A limited company is a separate legal entity from its directors. In most circumstances, this means that a company’s debts are the company’s responsibility – not the personal responsibility of its directors.

But limited liability is not absolute.

There are circumstances in which a director can become personally liable for money owed by a company. This may arise because the director has personally guaranteed the company’s obligations, because of certain conduct by the director, or because specific legal provisions apply.

Understanding when personal liability can arise is important for both directors and businesses seeking to recover commercial debts.

When can a director become personally liable?

Personal guarantees:

One of the most common circumstances is where a director has provided a personal guarantee.

A personal guarantee is an agreement under which the director agrees to meet the company’s obligations if the company fails to do so. These may be used for business loans, leases, finance agreements or trade credit. Whether a director is liable and to what extent will depend on the terms of the guarantee and the obligations it covers.

Wrongdoing or misconduct:

A director may also face personal liability because of their own conduct.

This can include circumstances involving:

These issues are particularly relevant when a company is experiencing financial difficulties or enters insolvency proceedings.

For example, under section 214 of the Insolvency Act 1986, a Court may order a director to contribute to a company’s assets where the statutory conditions for wrongful trading are met. This does not mean that a director automatically becomes personally liable simply because their company is unable to pay its debts. The circumstances and the director’s conduct are important.

Can you pursue a director for an unpaid company invoice?

Not simply because they are the director.

A creditor needs to establish a legal basis for pursuing the individual. This could include a personal guarantee or circumstances giving rise to personal liability through the director’s own conduct.

Before taking action, it is therefore important to establish:

A director negotiating an agreement or communicating with a creditor does not, by itself, make them personally responsible for the company’s debt.

What should a creditor do?

Where a limited company has failed to pay, the starting point is to establish who owes the debt and the legal basis of your claim.

If there is a potential personal guarantee or concern about the director’s conduct, the position should be assessed carefully before assuming that the director can be pursued personally as there a strict requirements that a personal guarantee must meet in order to be enforceable.

At Lovetts, we understand that commercial debt recovery often involves more than establishing that an invoice remains unpaid. Understanding the contractual and legal position can be critical to determining the appropriate recovery strategy.

If your business is owed money by a limited company and you are unsure who may be liable, our specialist debt recovery team can help you assess the position and advise on the appropriate next steps.

Nord Stream AG v. Lloyds Insurance Company SA and Arch Insurance (EU) [2026] EWHC 1685

Nord Stream operated two natural gas pipelines, Lines 1 and 2, running under the Baltic Sea from Russia to Germany.  On or about 26 September 2022, both lines suffered major rupture damage from explosions at locations on the sea bed, rendering them inoperable.  Line 2 also sustained a separate indentation.  Nord Stream claimed under its All Risks insurance for its loss arising from the damage.  

Whether the wording of Nord Stream’s insurance was adjusted by the incorporation of certain standard terms for Builders’ Risks

Section 1 of Nord Stream’s insurance provided cover for damage to property.  The insurers denied cover under this wording, relying on a provision which excluded loss or damage,

“… directly or indirectly occasioned by, happening through, or in consequence of war … or destruction of or damage to property by or under the order of any government or public or local authority …”.  

However, Nord Stream’s insurance also incorporated the Institute Clauses for Builders’ Risks (“ICBR”) and the Institute War Clauses for Builders’ Risks (“IWCBR”).  Pursuant to their express terms, these provided cover for property under construction or repair, the war risk cover being confined to floating assets.

Nord Stream argued that the primary insuring clause for Section 1 was to be found in the ICBR wording and that, since at the time the cover was taken out both insurers and insured knew that the pipelines were operational and fixed to the sea bed, the insurance should be construed so as to give precedence to the ICBR and IWCBR covers with the wording adjusted so as to work in the circumstances, and such as to displace the war risks exclusion in the policy wording. 

The decision – The Court disagreed, primarily on the basis that there was no basis for re-writing the terms of the ICBR and IWCBR covers and no means of determining what the appropriate adjustments should be.  The damage to the pipelines did not fall within the ICBR or IWCBR covers.

How the war risk exclusion was to be constructed

The court considered whether the exclusion, quoted above, contained two separate limbs, i.e. (1) an exclusion for loss occasioned by war and (2) an exclusion for damage to property by or under the order of any government or public or local authority, or whether the clause should be read as excluding a single peril.

