Commercial Debt Recovery

Almost 6 months into 2011 all the signs show that difficult trading conditions look set to continue. Access to cash remains key to survival and maintaining control over debt/debtors is more crucial than ever.

Most businesses spend a significant amount of time attempting to recover payments. Often efforts to recoup money owed are ineffective as businesses don’t always have the skills/expertise internally to enforce payment.

A common next step would be to instruct solicitors and chase the debt through the courts, and a traditional solicitors approach will efficiently issue a Letter Before Action followed by a Claim for Money Judgment and incur the fees and costs associated.

However, issuing a claim is not always the “silver bullet” to resolve the overdue payment. Despite the time, effort and expense required to issue a claim and secure a Money Judgment, there are still no guarantees the business will get the money it is owed.

Even when the court finds in their favour the business may still have to take additional action to recover their debt and reclaim any costs and even then there remains no guarantee of full or even partial payment of the money owed.

As a credible but perhaps lesser known alternative, the threat of insolvency action under the Insolvency Act 1986 for undisputed debts over £750 in value can offer a cost effective and low risk solution to the problem. Under Section 123 (1) (e) a limited company is deemed insolvent if it is proved, to the court’s satisfaction, that it is unable to pay its debts as they fall due. By serving a correctly worded 72 hour winding up notice on its debtors, who cannot pay within that time period, the creditor would be entitled to present a formal winding up petition to effectively close the company down.

In respect of non limited businesses, partnerships and sole traders, the personal service of a Statutory Demand under the same Act gives the debtor 21 days to pay in full or face individual bankruptcy proceedings. Businesses should consider making better use of these notices and statutory demands to tackle late payments. Legal proceedings are not always necessary or effective and by exploring other enforcement avenues businesses can improve debt management.

Irwin Mitchell Recoveries and Ascent Collections have expertise in a variety of enforcement techniques and can advise on the best options available to recover commercial debt.

Michael Bond, Associate Director, Irwin Mitchell, Manchester