Debt Recovery

What to Consider Before Court for Commercial Debt Recovery Claim?

You can ask our online solicitors for commercial debt recovery advice using the question box on the front of our website or the following free legal advice guide may answer your questions.

As with any situation, court should be a last resort. All too often businesses begin legal action when an invoice is unpaid without exploring the alternatives to debt recovery. 

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.

Debt Recovery

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 recovery 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.

Debt Recovery Necessary Proof

As with all claims, you must be able to provide proof. If your debtor defends the case against them you will need to prove your claim by satisfying the Court on the balance of probabilities the amount of money that you are claiming is due from the defendant.

If you are unsuccessful in your claim or you discontinue your claim at any point, you may have to cover the costs of the other party and these costs could be significant. It is therefore strongly recommended that you supply adequate evidence to support your claim before you start proceedings.

When it comes to a debt recovery case, you will need to provide sufficient evidence to explain why you are claiming the amount that you are and how the debt occurred.

This evidence will usually include:

    • Invoices for the goods or services
    • A statement of account
    • The written contract that existed between the two parties which was relied upon
    • Correspondence between yourself and the defendant
    • Order forms and delivery notes (where applicable)
    • Witness statements covering anything that is not included within the documents

It is very unusual for a debt recovery claim to succeed on the basis of written evidence alone. Therefore you should carefully consider whether you will be able to provide witness evidence, what their evidence is likely to include and whether they will be able to attend Court to provide evidence on your behalf if this is required.

Court Proceedings

Pursuing a debt recovery 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.

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