The decision – The court held that the exclusion contained two distinct limbs.  The war exclusion could apply independently, without an additional requirement for damage by government action.  

The causal link required by the words “directly or indirectly occasioned by, happening through, or in consequence of” war

As regards the exclusion, in terms of the matrix of circumstances in which the pipelines were damaged, the Russia/Ukraine war was obviously relevant.  However, Nord Stream argued that this was, at most, background context: the sabotage was not itself an act of war and the court should require a cause or connection with war of “real significance”.

The decision – The court applied case law to the effect that the phrase “directly or indirectly occasioned by, happening through or in consequence of”  war imposed a broad causal test.  War need not be the dominant cause, but it must be more than historical background: it must be a contributing factor which is “noticeable”, “significant” or “specifically accountable” as a cause of the loss.

The court then determined whether the Russia/Ukraine war was sufficiently causative of the damage for the exclusion to apply by receiving expert evidence on geopolitics as to (1) who was likely to have attacked the pipelines and then (2), taking each of the likely possible perpetrators in turn, what their intentions were likely to have been in doing so.

Having heard this evidence, the court held that it did not need to decide which, out of four likely possible perpetrators, being Russia, the USA, Ukraine or a Ukrainian sub-state actor, had attacked the pipelines.   On the evidence, the court found that each possible perpetrator’s motives would have been sufficiently connected to the war: for Ukraine or Ukrainian actors, the likely motive was as part of the wider war effort and retaliation against Russia: for Russia, the likely motive was as part of pressure on Germany and Europe over support for Ukraine: and for the USA, the motive was as part of the same wartime geopolitical context.  Thus the court found that the likelihood was that the Russia/Ukraine war was a significant cause of the attack, whoever the perpetrator had been.  

Alternative case – Whether the loss was excluded by or under the order of any government


In case the court was wrong as to the number of limbs in the exclusion clause, or as to whether war was sufficiently causative of the damage, the court made a finding in the alternative as to whether the damage was caused “by or under the order of any government”.  

Decision – The court held that, even if the attack was carried out by a Ukrainian sub-state actor, various journalistic reports and a judgment of the German Federal Court of Justice were consistent with the attack having been carried out with the knowledge of, and at least implicit approval of, the head of the Ukrainian army.  That was sufficient to bring the case within the exclusion and it was not necessary to go on and take into account whether President Zelensky, as head of the government, was aware of the intended attack and approved it.  

By contrast, if the evidence had been to the effect that the sub-state actors who carried out the attack were members of the army acting “on a frolic of their own”, the damage would not have been excluded.

In an extension to Nord Stream’s insurance, cover was provided for damage or expense “caused or inflicted by order of any governmental or regulatory body or agency” “acting under the powers vested in them to prevent or mitigate pollution hazard”.  Pollution hazard was not an issue in the present case, such that the court found that the extension was not relevant to its decision.  However, the court held that, if this part of the insurance cover was held to be to wider effect and this wording was found to constitute an insured peril relevant to the present case, the first set of words in italics would not on a natural reading extend to the army or to members of the army acting with the approval of the chain of command within the army, with the result that if the perpetrator had been a Ukrainian sub-state actor, the damage would not have been covered under the insurance.

The cause of the indentation 

 The court found on the basis of all the evidence that it was not improbable that the dent in Line 2 had been caused by an explosion in the same attack, albeit that the factual findings as to how the dent had come about showed that it had occurred in an uncommon way.  Therefore, explosion was accepted as more likely than not to have been the cause.  Nord Stream’s alternative explanations, including an anchor lowered onto the pipeline, were rejected.  This was held to be a case where the competing explanations for the damage were not inherently improbable, such that the court could properly assess, on the totality of the evidence, which was more likely.

Accordingly, the court found that the damage to the pipelines, both rupture and dent, was “directly or indirectly occasioned by, happening through or in consequence of war” and thus excluded from cover.

Lovetts’ comment

The judgment is significant for the approach adopted to determining whether or not damage was caused by the excluded peril of “war” when little is known about who caused the damage, or their intention in doing so.

The judgment also sheds light on when damage caused by military personnel or other sub-state actors will be attributed to a government.

For further information please contact Wendy Miles, Chris Earl-Anderson or William Sturge.

Debt recovery is not a one-size-fits-all process. The approach a creditor should take depends on the nature of the debt, the underlying agreement and, importantly, whether the debtor is another business or an individual.

