Considerations Before Proceedings for Debt Recovery Claim?
As with most situations including debt recovery, court should be a last resort. All too often businesses begin legal action when an invoice is unpaid without exploring the alternatives to recover the outstanding payment.
Although it may sound too obvious, but if you do start to commence a debt recovery claim, you must determine who the claim is being brought against. A substantial number of claims are started against incorrectly named parties.
All too often this is because businesses sometimes trade under different names and it is not immediately apparent what the legal status of the business is or who their correct identity is. A typical situation would be where a business is trading under an umbrella company.
Other times when things get confusing is when the business has changed name or legal status. Therefore at the most basic level, before starting your claim you need to be absolutely sure who the claim is against whether it is an individual, partnership or company and whether you know the full name of the business.
Where limited companies are concerned, basic information can be obtained from Companies House. If a claim is started against the wrong business or person, you may need to amend the details and re-serve the paperwork to the court which can be a time consuming and costly mistake.
Can the Debtor Satisfy the Debt
The second element that you need to explore is whether the debtor will have the money to pay what you are owed. If you know they are in financial difficulty, it can prove a costly exercise for yourself to pursue the debt when there is no chance of recovering what you are owed and the cost of making a claim.
Before you start any court proceedings it would be wise to try and find out what assets the company has or whether they are in financial trouble. A credit check is an effective way of making sure that the company is not in financial difficulty.
If the person or business who owes you money is registered as a limited company, you may be able to check with Companies House that the business hasn’t:
- Been placed into administration
- Been liquidated or dissolved
- Been struck off
It is also possible to check through Companies House whether the business has filed their annual return and accounts on time. If they haven’t this could be a sign that the business is struggling financially. It is always worth noting however that the financial situation of a business can change so it may have altered since the documents were filed.
Where the debt is against an individual, you can undertake searches with the Land Registry at their current address to see if they own the property. There is a small charge for obtaining this information. Office copies will confirm whether the debtor owns the property and whether there are any outstanding mortgages secured on the property.
It will also state whether there are any other charges on the property and the date of purchase. After 1994, the records will also show how much the owner paid for the property at the time of the purchase. With this information you may be able to identify whether there will be any equity in the property which could be used to recoup any debt that you are owed. You may also want to make a search with the Insolvency Service to check whether the individual has been bankrupt or whether they are subject to any bankruptcy orders.
Providing the Necessary Proof
Debt recovery claims are often dealt with by the courts. In doing so the Court will aim to establish whether on the balance of probabilities based on the evidence it is more likely than not that the amount claimed is owed by the defendant. The balance of probabilities is a term used in civil cases where the Claimant will need to prove that it was more likely than not, the debtor owes the money claimed.
In a standard debt recovery claim process, the Claimant will need to supply multiple pieces of evidence in order to succeed. This will include:
#1 Evidence of the Amount Claimed
The court will at the very least expect to see a copy of outstanding invoices along with a statement to show that the invoices remain outstanding. It is also a good idea to include copies of letters which were sent chasing payment of the invoice(s) along with any correspondence between you and the debtor, particularly if the debtor admits to owing the debt or requesting additional time to repay what they owe.
That being said, it is unusual for a claim to succeed based on written evidence. Therefore it is strongly recommended that a witness statement is provided from someone who can confirm that the sum of money remains outstanding. This statement could be from someone who has responsibility for chasing payments or someone who has knowledge of the matter such as someone in the finance team.
#2 How the Debt Arose
When an invoice is raised this usually means that the business is owed money for a product or service that they have provided and they are therefore entitled to the amount indicated on the invoice. Therefore, you should provide evidence to demonstrate that a contract existed between you and the debtor and the terms of this contract. If there is a written contract, then a copy of this should be supplied for the Court and used as evidence.
Where standard terms and conditions are used and relied upon, these terms should be produced, but they must accompany evidence to demonstrate how they were incorporated into the contract. This evidence may include a copy of the letter including terms and conditions, an order form which refers to the standard terms and conditions or another form of evidence supplied by a witness, confirming that the debtor was issued with a copy of the standard terms and conditions. When standard terms and conditions are used and relied upon, you must be able to evidence that the other party was aware of these before they entered into the contract.
Even when a contract was generated it is always helpful to provide any relevant written correspondence in the period of time leading up to the contract being drafted in the event that there were any misunderstandings as to the terms or whether the intention of each party was made absolutely clear.
If a contract was made verbally, a witness statement will be required from the individual who made the contract, outlining the way in which the contract was formed and the key terms that were agreed.
Once you have provided sufficient evidence to demonstrate that a contract existed between you and the debtor, you must also provide evidence to illustrate that the contract was carried out. Where this relates to the sale of goods, evidence could be supplied in the form of a delivery note.
The Court will attach more weight to witness evidence which is included in the witness statement if the witness attends the court hearing and they are able to confirm to the Court that they believe that the facts contained within the witness statement are true.
The court will make a decision on a case by case basis whether it was more likely than not the amount of money specified by the Claimant is owed by the Defendant, it is very important to ensure that witnesses attend court. If a witness for the debtor makes a statement that is untrue or false, it will be very difficult for you to contradict this if you do not have any witnesses of your own.
#4 Original Documentation
Both parties usually submit copies of documents as part of their evidence. However it is important to ensure that original copies of documents are retained and available for the hearing. This is because there can be questions over the authenticity of a document or that there was nothing printed on the reverse of a contract for example that could prove or disprove the case.
