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- Commercial Services
- Debt Recovery
Cash Flow Problems?
We can offer you a simple and cost effective way of collecting your debts.
Even with the best credit control policy most businesses experience debtors who fail to pay for goods delivered or services provided. Payment delays ultimately cause thousands of businesses to fail and it is universally recognised that prompt action is the key to success recovery.
Don't let this happen to you - contact our specialist team immediately.
How we can help
We have a tailor made debt recovery package which enables us to recover your debts effectively and at minimal cost to you. With our team's specialist knowledge of the court procedures we can guide you effortlessly through the court system, maximising the potential to secure payment of monies owed to your business.
Our fixed-fees are competitive and prove attractive to clients, given that the majority of such fees are also recoverable from the debtor in addition to the debt/interest if a successful recovery is made.
WE DO NOT CHARGE EITHER AN ADMINISTRATION CHARGE AT THE OUTSET, OR A CHARGE LINKED TO THE PERCENTAGE OF THE DEBT ON RECOVERY
For uncontested cases, our charges are on a competitive fixed fee basis (of which the majority can be recovered from the debtor) following a simple 5 stage structure:
If the claim becomes disputed, our special discounted hourly rate for Contested Debt Recovery Work of just £145 per hour plus VAT will apply.
In addition, if you require us to negotiate a simple settlement and/or instalment plan, we will charge a fixed fee of £45 plus VAT.
If you are interested in taking advantage of this competitive package, contact us immediately and we will send our starter pack to you containing our:
- Debt Collection Process Brochure
- Debt Recovery Terms and Conditions
- Debt Recovery Instruction Form.
If you are happy to proceed to instruct us, once we have received our signed Terms of Business and an Instruction Form together with copy invoices, we shall immediately begin to collect your debts.
New Pre-Action Protocol for Debt Claims in force from 1 October 2017
19 September 2017
Akanshi Agrawal, Associate Solicitor
Easy Cross-Border Debt Enforcement within the EU
The advantages and disadvantages of Britain’s membership of the European Union are subjects of heated argument – but one High Court case has shown that ease of enforcement of judgment debts across national boundaries definitely falls on the credit side of the debate.
Company A claimed that its copyright in certain software had been infringed by company B, which was alleged to have made it available to all on various websites. Company A launched proceedings in London against company B and a businessman who was alleged to be the latter’s guiding mind.
The businessman’s address could not be ascertained but company A was permitted by a judge to serve the proceedings upon him by email. Neither he nor company B had formally acknowledged service of the proceedings and company A obtained a default judgment against both of them for $100,000 in damages.
In those circumstances, company A sought a European enforcement order (EEA) pursuant to Regulation (EC) NO. 805/2004, which provides a procedure whereby, in uncontested cases, cross-border enforcement of judgment debts can be speedily achieved. In granting the application, the Court found that company A’s failure to track the businessman down to a particular address was no impediment to the grant of an EEA. The Court was satisfied from his conduct that he had received notice of the proceedings in sufficient time to prepare his defence.
We can assist with cross-border debt recovery, please contact us for further information.
Entering into an important agreement? Get it in writing!
The trouble with making oral contracts is that the absence of a paper trail makes it extremely difficult to decipher exactly what has been agreed after the event. That was certainly so in one case in which a judge had to decide whether a payment of more than £700,000 between former friends and business associates was a return on an investment or merely a loan.
There was no dispute that businessman A had paid £718,232 to a British Virgin Islands-registered company controlled by businessman B. The former claimed that it was a loan, repayable on demand. However, the latter insisted that it represented his share of the profits from a property development venture in Dubai.
Businessman A launched High Court proceedings to recover the alleged loan. In the absence of any formal documentation, the judge was required to consider oral and circumstantial evidence. In the end, he preferred the evidence of businessman B and found that the money was not a loan but rather payment for his role in the development. Businessman A’s claim was thus unsustainable.
We are highly experienced in advising clients on a wide range of contractural issues, both before terms are agreed and if a dispute arises. Please contact us for more information.