For businesses in England and Wales, understanding the distinction between B2B and B2C debt recovery can help determine the appropriate approach, from the initial demand for payment through to potential Court proceedings and enforcement.

What is B2B debt recovery?

B2B, or business-to-business, debt recovery concerns money owed between businesses. This might include an unpaid invoice for goods or services, outstanding professional fees or another sum due under a commercial contract.

Commercial debts are generally governed by the terms agreed between the parties, alongside the relevant statutory and procedural rules.

One important distinction is the Late Payment of Commercial Debts (Interest) Act 1998. Where qualifying commercial payments are late, a creditor can generally claim statutory interest at 8% above the Bank of England base rate, unless the contract provides for a different rate. A creditor may also be entitled to fixed compensation for recovery costs of £40, £70 or £100 depending on the size of the debt, together with certain additional reasonable recovery costs, where the compensation is insufficient to cover the same.

What is B2C debt recovery?

B2C, or business-to-consumer, debt recovery involves recovering money owed by an individual, rather than by another business or commercial entity.

The legal framework can be more complex because consumers may have additional statutory protections, depending on the nature of the transaction.

For example, certain consumer credit and consumer hire activities are regulated by the Financial Conduct Authority. This can include collecting or purchasing consumer credit debts, meaning additional regulatory requirements may apply to businesses involved in this type of recovery.

It is therefore important not to assume that the same recovery process used for an unpaid commercial invoice can simply be applied to a consumer debt.

B2B vs B2C debt recovery: the key differences

1. The debtor’s status

The first question is who actually owes the money.

A debt owed by a limited company is generally a commercial debt. A debt owed by an individual consumer is treated differently.

A sole trader requires particular care because, although they are operating a business, they are legally treated as an individual rather than a business for the purpose of the Pre-action Protocol for Debt Claims. However, partnerships are treated as a business entity rather than individuals.

That distinction can affect the procedural rules that apply.

2. Interest and recovery costs

B2B creditors can benefit from the statutory late-payment regime for qualifying commercial transactions. This can provide a significant additional incentive for prompt payment and allow the creditor to recover interest and certain recovery costs.

There is no equivalent blanket commercial late-payment regime for ordinary B2C debts. The ability to claim interest will depend on the contract, applicable legislation and circumstances of the particular debt.

3. Pre-action requirements

The Pre-Action Protocol for Debt Claims applies to businesses claiming a debt from an individual, including a sole trader. It does not generally apply to ordinary B2B debts, unless the debtor is a sole trader.

For B2B debts the Practice Direction on Pre-action Conduct and Protocols applies and a creditor will typically send a Letter Before Action (LBA) before commencing proceedings. The LBA will set out the basis of the debt, the amount outstanding and what is required to resolve the matter, giving the debtor an opportunity to respond or make payment, within a reasonable time frame, before Court proceedings are considered.

The Practice Direction on Pre-Action Conduct and Protocols sets out the conduct expected by the parties before proceedings, including a requirement to exchange sufficient information for the parties to understand their respective positions. It also requires the parties to attempt to resolve any issues in dispute at the earliest opportunity and only pursue litigation as a last resort.

4. Regulatory considerations

B2C recovery can involve additional regulatory requirements, particularly where the debt relates to regulated consumer credit.

For B2B recovery, the focus is more commonly on the contractual relationship, the evidence supporting the debt, payment terms and whether the amount is genuinely disputed.

That does not make commercial debt recovery straightforward. A business debtor may dispute the quality of goods or services, the amount invoiced, contractual performance or whether payment is actually due.

What happens when a B2B or B2C debt remains unpaid?

If payment is not received following the appropriate pre-action steps, the next stage may be to issue a claim in Court to recover the outstanding debt. The claim sets out the basis on which the money is owed and the debt amount and any interest, costs and compensation being sought. The submission of a claim to the Court will allow the Court to issue the claim formally commencing Court proceedings against the debtor.

Once a claim has been issued, the debtor will have an opportunity to respond to the claim, usually within 14 days of service of the claim. If the claim is admitted in full, Judgment can be obtained in the creditor’s favour, the creditor can then consider enforcement action if the debtor does not pay.

For commercial debts, the decision to issue proceedings should be considered carefully, particularly where the debt is disputed. The strength of the underlying claim, the evidence available, together with the likelihood of recovery should all be taken into account before proceedings are commenced.

