Understanding ways to recover a debt
There are various ways to recover a debt in England and Wales. The most appropriate route depends on various factors including whether the debt is disputed, the financial position of the debtor, whether you are happy to go to Court, and of course, how much time and money you are willing to invest to resolve the matter.
What are your options when a customer or client has not paid you?
When a debtor refuses to pay, you should always try to resolve the situation amicably either by first writing to the debtor yourself or by instructing a solicitor to write to them on your behalf. Instructing a solicitor to draft the first correspondence at an early stage may have a greater impact in the eyes of a debtor as it shows you are willing to take active steps to recover the debt.
A further benefit of using a solicitor is that they will be up to date with the law, relying on arguments you may not be aware of, such as claiming a statutory interest under The Late Payment of Commercial Debts (Interest) Act 1998 if it is a business-to-business contract. Under the Act interest of 8% plus base rate, a fixed sum and reasonable costs of recovering the debt can be added.
If correspondence fails to resolve the matter, you can consider taking further steps, discussed below.
Court action – Providing a defence and alternative routes
If necessary, you can commence Court proceedings where you issue a money claim against the debtor.
The debtor will have an opportunity to provide a defence, in that they may agree to pay the debt in full, pay it in part, make a counterclaim or deny any debt is owed. Unless the debtor pays the debt in full, the claim will proceed along the litigation process until the dispute is heard at a hearing.
At a hearing, the Judge will hear both parties’ representations and decide if the debt is owed. If the judge decides a debt is owed, they will come to a judgment as to how much is owed, in addition to an award for interest. Therefore, if you are successful in your claim for a debt, you will also be awarded interest, whether it is a business-to-business contract or not.
Enforcement – How to enforce the judgement
If a judgment is awarded in your favour, your next consideration is how to enforce the judgement. Ideally, the debtor will simply pay the judgment once it is made by the Court, generally within 14 days. This may not always happen as the debtor may try to evade payment.
In the instance where the debtor refuses to pay, you have several enforcement options depending on the debtor’s financial position.
One enforcement option is to issue a statutory demand. Provided the debtor has funds to pay, a statutory demand should induce the debtor into paying the debt, as they know that if they do not pay, you can then proceed with either a winding-up petition or bankruptcy petition, following which the Court will adjudge the debtor bankrupt (or wound up if they are a company) which is not desirable for any individual or company wishing to carry on business.
Funding – What if the debtor is unable to pay?
If you are unsure if the debtor has the funds to pay but you are aware they or the company has a property in its name, you can apply to the Court for a charging order. You will first apply for an interim charging order which will be followed by a final charging order, which must be registered with Her Majesty’s Land Registry. A charge and restriction will be registered in your name against the property which will prevent the debtor from selling the property unless the charge is paid off out of the proceeds of sale or by the debtor’s other financial means. For the charge to be removed an application to the Land Registry must be made which will seek consent from you as the charge holder.
If you are unsure if the debtor has the funds to pay, but they are an individual and employed, you can apply to the Court for an attachment of earnings. If the Court grants this order, the debtor’s employer will have to pay part of the debtor’s wage directly to you to pay off the debt.
If you are unsure if the debtor has funds to pay or owns a property and/or the property has insufficient equity, you can apply to Court to appoint bailiffs to the debtor’s home to seize goods. The bailiff will seize goods that they consider sufficient to pay off the debt and those goods will be sold at auction. This is called a warrant of control if issued in the County Court, or a High Court Warrant if issued in the High Court.
Similarly, if a debtor is a company and you are aware of their bank account details, you can apply to the Court for a Third-Party Debt Order. If the Court grants such an order the debtor’s bank will be obligated to freeze the debtor’s bank account which will prevent any payments to be made until your debt is paid off.
How can Specters help you to recover a debt?
Specters offer fixed costs on our debt recovery services to suit all levels of affordability and can be run on a pay-as-you-go basis so that you have full control over how much you wish to instruct us.
We can review your claim and provide advice in respect of your debt and the prospect of the debtor paying for as little as £500 plus VAT.