$2.5 Million Creditors Trace Assets to Debtor’s Estranged Wife
It is a popular misconception that all debtors need to do to avoid their creditors is to transfer their assets to someone else. The fallacy of that belief was shown by a High Court case involving a businessman who moved property, cars and cash to his estranged wife in a fruitless attempt to escape his liabilities.
Investors in the businessman’s failed financial scheme had obtained a judgment against him for $2.5 million and sought to enforce that debt against various assets, which had been given to his wife or placed in her name. It was submitted that the transfers were at an undervalue, within the meaning of Section 423 of the Insolvency Act 1986, and were designed to put the assets out of his creditors’ reach.
The Court upheld the investors’ arguments in respect of a number of residential properties, cars – including an Aston Martin – and various cash sums and other benefits which had been passed from husband to wife. The latter’s plea that the car was a wedding anniversary gift, and that other assets had been moved to her as part of an informal separation agreement, were rejected.
The ruling opened the way for the investors to enforce the debt against the assets which had been gifted by the businessman to his wife for no consideration. However, the Court exercised its discretion to allow the wife to retain £100,000 of the relevant sum so that she would have the opportunity to re-settle herself and to pay for the completion of her daughter’s education.
Debt Recovery needn't be hard with the right Legal Advice
When a debt is clearly owed in an open and shut case, litigation can be a fast and effective means of getting your money back. In one case, a wealthy family which entrusted EUR 35 million to a businessman – who went on a spending spree with their money – found a short route to obtaining judgment against him with the assistance of specialist lawyers.
The apparently successful businessman, who claimed to have influential contacts in the Middle East, managed to convince the family that he could obtain large supplies of oil at rock bottom prices. He said that the money was needed as a deposit to secure lucrative contracts and the family paid it into a Swiss bank account.
The hoped-for oil supplies did not materialise and the businessman spent much of the family’s money for his own private purposes, including on goods from Harrods, luxury vehicles and a £12.75 million house in London. He came up with various excuses for the lack of progress and more than four years passed before the family ran out of patience and launched debt recovery proceedings.
Entering summary judgment for the whole sum, plus interest, in the family’s favour, the High Court found that the businessman’s various defences to the claim were wholly incredible and completely trumped up. His fantastical arguments were not worthy of being tested at trial and he had clearly misappropriated the money.
Can illegal contracts be enforced? Landmark Supreme Court Ruling
It is a fundamental rule of law that the courts will not assist anyone to profit from his own illegal or immoral acts. However, in a landmark decision, the Supreme Court has ruled in the context of a debt recovery claim that that maxim should not be so slavishly applied as to achieve arbitrary, unjust or disproportionate results.
Businessman A gave £620,000 to businessman B in the expectation that he would use inside information to place bets on a bank’s share price. The scheme proved abortive and businessman A launched proceedings to recover his money. On the basis that the whole arrangement had been illegal from the outset, businessman B argued that the claim should be rejected on public policy grounds.
The Court of Appeal ruled that businessman A was entitled to recover his money. In dismissing businessman B’s challenge to that decision, the Supreme Court took a flexible approach in finding that businessman A’s claim was not debarred by illegality. Businessman B would be unjustly enriched if permitted to keep the money and such an outcome would be a disproportionate response to the unlawful purpose of the arrangement. The result of the case did not conflict with the public interest or undermine the integrity of the justice system.
High Court aids creditor wrongly denied a vote at IVA meeting
In a case of interest to insolvency practitioners, the High Court has come to the aid of a creditor who was left out in the cold when its objection to an individual voluntary arrangement (IVA) was ruled out of contention at a creditors’ meeting.
The creditor claimed to be owed almost £480,000 by a businessman pursuant to a personal guarantee that he had signed in respect of his company’s trade debts. It had submitted a proxy form to the meeting with instructions to vote against the proposal that the businessman should be granted the protection of an IVA.
The businessman disputed the debt on the basis that he had been coerced or unduly influenced into entering into the guarantee or that the creditor had promised to release him from the same. In those circumstances, the chairman of the meeting – an insolvency practitioner – admitted the creditor’s claim with a nominal value of just £1 and the IVA was subsequently approved.
In upholding the creditor’s challenge to that decision, the Court found that its vote should have been given full weight at the meeting. There was no evidence that the businessman had been subjected to duress and the guarantee was clearly valid and enforceable. In the circumstances, the Court found that the proposal should have been defeated and the IVA was overturned.