Which approach is right for your business?

The distinction between B2B and B2C debt recovery is more than a matter of terminology. It can determine which rules apply, what can be claimed and how a creditor should proceed.

For businesses seeking to recover commercial debts, the starting point should be a clear assessment of:

At Lovetts, we assist businesses with the recovery of commercial debts, including advising on appropriate enforcement action where Judgment has been obtained. Taking the right approach at an early stage can help businesses protect their position and ensure that pursuing recovery of the debt remains commercially viable.

WRBC Corporate Member Limited v. AXA XL Syndicate Limited and Others [2026] EWHC 939 (Comm)

In this case, WRBC, the underwriting member of W.R. Berkeley syndicate 1967 at Lloyd’s for the 2019 year (“the Syndicate”), brought claims against the Reinsurers of two multi-class excess of loss reinsurance treaties (“the Treaties”).  The Treaties were in materially the same terms and placed by brokers Aon and JLT respectively. One of the classes of business protected thereunder was Contingency.  The Treaties ran from 1 April 2019 to 31 March 2020. 

The claims that the Syndicate submitted under the Treaties related to some 174 losses arising on its inward book of Contingency risks in respect of certain conferences, trade shows, exhibitions and other gatherings which were cancelled or postponed, as a result of the Covid pandemic, in seven jurisdictions (England, California, Colorado, Florida, Illinois, Nevada and New York).

There were two principal issues in dispute between the Syndicate and the Reinsurers in respect of these claims: (1) how the Limits clause was to be construed and (2) what constituted the ”event” from which the underlying losses arose, for the purpose of identifying which losses fell to be aggregated under the Treaties.

The construction issue – meaning of the Limits Clause

As to the issue of construction, the Treaties provided an indemnity for the Syndicate’s ultimate net loss, excess of a US$1m deductible, 

“each and every loss any one risk, or each and every series of losses arising out of one event” (“the Limits Clause”).

The Syndicate aggregated together all of the losses in each jurisdiction, so that it was making seven aggregated claims on the Treaties. The Syndicate’s rationale for doing so was that the “event” in question under the Limits Clause was the relevant measure, or group of measures, taken by the authorities in each jurisdiction that caused the conferences etc. to be cancelled.  Thus aggregated, the claims exceeded the deductible.

By contrast, the Reinsurers resisted the claims on the basis that the word “event” in the phrase “arising out of one event” was not to be construed as a causative event such as a covid-related measure taken by the public authorities, but instead imported the definition of “Any One Event” contained in the Definitions section of the Treaties, which was a type of ‘hours’ clause.  The phrase “Any One Event” was defined as meaning,

 “any one Conference or Exhibition or Convention or any other “Event” accepted by the Reinsured including the period of installation or dismantling and arrangements directly connected with the “Event” (“the AOE Definition”).  

Thus the issue was whether (as the Reinsurers contended) the AOE Definition applied to the phrase “one event” in the Limits Clause.  Had it done so, WRBC’s recovery would have been greatly reduced, since the majority of losses from individual cancelled conferences etc. fell below the US$ 1m deductible.

The Judge held that the AOE Definition did not apply and that the Syndicate was correct in saying that “event” in the Limits Clause carried its usual meaning of a causative event that gives rise to losses.  The Judge reached this conclusion primarily as a matter of textual analysis, as the Reinsurers’ construction would have produced numerous oddities in the way the Treaties worked.  The Judge also considered that the contextual matrix – including the history, form and content of the Syndicate’s reinsurance arrangements in previous years, of which the Reinsurers were aware – supported the Syndicate’s interpretation.

The aggregation issue – how the Syndicate’s losses were to be aggregated

As to the approach that should be adopted towards aggregation, the Syndicate argued that there was a single causative event in each jurisdiction which gave rise to all of its losses in that jurisdiction, the causative event being in each case either a combination of Government measures or alternatively a single Government measure restricting large gatherings.  

Significant causal connection required – The Judge accepted that, in principle, a measure which has an impact on the viability or otherwise of a conference or other gathering insured by the Syndicate could constitute an “event” for the purposes of claiming under the Treaties.  However, there must be a “significant”, rather than merely a “weak”, causal connection between the event and the cancellation giving rise to the loss.  The event must be an effective cause of the cancellation, but did not have to be the only or proximate cause.