Pursuing a claim to court can prove to be a lengthy process, not to mention a costly one. Claimants should think very carefully about how much the proceedings will cost, even more so if your claim is likely to be defended. You should always consider the time and resources a court claim will take and additional time taken to attend court, supply statements and supplementary information.
Pursuing an unpaid debt in court is not always the answer. The Court will expect parties to undertake some form of alternative dispute resolution in order to resolve the issues being raised. There are many ways in which this can be achieved without resorting to court action. This is known as alternative dispute resolution and can include something as informal as a meeting to negotiate or discuss the issues through to formal mediation to resolve the problem and reach a mutually agreeable resolution.
Court process for debt recovery claims
Pursuing a debt recovery claim will begin when the claimant (the business or individual bringing the claim) sends a copy of the Particulars of Claim and Claim Form to the court along with the court fee.
A Claim Form is a standard court document which will include specific pieces of information and will briefly outline what the claim is about. The Particulars of Claim should be written by a legal professional and include the legal and factual basis on which the case is being built.
Claims valued at £25,000 or lower will be dealt with through the County Court, while claims in excess of £25,000 will be processed in the High Court.
After the Court has received the Claim Form, Court Fee and Particulars of Claim they will stamp or ‘issue’ the documents. Following on from this, the Particulars of Claim and the Claim Form will be served on the Defendant by first class post. The Court will also prepare a Response Pack to the Defendant. This pack will provide a detailed explanation to the Defendant about what they need to do next and what forms they will need to complete.
If the Court serves the documents on the Defendant, it will send to the Claimant a Notice of Issue which confirms that the Particulars of Claim and Claim Form have been both issued and served on the Defendant. It will also provide a date that the Defendant must respond.
Response to a Claim
The Defendant will have a series of options when it comes to responding to a debt recovery claim. Once they have received the initial documents from the Court, they will have a period of 14 days in which to respond. The Defendant may wish to request an extension to this time if the case is overly complex or they have to supply a lot of information. In this instance, it is at the discretion of the claimant as to whether this is granted. It is recommended though that if the Defendant requests an extension you provide them with a reasonable amount of time.
The ways in which a defendant can respond to a debt recovery claim will include one of the following:
- An Admission – If they do not dispute the claim, they should complete and return an Admission. If the Admission is filed, the Claimant can request that the Court enters a Judgement.
- A Defence – If a Defendant disputes a claim they should send the Claimant a Defence. This will set out in detail the reasons why they dispute the claim. If the Defendant wishes to file a Counter claim this should be filed at the same time as the Defence.
- Acknowledgement of Service – This is where the Defendant indicates that they intend to defend the entire claim or part of it. If they file an Acknowledgement of Service, they will have a further 14 days in which to file their defence.
- Failure to Respond – If the Defendant fails to respond to the documents served by the Court, the Claimant can request that the court issues a Judgement in Default.
A Defended Claim
If the Defendant goes on to file a defence against the debt recovery claim, the Court will issue an Order which requires both parties to file what is known as an Allocations Questionnaire. This document is completed to provide the court with a more detailed understanding of the case so that it can make sure it is dealt with in the most appropriate manner. It also ensures that the right resources are allocated to deal with the debt recovery claim.
Once the Allocations Questionnaire has been completed, the case will be allocated to a certain track. There are three tracks when it comes to pursuing a claim, small claims, fast track and multi track.
- Small Claims – £5,000 or less
- Fast Track – £5001 and £25,000
- Multi Track – In excess of £25,000
The Court will then issue an Order providing ‘directions’ once it has allocated the claim to a relevant track to be dealt with. The Directions are specific steps that each party must take to prepare the case for a final hearing. Often the court will provide a ‘Direction’ to place the proceedings on hold (or stayed) while the parties enter into discussions to reach a settlement which is agreeable by all parties.
When a claim is allocated to the Small Claims Track, the directions will request that each party serves on the Court and each other copies of documents upon which they intend to rely. This will also include witness statements. The Court will require this information to be submitted by a certain date. Usually the Claims Hearing is outlined in the Order that provides the instructions for each party.
In terms of Fast Track and Multi Track, the process becomes slightly more complex and the Directions that are issued will be more detailed.
Usually in this instance, the Court will instruct that both parties:
- Serve a List of Documents on each other
- Allow the List of Documents to be inspected
- Serve Witness Statements
- File Pre-Trial Checklists with the Court
- Reach an agreement in terms of the trial bundle and make suitable arrangements for this to be delivered to the Court.
A Fast Track or Multi Track claim will proceed to trial. Claims issued on the Small Claims Track will be dealt with at a final hearing. A small claims final hearing is a relatively informal process and is usually carried out in the District Judge’s office with the involved parties sitting around a table. Witnesses are not generally required to provide evidence under oath. More often than not, the involved parties will represent themselves.
A trial on the other hand is a much more formal process. They involve the presentation of legal arguments and evidence and the proceedings will follow a set format. Witnesses will normally be required to provide evidence under oath. Usually the involved parties will be represented by a Barrister.
At the end of a final hearing or trial the Judge will provide their judgement on the matter which will include their decision and their reasons. Each party will be given the opportunity to make a representation to allow the judge to decide who should have to pay the costs and how much financial compensation should be awarded.
Pursuing a claim is time consuming, complex and costly. Parties should think very carefully about the time, commitment and resources required to pursue a claim before starting legal action.
About the author:
This article was written by a member of the Expert Answers legal advice team and posted by Lloyd Barrett. Expert Answers provides online legal advice on all aspects of UK Law to users in the United Kingdom.