Make Sure You Take Legal Advice Early
Every business will experience problems with recovering debt from late or non-payers at some point during its trading life. This can be time consuming and frustrating when what you really want to do is just get on with what your business does best. But how long do you have to negotiate? Can you take Court action to recover monies owed? If so, when is the right time?
Negotiations, delays and excuses can sometimes mean years pass before a satisfactory resolution is found when chasing invoices. It is vital that you do not miss the opportunity to be paid which can happen if you inadvertently miss a time limit set by legislation.
Time Limit for Bringing a Claim
If you have a client or customer that refuses to pay an invoice, then one option is to issue a debt recovery claim at Court which can provide you with an enforceable Judgment against that client.
However, for reasons of fairness, all debt recovery claims are subject to a time limit. It is therefore important that you issue your claim before that time limit expires (commonly called ‘’the limitation period’’). If you miss this, your client has a Defence which is likely to mean the debt is effectively written off because it cannot be enforced.
What Is the Limitation Period for a Standard Debt Recovery Claim?
The limitation for nearly all debt claims is six years from the date that the debt became outstanding. Once a claim is issued, the period stops running. The six year clock will also restart from the date that the debt is acknowledged in writing (including by email) or you receive a part payment against the debt. This means that if you receive any payment against the debt at any time, then the six year clock starts from the date of the last payment.
Before you can bring a claim in Court, you are required to follow a certain pre-action protocol. These are guidelines set by the Court which have their own time requirement. The timings are similar for companies and individuals, although individuals (including sole traders) are given a slightly wider scope. These protocols are aimed at encouraging negotiation and avoiding any unnecessary Court time (and costs).
Failure to follow a protocol will not stop a claim being brought, but any non-compliance is likely to have an impact on your ability to recover your legal costs later. The need to comply with the pre-action protocol does not alter the limitation period. If Court proceedings must be brought to avoid missing the limitation period then you will need to apply to the Court for a stay to allow time for you to comply.
What Is the Timing of the Protocols
A letter of claim needs to be sent to the client before you issue a claim. In a case of an individual (or sole trader), if they do not reply within 30 days then you can start Court proceedings. However, if the client replies to say that they are taking advice or want more information from you or want to reach an agreement on instalments, you must give them reasonable time to do this.
Once a debt claim has been issued in Court your client will be served with your claim. The client then has 14 days to acknowledge and file a Defence or to acknowledge and have additional days to file their Defence. If they do not respond you can obtain a default Judgment and proceed with enforcement action. If a Defence is sent to the Court, if appropriate, you may file a reply to that Defence.
Usually the Court will provide directions on how the case will be managed at that stage.
The Option of Insolvency
If the debt is not disputed then individual bankruptcy or company winding up may be a better option. We can provide further information on this and how and when it might be used. A formal insolvency process is only realistic if there is no significant dispute over the debt. If there is, then it is necessary to let a Court decide this first by issuing a claim and obtaining a Judgment.
It is not necessary to have a Court Judgment to use the insolvency procedure. You just need to prove the debt is owing and that even if it is partly disputed, the undisputed part must amount to over £750 for a company or over £5,000 for an individual. The limitation period for bankruptcy or winding up is six years from the date the debt became due.
You must first send the statutory demand to an individual giving them 21 days in which to pay or dispute the debt. They have 18 days to apply to ‘’set aside’’ that demand if it is disputed by them. Once 21 days has passed and you have not been notified of any application to set aside the demand, you can issue a petition. It is not essential to send the statutory demand to a company first but it is a very good way of establishing that you have an unpaid debt which is essential for winding up.
Once the petition is issued then there are strict dates for service and advertising prior to the hearing in Court. Your solicitor can ensure that everything is covered so that the petition is not rejected on the day of the hearing. With an undisputed claim you are unlikely to have a hearing for at least six weeks from issue, depending on the Court timetable.
Options When Coming Up to the Limitation Period
If you are getting close to a limitation period then do speak to us about issuing Court proceedings to stop the clock and preserve your rights. If the limitation period has passed then technically you can continue to ask for payment. However, you do not have any enforcement options if the request for payment is refused. There is still some negotiating power such as agreeing to continue to work with that client if they meet arrears within a specified time.
Making a claim to recover a debt is not straightforward with several options available, all with their own processes and time limits to follow. By taking legal advice early you can assess the most appropriate and cost effective option for your situation and ensure that you do not fall foul of time limits that might prevent you from recovering your debt.
If you have any further queries on debt recovery claims or would like to book an appointment, please call 01256 320555 or email us at email@example.com.