Combinations of measures – The Judge held that, while it cannot be said that a number of measures can never collectively constitute a single occurrence or event, all depends on the facts.  On the facts, and taking the examples of California and England, he did not accept the Syndicate’s combination argument for either jurisdiction.  This was because the individual measures had a character and importance of their own.  

Therefore, the judge proceeded to identify the effective cause of each cancellation and whether it was a measure that could be regarded as a relevant event within the coverage provided.     

Measures not specifically causing the relevant causative event  – The Judge considered that a state-wide declaration of a state of emergency (or similar) was not a relevant causative event.  He noted that it might have been possible to contemplate that, with the declaration of a state of emergency in relation to a pandemic, further specific measures would follow.  However, that was not sufficient to say that the declaration of a state of emergency was itself a causative event from which everything else followed.  

Further, claims for gatherings which were cancelled following such a declaration, but prior to the first measure which would have actually required the gathering to be cancelled, could not be aggregated by reference to the restriction subsequently introduced.  One reason for making this finding was the principle that a step taken because the occurrence of an insured peril is imminent is not covered unless the subject of the insurance is already “in the grip of the peril”.

The search for the effective cause – The Judge rejected Reinsurers’ case that the measure nearest in time to a cancellation or postponement should be treated as the cause of the loss.  As indicated above, the effective cause of the cancellation should be determined, which might be an earlier measure. Subsequent measures which continued existing restrictions, made trivial changes or relaxed restrictions were not to be regarded as fresh aggregating occurrences.  

Thus, following an analysis of the losses in a particular jurisdiction in the above manner, aggregation was applied in accordance with the Limits Clause where underlying losses arose from the same relevant measure.

Lovetts’ comment

This case confirms that a term such as “event” can have one meaning in one part of an insurance policy and another meaning in another part. Where a word is defined, the question is whether it is apt to use the definition for the purpose of the clause in question.

Meanwhile, the courts approach issues of aggregation by reference to a strict application of the policy wording, in particular, by reference to the degree of causation required, a close analysis of the cause of each loss and careful attention to the precise phrase used for the unifying factor required.

For further information on the issues raised, contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts Solicitors.

When a customer fails to pay an invoice on time, it can be difficult to know what to do next. Should you continue chasing payment internally? Should you send a Letter Before Action? Or is it time to issue Court proceedings?

The right approach will depend on the circumstances, but taking the appropriate action at the right time can make a significant difference to the outcome.

When Internal Credit Control Is No Longer Enough

For many businesses, the first stage of recovering an unpaid invoice is internal credit control. This may include sending payment reminders, statements of account, making telephone calls and following up on agreed payment dates. However, when payment promises continue to be broken, communication slows or repeated reminders fail to produce results, it may be time to consider formal legal debt recovery.

The Role of a Letter Before Action

In commercial debt recovery matters, the first formal legal step is a Letter Before Action (LBA). A professionally drafted Letter Before Action sets out the amount owed, the legal basis of the claim, any statutory interest or compensation that may be recoverable, a clear deadline for payment and confirms that legal proceedings may be issued if the debt remains unpaid. It demonstrates that the matter has moved beyond routine credit control and into the legal recovery process. In many cases, this is enough to encourage payment without the need for court proceedings.

At Lovetts, our Letter Before Action service starts from just £1.50 + VAT and 86% of matters are resolved before Court proceedings become necessary.

When Court Proceedings Become the Appropriate Next Step

Where a Letter Before Action does not result in payment, the next step in the legal process will be to issue a County Court claim. Deciding whether to commence legal proceedings is about more than simply issuing a claim. Experienced debt recovery solicitors will consider the strength of the evidence, whether the debt is disputed, the debtor’s financial position, the likely prospects of recovery and whether litigation represents the most commercially appropriate course of action.

A Strategic Approach to Commercial Debt Recovery

At Lovetts, we have been helping businesses recover unpaid invoices and commercial debts for more than 30 years. From our low-cost Letter Before Action service through to County Court proceedings and enforcement, we provide commercially focused legal support tailored to the circumstances of each case.

If your business is dealing with unpaid invoices, late payment or commercial debt recovery, learn more about our services or sign up for our Letter Before Action service today.

One of the most frustrating situations for businesses is when an invoice remains unpaid for weeks or months, only for a dispute to be raised once recovery efforts begin.

The account may have been chased several times. Payment may have been promised on more than one occasion. Communication may have continued throughout. Then, seemingly out of nowhere, the debtor claims there is an issue with the goods, services, or invoice itself.

