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 any assets of value within the debtor's business, there are several options open to a creditor. It is essential that a creditor should take expert legal advice before taking any action to ensure that the best option has been decided on."
The following steps are open to a 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 the 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 sent on behalf of the creditor by their lawyers requesting that the debt should be paid, usually within seven days, failure to do so will result in the imminent issue of a claim through the courts.
Understandably, most creditors with to avoid legal action but an LBA often has the effect of prompting payment.
County Court Claim
The next step, if the LBA is ignored, is to take legal action to issue a County Court Claim. 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 the invoice 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. A Court Order will then be issued.
For debts exceeding £10,000 you should seek legal advice before bringing a Claim in a Court due to the costs of claims that are not suitable in the Small Claims Court.
Alternatively, there is the opportunity of mediation which the Court will offer if your claim is £10,000 or under. If both sides are agreeable a mediator appointed by HM Courts and Tribunal Services (HMTCS) will negotiate and attempt to agree a settlement.
The creditor also has the opportunity of appointing their own mediator. For claims exceeding £10,000 independent legal advice to determine the most suitable alternative dispute mechanism.
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 in full within 30 days of the Judgment together with any costs incurred awarded, the CCJ will be entered on the Register of Judgments, Orders and Fines. However, it remains open to the debtor to apply to the court to remove the entry of the CCJ from the register of Judgments and seek a certificate of satisfaction.
In the event of your debtor not paying you, you should seek legal advice from an expert insolvency lawyer to determine the most suitable enforcement route to pursue.
Your debtor will have the opportunity to appeal the judgement if they do not agree.
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 enable 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 requires the debtor to sign a Controlled Goods Agreement listing the company assets that the bailiff can sell if the agreement is not adhered to.
Legal advice should be sought to establish the most appropriate enforcement actions.
A statutory demand can be issued for a pure liquidation debt (provided there is no cross-claim). The statutory demand must be satisfied within 21 days. Failure to do so can lead to a Winding Up Petition against your debtor's business.
Winding Up Petition
The issuing of a Winding Up Petition against your debtor's business could eventually lead to the liquidation of the business if the debt is not paid. There are only seven days following a Petition before the situation becomes advertised in the London Gazette and the information regarding the Petition is in the public domain. The debtor's bank accounts are then 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 if there is no valid defence against the Petition.
Company Voluntary Arrangement
All legal action is stalled and the debtor is permitted to pay the debt of a period of time. This enables the possibility of restructuring the debtor's business, unless the business is no longer viable. You should take legal advice as to the suitability of a Company Voluntary Arrangement if the debtor's business is in financial difficulty.
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 you, as creditor and the Court. The Court will look into the debtor's financial position and decide how much the debtor must pay each month. The money is paid into the Court and the Court will distribute the money to the creditors.
Olu Ajasa has extensive experience and expertise in all types of alternative dispute resolution for commercial issues, as well as commercial litigation. Olu advises on complex, high-value, domestic and multi-jurisdiction matters. He has reputation for assisting clients in complex cross-border commercial disputes, shareholder disputes, partnership disputes, contractual disputes, loan facility agreements, secured lending, both corporate and insolvency relating to individuals. Olu has expertise in resolving real estate disputes (commercial and residential) and landlord and tenant law (commercial and residential).
Olu also has considerable experience in corporate and personal insolvency matters, including preparing and responding to statutory demands, winding-up petitions, investigating company directors and also assists with all aspects of corporate insolvency litigation.
Olu is highly regarded by his clients for his resoluteness in satisfactorily concluding complex disputes swiftly and in line with their commercial objectives.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.