service is filed without defence, then an application to enter default judgement can be made 28 days after service.

If a claim is defended, it could take a number of months to reach court for trial. Generally, the more valuable and complex the case, the longer it’ll take for a claim to get to trial. This can be over 18 months for the most complex and high value cases.

If a claim is defended, the Court will — whether with or without the party’s input, depending on the value and complexity — hand down directions to take the claim to trial. 

This will include the exchange of documentation and evidence (disclosure and witness statements), potentially expert evidence, trial preparation and the trial itself. Mediation isn’t always mandatory but is encouraged by the Courts.

While a defended claim can be a lengthy process, our debt recovery solicitors can represent and guide you throughout. 

Where a claim or debt is substantially disputed or defended, this will fall outside of our fixed fee scope. We’ll offer a separate fixed fee to provide written advice on the defence, its merits and next steps, including a cost estimate to progress the defended claim. Our approach to pricing and discounts will be dictated by the size of the claim and substance of the dispute.

Mediation is a form of ADR (alternative dispute resolution). This is a facilitated settlement meeting where a mediator acts as a conduit between the parties to try to encourage them to reach a compromise on the issues in dispute or the claim itself. 

Mediations can take place remotely, by telephone or in-person and are generally an effective way of encouraging the parties to settle the claim.

In the small claims track — generally for claims worth £10,000 or less — mediation is now mandatory. This takes place in a defended claim after case management and is a free process (in so far as the mediator’s time isn’t charged for), conducted by a court-appointed mediator over the telephone. 

While the requirement to settle using this process isn’t obligatory, the process itself is mandatory. If a party doesn’t engage in the mediation, the Court may apply sanctions against the defaulting party. This could be in the form of a costs award, contrary to the usual costs rules that mean only modest costs apply to small claims.

When faced with a demand or claim to pay outstanding invoices, it’s not unusual for a debtor to make allegations against a claimant for failure to provide the goods or services being charged for — either at all or as per the terms of the contractual agreement between them. 

These allegations can form the basis of a defence to a claim and — if they believe that the alleged breaches have led to other losses — a counterclaim. 

Generally, a counterclaim can be made without the permission of the Court at the same time a defence is being filed when defending a County Court claim. If a counterclaim is made, there are effectively two competing (and potentially overlapping) claims being run in parallel — one for the debt claim and another for the breach of contract claim. The claimant will therefore have to defend the counterclaim to avoid default judgment being entered in relation to that.

Since counterclaims can significantly add to the complexity and cost of court proceedings, it’s sensible to consider any such potential claims at the outset of all instructions. 

A County Court Judgment (CCJ) is what a claimant obtains when a money claim is successful — either after trial or when default judgment is entered against the defendant (this means that they haven’t filed the relevant acknowledgement or defence in time).

CCJs are entered on a central register of judgment orders and fines (administered by the Registry Trust), where the record will remain for a period of six years. CCJs appear on credit records for both individuals and companies and can seriously affect their credit ratings.

If a debtor pays the debt within 28 days of the judgement, the County Court Judgment (CCJ) will usually be removed. 

If paid after that 28-day period, the debtor can submit a request for the debt to be marked as satisfied (with evidence), but it will still show as a CCJ on their record.

The only way to remove a CCJ after the 28-day period is to either prove that the register is factually incorrect or apply to have the judgment set aside. This involves making an application to court by filing a form N244 and setting out in detail why the debt is contested and why the claim wasn’t defended. The Courts expect such an application promptly after discovery of the CCJ.

An alternative route to seek payment of a debt of at least £750 from a company is to issue a statutory demand or a more informal demand. These give a certain amount of time for the debtor to pay — 21 days in the case of a statutory demand — and if payment isn’t received in that period of time, you’ll have the right and ability to issue proceedings through the Insolvency Courts to wind-up the company on the basis that it can’t pay its debts as they fall due and is therefore insolvent. 

The demands are used as a threat to seek payment, although many clients proceed with the winding-up process as a matter of principal if payment isn’t received. In many cases, the debtor will come to the table and make payment or engage once they realise the potential consequences of the winding-up petition. However, this can’t be guaranteed at the outset.

Statutory demands can also be served on individuals, so long as the debt is for a sum exceeding £5,000. 

An unpaid statutory demand — whether against an individual or company — is, on the face of it, evidence that the company or individual can’t pay its debts as they fall due and is, therefore, insolvent. 

This enables the creditor to issue a petition for either bankruptcy (individual) or winding-up (a company). That process gives the debtor the opportunity to put forward the reasons why it either contests liability or doesn’t believe that it should be made bankrupt or wound-up, before a court decides the issue.

This is a serious and significant step to take against a debtor and should only be undertaken once all the circumstances of the case have been considered. A successful petition would mean that the company or individual is wound-up or bankrupted and as such, the process should be carefully considered.

The cost recovery rules when it comes to successful court proceedings are long, complex and banded depending on the size of the claimed debt and any complicating factors. 

While the court fees incurred are always recoverable by successful claimants, the legal costs incurred aren’t necessarily recoverable. 

As a brief summary of the rules, the following points apply to the recovery of costs in a successful claim against a debtor:

• For claims of £10,000 and less — only modest fixed fees are recoverable from the debtor.
• For claims between £10,001 and £25,000 — some fixed costs (that aren’t linked to the amount of work done) are recoverable, depending on the complexity of the claim. These are likely to be less than the costs incurred in pursuing the claim.
• For claims between £25,001 and £100,000 — some fixed costs are recoverable, depending on the complexity of the claim. These may be less than the costs incurred in pursuing the claim.
• For claims of £100,001 and above — costs are generally recoverable in full, subject to cost budgeting and detailed assessment by the court.

As a complicated and relatively newly developed area of civil procedure, each case has to be considered on its own merits, as the value and complexity will dictate the recoverability of costs.