There was no basis on which it could have been concluded that the creditor’s claim was obviously bad and a more cautious chairman would have marked it as objected to whilst permitting the creditor to vote. In the circumstances, the chairman was ordered to pay half of the creditor’s legal costs of the case.
Winding Up Petitions Are Useful – But Not In Every Case!
Winding up petitions can be a very effective means of bringing pressure to bear on debtor companies. However, as one High Court case illustrated, their deployment as leverage is usually only appropriate in circumstances where the evidence of money owed is cut and dried.
Company A claimed to be owed substantial sums by company B in respect of the supply of high quality finished steel. It issued a winding up petition when its invoices remained unpaid. However, company B argued that some of the steel was not fit for purpose and that it had a defence and counterclaim of real substance.
The Court acknowledged that company A had a strong case and that there were indications that company B was scratching around for a defence. However, the case involved factual disputes and issues of contractual interpretation which were not straightforward. In those circumstances, ordinary commercial litigation, rather than a winding up petition, was the right way to proceed. The Court would issue an injunction, restraining company A from presenting the petition, unless appropriate undertakings were offered in lieu.
Feeling Under Pressure to Grant Credit to a Client? Be Careful!
Businesses often feel under commercial pressure to grant credit to important clients but one High Court case showed how easy it is for such debts to get out of control. A commodities trading company had agreed to defer payment of part of a favoured customer’s bills but ended up being owed almost $5.3 million.
The company regularly supplied large volumes of gasoil and gasoline to the Albanian client. To assist with the client’s expansion plans, the company was persuaded to accept 50 per cent payment in advance of delivery and 50 per cent within 90 days thereafter. The client took extensive advantage of that deferred payment scheme and, given the high value of the goods involved, a substantial debt swiftly developed.
When pressed for payment, the client repeatedly apologised for the delay. There were negotiations as to the balance due but the majority of the money was never forthcoming. The company eventually issued debt recovery proceedings. After putting in a defence to the claim, the client had played no further part in the case and had failed to respond to any correspondence. In those circumstances, the Court found the amount of the debt proved and entered judgment against the client for a total of $5,296,232, including interest.
Obtaining Judgments Can Be Easy - But Enforcing Them...
In an age in which members of the international business community call no country home and assets are held by nominees in a multiplicity of overseas vehicles, the enforcement of court judgments can be an intensely difficult process.
In one case, a foreign bank had obtained no less than 25 final judgments against an elusive businessman in his native Russia before seeking the assistance of the English Commercial Court in recovering about £15 million from him.
The bank targeted membership interests in a limited liability partnership (LLP) which were held by nominees but which it claimed were in the businessman’s beneficial ownership. The LLP owned Italian real estate worth about €17 million and the bank sought the appointment of receivers.
The LLP and the nominees argued that the interests were beneficially owned by a Liechtenstein foundation of which the businessman was only a discretionary beneficiary. However, in upholding the bank’s application, the Court found that the interests should be viewed as the businessman’s assets.
In those circumstances, it was just and convenient to appoint receivers under Section 37 of the Senior Courts Act 1981 with a view to placing the LLP into administration or otherwise selling its assets so that the proceeds could be distributed to the bank and the businessman’s other creditors.
It seems only natural that, when companies get into financial difficulties, directors should seek to salvage what they can from the wreckage. However, the interests of creditors have to be taken into account when insolvency threatens and, in one case, a businessman’s failure to seek legal advice left him in very deep water.
The businessman and his wife ran a once highly successful property development company which was carefully managed before it came unstuck in the recession. It entered creditors’ voluntary liquidation in July 2008 with an estimated deficiency of about £1.1 million, most of which was owed to a bank.
The company’s liquidators launched proceedings against the couple, accusing them of misfeasance and breach of trust in seeking to remove capital and property assets from the company for their own benefit, and at the expense of creditors, in the months before it went bust.The High Court found that the businessman was aware that the company was at serious risk of insolvency when he took steps to extricate certain assets from it in order to preserve them for the benefit of his family. Those steps were taken without legal advice in respect of his duties as a director and at a time when the company was entirely dependent upon continuing support from the bank, which was by no means assured.