In these circumstances, the focus should not simply be on the existence of the dispute, but on the wider facts and evidence surrounding it.

Not Every Dispute Is The Same

A common misconception is that raising a dispute automatically prevents recovery action. In reality, disputes can arise for a variety of reasons and should be assessed on their own facts.

Some disputes are genuine. A customer may have raised concerns during the course of the relationship, there may be unresolved contractual issues, or there may be a legitimate disagreement regarding the goods or services supplied.

However, there are also occasions where concerns are only raised after payment has become overdue and recovery efforts have intensified.

This does not necessarily mean the dispute lacks merit. It does mean the wider circumstances should be examined carefully before any assumptions are made.

Why Timing Matters

When reviewing a disputed debt, one of the first questions is often: when was the issue first raised?

If concerns were communicated throughout the life of the contract, they may form an important part of the overall position.

If no concerns were raised until payment became overdue, the position may look very different.

A dispute that emerges for the first time after repeated payment requests will often require further investigation. Understanding when the issue arose and how it has been communicated can provide valuable context when assessing the most appropriate next step.

The Importance Of Documentation

In disputed debt matters, documentation can often become one of the most valuable assets available to a creditor.

Contracts, purchase orders, invoices, delivery records, email correspondence, meeting notes and payment acknowledgements can all help establish what was agreed between the parties.

Strong records can also help demonstrate whether concerns were raised at the time or only after recovery action commenced.

Businesses that maintain clear and accurate documentation are often in a stronger position when disputes arise later in the recovery process.

Recovery May Still Be Possible

The existence of a dispute does not automatically mean recovery options disappear.

In some cases, reviewing the available evidence can help resolve the matter quickly. In others, a more detailed assessment may be required to understand the strength of the dispute and the options available.

Each case should be considered individually.

The key is understanding whether the dispute represents a genuine disagreement that requires resolution or whether it has emerged as part of the debtor’s response to ongoing recovery efforts.

Taking The Right Approach

When a dispute is raised after an invoice becomes overdue, it can be tempting to assume that recovery action must stop.

That is not always the case.

The most effective approach is often to take a step back, review the available evidence, assess the circumstances surrounding the dispute, and consider the wider commercial and legal position before deciding how to proceed.

You should always try to resolve any queries or disputes raised before considering issuing proceedings, where possible.

At Lovetts, we regularly assist businesses dealing with disputed debts and overdue accounts. Our team can assess the circumstances of each matter and help identify the most appropriate recovery strategy based on the available evidence and the nature of the dispute.

Late payment has been a long-standing challenge for UK businesses – particularly SMEs managing tight cash flow and limited internal resources.

In March 2026, the UK government announced what it described as the biggest crackdown on late payments in over 25 years, introducing significant reforms designed to protect smaller businesses from persistent late payers. 

For businesses regularly dealing with overdue invoices, these changes are significant.

But while the reforms are positive, they do not remove the need for businesses to actively manage overdue accounts and take action when payments continue to stall.

What changes are being introduced?

The government has announced several major reforms, including:

A new 60-day payment cap

Large businesses will no longer be able to impose excessively long payment terms on smaller suppliers. A maximum payment term of 60 days will apply in most circumstances. For many SMEs currently operating on 90-day or even 120-day terms, this is a significant shift.

Mandatory interest on late payments

One of the biggest changes is that statutory interest on late payments will become mandatory. This means businesses that pay late may automatically face interest charges of 8% above the Bank of England base rate.

Historically, many suppliers have chosen not to enforce this right in order to preserve relationships. These reforms may change that dynamic.

Greater powers for the Small Business Commissioner

The Small Business Commissioner will receive stronger enforcement powers, including the ability to:

This introduces greater accountability for businesses that repeatedly delay payments.

What this means for businesses owed money

While these reforms are welcome, they do not automatically solve late payment issues.

Businesses may still face:

And many businesses will still need to actively seek to recover overdue balances.

Legal rights are only valuable when they are acted on.

How Lovetts supports businesses dealing with late payers

At Lovetts we act on behalf of businesses recovering overdue debts – helping clients move matters forward when internal processes are no longer delivering results.

From Letters Before Action through to formal legal recovery where necessary, we help businesses assess the most effective route based on their specific circumstances.

