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The ABC of IOU - Part One

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12th Sep 2007
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In the first part of a two-part feature on practical steps to deal with your debts, Sara Partington of Hextalls LLP advises on how to approach debtors who claim that a debt isn’t owed and won’t or can’t pay even when you get a judgement.

Most companies that fail do so for lack of cashflow. We're all so busy generating new business and successfully completing the job that we often take our eye off debtor days and prodding reluctant customers who think payment can always wait just another week. Worse yet, there are the debtors who adopt the age-old "the cheque's in the post" trick for as long as possible and then dredge up reasons for not paying - what do you do about them?

Getting your invoices paid for a job well done should be easy, but in fact it can be a major headache. How you deal with getting debts paid will depend on the reason given by the reluctant debtor to pay up in a timely fashion - or at all. The trick is to persuade the debtor that you’re a priority among all the others clamouring for payment.

Contested debts: getting a judgment and enforcing it
Where a debt is disputed on grounds which cannot easily be disproved or shown to be bogus (if it can, next week will deal with uncontested debts), you’ll need to issue proceedings in the relevant county court (claims worth £50,000 plus are High Court) and then take steps to enforce a judgment against the debtor’s assets if he won’t pay. You’ll also need to use the courts to get a judgment if your debt is less than £750.

The Small Claims Court procedure for claims under £5,000 is less formal than you might expect, designed for litigants bringing claims without representation (although, as in all litigation, some formal procedures must be followed and tactics used to maximise your likelihood of success).

Personally, my starting point is to verify that the debtor will be good for the money – what point is there in getting a judgment which can’t be paid? A credit reference may reassure you that you’re not throwing good money after bad.

If legal action is needed
There is a set procedure for court cases:

The court will usually expect to see a demand letter – the fact that a claim is disputed presupposes that you’ll have debated the debtor’s refusal to pay and you have some idea what you’re facing (unless you’re talking about a debt of less than £750 in which case it may well be that it is undisputed and just a slow-coach debtor).

Ideally, your Claim Form will detail : how the debt arose (e.g. under which contract), when it fell due, when you demanded it, what the debtor said when refusing to pay. It’s issued at court on payment of a fee (the court may also serve it for you).

If the debtor doesn’t acknowledge the Form, you can enter judgment in default and go straight to enforcement. Equally, if you can argue why the debtor stands no chance of success, you can apply for summary judgement.

If the debtor disputes the debt
If the debt is disputed, you’re into litigation. On a sizeable debt, it’s at this stage - if not before - that you may want to consult lawyers. You’ll get some of the costs back at court. If you’re doing it yourself, you must collate relevant documents for disclosure (in favour of and against your case), draft Witness Statements explaining the factual background, and prepare yourself for trial.

Once a judgement is secured
Once you’ve got judgment, if the debtor refuses to pay or pleads poverty, you may need to enforce it against his assets. You may already know the answer or a modest investment with an investigator if the debt is sufficient to warrant it may reveal details). Consider whether the debtor has any of the following:

  • a property against which you can register an interest (you may even be able to force a sale although, if a family home, you may have to wait until sale happens naturally)
  • a salary or other revenue stream into which you can tap for monthly payments
  • chattels which you can instruct a bailiff to seize and auction
  • bank accounts from which you can force payment

If you don’t know or you have grounds to think that debtor is hiding assets, it may be cheaper (and/or more inconvenient and embarrassing and therefore persuasive to the debtor) if you apply to court for an Oral Examination.

The debtor will have to attend at court to answer questions, overseen by a judge, about its assets and provide documents which it may have refused to give to you. To fail to cooperate is contempt of court. This usually results in the debtor acknowledging the inevitable and at the very least agreeing a payment schedule for you to get your debt paid in stages.

Next week – Sara Partington advises on how to deal with getting niggling, uncontested debts paid.

In the first part of a two-part feature on practical steps to deal with your debts, Sara Partington of Hextalls LLP advises on how to approach debtors who claim that a debt isn't owed and won't or can't pay even when you get a judgment.

Most companies that fail do so for lack of cashflow. We're all so busy generating new business and successfully completing the job that we often take our eye off debtor days and prodding reluctant customers who think payment can always wait just another week. Worse yet, there are the debtors who adopt the age-old "the cheque's in the post" trick for as long as possible and then dredge up reasons for not paying - what do you do about them?

Getting your invoices paid for a job well done should be easy, but in fact it can be a major headache. How you deal with getting debts paid will depend on the reason given by the reluctant debtor to pay up in a timely fashion - or at all. The trick is to persuade the debtor that you're a priority among all the others clamouring for payment.

Contested debts: getting a judgment and enforcing it
Where a debt is disputed on grounds which cannot easily be disproved or shown to be bogus (if it can, next week will deal with uncontested debts), you'll need to issue proceedings in the relevant county court (claims worth £50,000 plus are High Court) and then take steps to enforce a judgment against the debtor's assets if he won't pay. You'll also need to use the courts to get a judgment if your debt is less than £750.

The Small Claims Court procedure for claims under £5,000 is less formal than you might expect, designed for litigants bringing claims without representation (although, as in all litigation, some formal procedures must be followed and tactics used to maximise your likelihood of success).

Personally, my starting point is to verify that the debtor will be good for the money – what point is there in getting a judgment which can't be paid? A credit reference may reassure you that you're not throwing good money after bad.

If legal action is needed
There is a set procedure for court cases:

The court will usually expect to see a demand letter – the fact that a claim is disputed presupposes that you'll have debated the debtor's refusal to pay and you have some idea what you're facing (unless you’re talking about a debt of less than £750 in which case it may well be that it is undisputed and just a slow-coach debtor).

Ideally, your Claim Form will detail : how the debt arose (e.g. under which contract), when it fell due, when you demanded it, what the debtor said when refusing to pay. It’s issued at court on payment of a fee (the court may also serve it for you).

If the debtor doesn’t acknowledge the Form, you can enter judgment in default and go straight to enforcement. Equally, if you can argue why the debtor stands no chance of success, you can apply for summary judgement.

If the debtor disputes the debt
If the debt is disputed, you're into litigation. On a sizeable debt, it's at this stage - if not before - that you may want to consult lawyers. You'll get some of the costs back at court. If you're doing it yourself, you must collate relevant documents for disclosure (in favour of and against your case), draft Witness Statements explaining the factual background, and prepare yourself for trial.

Once a judgement is secured
Once you’ve got judgment, if the debtor refuses to pay or pleads poverty, you may need to enforce it against his assets. You may already know the answer or a modest investment with an investigator if the debt is sufficient to warrant it may reveal details). Consider whether the debtor has any of the following:

  • a property against which you can register an interest (you may even be able to force a sale although, if a family home, you may have to wait until sale happens naturally)
  • a salary or other revenue stream into which you can tap for monthly payments
  • chattels which you can instruct a bailiff to seize and auction
  • bank accounts from which you can force payment

If you don't know or you have grounds to think that debtor is hiding assets, it may be cheaper (and/or more inconvenient and embarrassing and therefore persuasive to the debtor) if you apply to court for an Oral Examination.

The debtor will have to attend at court to answer questions, overseen by a judge, about its assets and provide documents which it may have refused to give to you. To fail to cooperate is contempt of court. This usually results in the debtor acknowledging the inevitable and at the very least agreeing a payment schedule for you to get your debt paid in stages.

The ABC of IOU - Part Two
Sara Partington advises on how to deal with getting niggling, uncontested debts paid.

About the author
Sara Partington is Head of the Dispute Resolution Department and the Debt Collection team at Hextalls LLP. [email protected] 020 7488 1424 www.hextalls.com.

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