The majority of the liquidators’ claims in respect of property assets were rejected. However, the Court found that £875,000 which was credited to the directors’ loan account prior to the liquidation remained an asset of the company and was thus available to creditors. The couple had also retained some property interests which were beneficially owned by the company. The Court would hear further argument on the precise form of order arising from its decision.
Are Your Guarantors Avoiding Payment?
You may recall from our summer 2013 Debt Newsletter that a guarantee is a promise to fulfil a third party’s obligations if that third party fails to do so. It is a contractual agreement that creates a secondary obligation to support a primary obligation of one party to another, for instance a director’s promise to pay professional charges due from a company.
What may be considered as a personal guarantee on the face of it, may not be enforceable. As the personal guarantee is contractual,a guarantor may attempt to argue that it is invalid, which will include arguments such as:
1. There was no consideration
The doctrine of consideration requires both parties to ‘benefit’ from the contractual arrangement in some way. The entity requesting the guarantee will obviously have the benefit of the guarantee; however the party giving the guarantee does not necessarily personally benefit, unless it can be shown that there is some indirect benefit. The way to avoid this argument is to create the personal guarantee by a Deed.
2.The guarantor did not have the authority to give a personal guarantee
The personal guarantee is personal to the individual giving it rather than in connection with the entity which is requiring a service. However, it is important that the individual providing a personal guarantee understands what it is that they are signing and it is therefore advisable that this is discussed with the guarantor and a note is made of the discussion. It is also advisable to ask the guarantor to seek independent legal advice if there is any doubt about their understanding of the terms.
3. The guarantee is not reasonable
The guarantee may include terms which are overly onerous on the guarantor, rendering the guarantee invalid. Accordingly, you should consider the terms of the guarantee carefully and restrict the same to what is required from the other party under the primary obligation.
4.The guarantor was induced to give the personal guarantee by duress, misrepresentation or undue influence
In the event that the guarantor was induced to give the personal guarantee by duress, misrepresentation or undue influence, this may render the guarantee invalid; however it will be for the guarantor to give evidence in this regard and substantiate such assertions. In order to avoid this argument, it is again advisable to make a concise and clear note of the discussions taken place with the guarantor and suggest that the guarantor take independent legal advice.
The steps taken by you with regards to ensuring the validity of the personal guarantee may be dependent on the nature of the client, the value of the likely transactions and the risks. However we would suggest that you carefully review any documents which you may use to avoid the risks of such a personal guarantee later being determined invalid.
If you would like us to review any existing personal guarantees and/or prepare the same for you, please contact Matthew Miles.
Be Alert We have been defending a debt claim on behalf of a client. The supplier has been putting extreme pressure for payment of invoices, but despite numerous requests, the supplier has been unable or unwilling to provide a schedule of invoices to allow our client to reconcile its own account. The supplier’s failure to provide such information raises serious concerns as to the validity of such a claim. Despite numerous threats of a claim from the supplier, one has not yet been issued and in any event, the supplier’s failure to engage in full and frank pre-action correspondence setting out its claim is likely to be frowned upon by the Court. The lesson is therefore always to provide an accurate statement of account of any invoices which are outstanding if you wish to avoid challenges to your invoices, late payment and the risks of adverse costs orders against you.
Thinking of pursuing a debt and continuing to Supply? Think again
There are a number of issues which arise if you continue to supply your client whilst there is a debt which you are considering pursuing: The act of continuing to supply may indicate that you are willing to accept that payment may not be made and/or that you are offering extended payment terms/ credit. Businesses will usually put a limit on the level of credit they are willing to offer before taking the decision to cease further instructions and pursue the debt. With the risk that a further debt may arise following supply, you are also leaving yourself open to then having to issue another set of proceedings. The Courts generally frown up multiple claims involving the same parties and the same issues. Accordingly we would recommend that the debt be crystallised, you cease to supply and you pursue the crystallised sum (along with interest and costs).
Will Increased Interest Rates Affect Recovery of Debts?
With interest rates projected to increase over the next three years, this may well have an effect on the level of your debts and recovery of the same.