While the new legislation is a positive step, businesses still need clear recovery strategies when payments continue to stall. And that’s where experienced legal support can make the difference. 

 UNIPOLSAI ASSICUTRAZIONI SPA V COVÉA INSURANCE PLC  

[2024] EWCA Civ 1110

The Facts

Covéa provided property insurance to policyholders who ran children’s nurseries and childcare facilities, based on its standard NurseryCare Policy wording.  This included cover for business interruption (“BI”) caused by a peril other than physical damage: for example, prevention of access to the insured’s premises due to action of the authorities in containing the spread of a notifiable disease.

On 18 March 2020, in the face of exponential growth in the number of cases of Covid-19, the Government instructed all schools, colleges and early years facilities in England to close with effect from 20 March 2020.  The instruction was endorsed in law by regulations made on 26 March 2020. 

The phased re-opening of schools, colleges and nurseries began some two and a half months later, on 1 June 2020. Covéa paid claims submitted by policyholders who had sustained BI losses arising from the prevention of use of their premises during the period of lockdown.

Covéa in turn sought to recover an indemnity for the losses it had paid out, under its Property Catastrophe Excess of Loss Reinsurance, underwritten by Unipol. A central issue here was whether Covéa was entitled to aggregate the losses it had paid out to policyholders, in order to exceed the £10m retention applying to the reinsurance and recover the balance of its aggregated loss from Unipol.  

The reinsurance permitted the aggregation of underlying individual losses “arising out of and directly occasioned by one catastrophe”. The policy wording did not define “catastrophe”, the term had not previously been considered judicially and it was common ground that there was no special understanding given to the term in the insurance or reinsurance market.  Covéa contended that the events of March 2020, described above, were a catastrophe as that word was to be understood  in the reinsurance agreement. 

The reinsurance also contained an “Hours Clause”, the purpose of which was to define the basis on which Covéa might aggregate losses arising from various types of catastrophe, named examples of which included windstorm, volcanic eruption, civil commotion and flood.  The clause confirmed cover, in excess of the retention, for each and every loss arising out of a catastrophe, subject to a limit if the catastrophe was of longer duration that a specified number of consecutive hours.  In the event that Covéa was able to establish that the facts described above could properly be characterised as a catastrophe, the catch-all limit under the Hours Clause of 168 hours would apply.  Covéa, as the reinsured, was entitled to choose the date and time when the period of consecutive hours commenced.

The Issues – Aggregation

Unipol resisted the aggregation of losses contended for by Covéa on the basis that, pursuant to caselaw developed by the courts in recent decades, loss aggregation provisions in excess of loss reinsurance contracts are to be understood as follows:

It was Unipol’s case that, by using the word “catastrophe”, the parties to the reinsurance had agreed that losses could be aggregated in the case of an event-type unifying happening.  Therefore, in order for  Covéa to be entitled to aggregate losses for the purpose of a claim on the Unipol reinsurance, the underlying circumstances must have been sudden and violent and must themselves have caused, or been capable of causing, physical damage.  Unipol argued that the circumstances of March 2020 did not amount to such an event, but instead merely to a state of affairs, being part of a global pandemic which began in 2019 and which was still going on in 2024: the outbreak in England could not be isolated from that overall state of affairs.

The decision – However, first an arbitration tribunal, then the Commercial Court in the exercise of its supervisory powers over arbitrations, and then the Court of Appeal (“CA”), all found in favour of Covéa.  The reasoning at all three levels was broadly to the same effect, as follows.  

Regard could be had, amongst other matters, to the well-documented intention of those who had drafted the original version of the reinsurance wording, who had recorded that they used the word “catastrophe” because it was felt to be more specific and implied a violent happening which itself caused damage,  whereas the word “event” could apply to something which might have been the cause of a catastrophe, rather than the catastrophe or disaster itself.  

However, regard should also be had to the expert evidence in this case to the effect that, in recent years, it had become usual for risks written in an insurer’s property department to include business interruption loss caused by non-physical perils, such as the risk of prevention of access due to the actions of a governmental authority.

Therefore, although the wording of the direct insurances could not be read across into the reinsurance, Unipol could be taken as knowing the nature of the underlying book of business.  On that basis, circumstances not involving physical damage to property but taking the form of a number of nurseries being prevented from operating by the action of the authorities in seeking to control the spread of a notifiable disease, could in principle properly be characterised as a catastrophe for the purposes of the reinsurance and entitle the reinsured to aggregate losses arising therefrom under the reinsurance.