Surveys suggests that the majority of homeowners will be left struggling financially as the interest rate increases. With interest rates being so low over the course of the last 5 years, homeowners have had a financial cushion to buffer the impact of inflation. However, that is set to change. As a consequence, you may find that there is an extended delay in payment and/or your clients are seeking extended credit terms. You should carefully consider the impact that such changes are likely to have on your business and have a stringent credit control policy in place.
Conversely, subject to your terms of business, increased interest rates may entitle you to greater recovery of interest on late payment of your invoices. In the event that your terms of business refer to the base rate and/or entitle you to rely on the Late Payment of Commercial Debts (Interest) Act 1998, you will in due course benefit from the increased rate of interest.
We would be happy to consider your payment terms (including recovery of interest provisions) and credit control policy in order to maximise your recovery. Please contact Akanshi Agrawal for further information.
Taking Control of Your Debtor's Goods
There have been a number of recent changes to the rules in respect of enforcement via High Court Enforcement Officers:-
- The procedure was previously known as FieriFacias or Fi Fa, however it is now simply called Writ of Control.
- There are four clear stages which are adopted and for which set fees are imposed (see below).
- When part payments are received, the compliance fee is paid first, then the remaining proceeds are divided pro rata between the creditor and the HCEO, giving the creditor their fair share of anything collected and the Enforcement Agent an incentive to collect the sums due in full.
- Enforcement Agents are now permitted to enforce seven days a week, between 06:00 and 21:00. If the debtor is a commercial entity trading outside those hours, for example a night club, then the HCEO can enforce outside the prescribed hours.
|Compliance stage||the Enforcement Agent will send a notice of enforcement to the debtor||£75 (this now also becomes the abortive fee)|
|Enforcement Stage 1||The Enforcement Agent will attend the debtor’s premises to take control of the goods||£190 plus 7.5% of the sums to be recovered over £1,000|
|Enforcement Stage 2||if the debtor does not pay or defaults on any payment arrangement, the Enforcement Agent will proceed to sale or disposal||£495|
|Sale or disposal||the Enforcement Agent will remove or make arrangements to remove the controlled goods to be sold to recover the debtSeven clear days’ notice of a sale must now be given to the debtor, whereas previously no notice needed to be given. Under the old rules, the goods just needed to be advertised for three clear days.||£525 plus 7.5% of the outstanding debt over £1,000|
If you would like to discuss enforcement options including instructing a High Court Enforcement Officer in further detail, please contact Akanshi Agrawal.
Entitlement to recover extra for late payment of debts
Provided that your Terms of Business allow you to add charges, costs and/or compensation for late payment of invoices, you may be entitled to recover the same, provided that they are deemed reasonable and are not regarded as a penalty.
Recovery of interest on late payments is generally regarded as adequate recompense i.e. putting the supplier in the same position as it would have been had payment been made on time. You may however wish to include a specific provision for recovery of legal costs to the extent that legal action is required to recover the debt.
In the absence of any specific terms and provided that the Late Payment of Commercial Debts (Interest) Act 1998 applies (as is the case in business to business services), you may be able to recover compensation on each invoice which is paid late. The amount of compensation you can claim under the Act is:-
Up to £999.99
£40 per invoice
|£1000 - £9,999.99||£70 per invoice|
|Over £10,000.00||£100 per invoice|
If you are unsure about the extras which you may be entitled to recover and/or you would like to amend your terms of business to ensure that you are able to maximise your recovery, please contact Akanshi Agrawal.
The Prompt Payment Code
Receipt of prompt payment is critical to most SME's in the running of businesses. In order to help, the Prompt Payment Code has therefore been introduced by the Department for Business Innovation and Skills, as administered by the Institute of Credit Management (ICM).
The Code is about encouraging and promoting best practice between organisations and their suppliers. Signatories commit to paying their suppliers within clearly defined terms and applying a proper process for any issues which may arise. Code Signatories undertake to:
1. Pay suppliers on time
- Within the terms agreed
- Without attempting to change payment terms retrospectively
- Without changing practice on length of payment on unreasonable grounds
2. Give clear guidance to suppliers
- Providing suppliers with clear and easily accessible guidance on payment procedures
- Ensure that there is a system for dealing with complaints and disputes that is communicated to the supplier
- Advising promptly if there is any reason why an invoice will not be paid
3. Encourage Good Practice
- Suppliers encourage adoption of the code throughout their own supply chains.
The Code may only benefit you if those that are you are supplying are signatories. You can view the list of signatories and apply to become a signatory yourself, via the ICM website at http://www.promptpaymentcode.org.uk/
Get your ‘Interest’ right
We have written many articles in the past about ensuring that your Terms of Business properly set out the rate of interest which you are entitled to recover in the event of a late payment.
In the absence of any specific terms in your Terms of Business, you can however rely on the Late Payment of Commercial Debts (Interest) Act 1998, if you are providing goods or services to another business. If your customer is an individual and your terms of business do not mention late payment interest, you may be able to apply the Court rate of interest which is (a currently very favourable!) 8% if proceedings are issued.
There are however a number of changes to the Late Payment of Commercial Debts (Interest) Act under the Late Payment of Commercial Debts Regulations 2013 which came into force on 16 March 2013.
The main changes affecting contracts concluded after 16 March 2013 under the new legislation are:
Payment terms –the period for payment for business to business contracts of the price fixed in the contract must not exceed 60 calendar days. The parties may agree a period beyond 60 days provided this is not "grossly unfair". If the contract is silent on the time for payment then interest will start to run on overdue payments from 30 days after the latest of receiving the supplier's invoice, receiving the goods or services or acceptance of the goods or services.
Public sector payment terms – in commercial transactions where the purchaser is a public authority, the payment period must not exceed 30 calendar days following receipt by the purchaser of the invoice.
Verification periods – the length of time for accepting goods or services must not exceed, as a general rule, 30 calendar days.The parties can agree a longer period providing it is not "grossly unfair" to the supplier. This will mean that a party has 30 days to accept and then a further 30 days to pay.
Cost recovery - suppliers’ costs can be recovered for enforcing payment in excess of the fixed payments that suppliers are currently entitled to.
If you would like us to review your Terms of Business to ensure that they incorporate any changes in the Late Payment of Commercial Debts (Interest) Act 1998, please contact Matthew Miles.
Can Social Networking Sites Help Recover Your Debt?
One of the main questions we ask our clients is what do you know about the debtor and most importantly, the debtors residential address and any assets held by the debtor.
If you do not know the whereabouts of the debtor, social networking sites may help you locate them. It is very unlikely that you will be able to locate an exact address, however even the name of the town or city can sometimes help us in locating them for you. Additional information, for example a date of birth, may also help.
However, some caution must be exercised. There is a risk of course that the search engines bring up the details of an individual who is not the debtor. In addition, there is a risk that you may be criticised by a Judge if it is considered that you are acting unreasonably via such sites.
In particular, last year Facebook warned debt collectors not to use its service to track down those owing money after a woman in Florida was stalked for non-payment of a car loan. In April this year the judge told the collector to cease and desist. In addition, the Office of Fair Trading (OFT) is warning debt collectors not to pursue people who owe them money on social networking sites such as Twitter and Facebook as it is concerned that embarrassing details about their financial problems will be revealed on the internet. The OFT received a number of complaints from debtors who were being pressurised online to pay off loans.
Therefore, whilst social networking sites can sometimes be helpful in gathering information on your debtor, caution must be exercised. It is advisable not to chase the debt via such means.
Get Relief From Your Bad Debts
We all, at some point or the other, suffer from bad debts. However there are ways in which you can minimise your loss when this happens. For example, did you know that you can reclaim VAT when your customer doesn’t pay you?
If you provide VAT taxable goods and services and render invoices accordingly, as you will be aware, you are required to pay the VAT element to HMRC. However, if you are not paid, you can reclaim the VAT you paid to HMRC. This is known as ‘Bad Debt Relief’.
Whilst you should discuss this in detail with your accountant; however, the conditions for Bad Debt Relief include:
- The debt is more than 6 months old and less than 4.5 years old;
- You have written off the debt on your VAT accounts and transferred it to a separate bad debt account;
- The debt has not been sold or handed to a factoring company and
- You did not charge more than the normal selling price for the items.