As to the particular features that circumstances must have, in order to be capable of characterisation as a “catastrophe” for the purposes of this reinsurance, the Commercial Court found that (i) as required by the reinsurance wording, the catastrophe must be something capable of directly causing individual losses, (ii) the word “catastrophe” meant something which could fairly be regarded as “a coherent, particular and readily identifiable happening, with an existence, identity and ‘catastrophic character’ which arises from more than the mere fact that it causes substantial losses”; (iii) it ought to be possible to identify broadly when a catastrophe comes into existence and when it ceases and (iv) a catastrophe will involve an adverse change on a significant scale from what preceded it.  

The CA did not regard this finding to be erroneous and added that the reinsurance wording itself made clear that use of the word “catastrophe” stretched the unities greatly, as a catastrophe could have a wide field of impact and last for a number of weeks if not months.  

Effect of the Hours Clause

Unipol argued that, even if the Covid-related circumstances of March 2020 were properly to be characterised as  a “catastrophe”, the effect of the Hours Clause was that only losses from business interruption that actually occurred during the 168 hour period itself could be aggregated.

The decision – However, the CA held that what could be aggregated was individual losses which first occurred during the relevant 168 hour period, even if the financial loss in question continued to develop over time after the 168 hours had expired.  An individual loss first occurred when the covered peril affected the insured premises.  In a case where the covered peril which struck the premises was the loss of the ability to use the premises (whether through damage to other premises or through a closure order, as in the present case), the individual loss occurred at the same point.

Lovetts’ comment

Where “catastrophe” is used as the unifying factor for aggregation in excess of loss reinsurance, it is necessary to identify a specific happening, catastrophic in nature, with a recognisable beginning and end.  What will constitute a catastrophe is coloured by the type of underlying risks being protected by the reinsurance.  Given the breadth of the covers written nowadays in property departments, “catastrophe” as a unifying factor for the aggregation of losses may be wider than a unifying factor such as “event”, particularly as it is not necessary to prove that the circumstances relied upon satisfy the “unities” requirement referred to in AXA v Field. Meanwhile, the Hours Clause limits how losses arising from the catastrophe may be aggregated for the purpose of claiming under the XL reinsurance.  

For further information, please contact Wendy Miles, Chris Earl-Anderson or William Sturge at Lovetts.

For many businesses, unpaid invoices are something that can often be put off until later, especially for smaller businesses with limited resources for credit control. However, timing is key to being able to successfully recover debts and delaying too long may stop you being able to legally recover the debt at all.

In England and Wales there is a time limit for being able to bring legal action to recover a debt through the Court. These time limits are governed by the Limitation Act 1980. Understanding how these rules apply is essential for any business managing overdue accounts.

The General Rule: Six Years

For most business debts where they arise out of a contract the limitation period is six years.

This means that Court proceedings must be issued within six years of the cause of action arising, usually this will be when an invoice becomes due for payment. If that deadline passes the debt will become statute-barred, meaning it is no longer enforceable through legal action albeit that there are some exceptions to this rule that may extend the limitation period.

For businesses that carry aged debt, this is a critical point. Once the limitation period expires, legal recovery options are significantly restricted.

When Does the Six-Year Period Start?

The six-year period runs from the date of the cause of action, this could be date the invoice was issued or the date that payment became due.

Can The Time Limit Be Extended?

If during that six year period the debtor acknowledged/admitted the debt in writing in open correspondence or made a part payment towards the debt, this may in some circumstances extend the limitation period.

This can be significant in practice particularly where there has been intermittent engagement over time.

It is important to note that a verbal acknowledgement is not sufficient; it must be in writing.

What Happens When a Debt Becomes Statute-Barred?

Once the limitation period has expired, the debt still technically exists, but you will no longer have the legal right to pursue it by way of Court proceedings.

This means that businesses may have to simply write off those debts because action was not taken in time.

What If the Debt Is Due Under a Deed?

The Limitation Act 1980 has different limitation periods for bringing a claim depending on the nature of the claim and the legal basis of the same.

The six year limitation period applies to contractual claims. For debts that have accrued under a deed the limitation period is typically 12 years.

What About Enforcement Of Judgments?

If you have issued proceedings and obtained a County Court Judgment, this will remain on the register of County Court Judgments and continue to impact the debtor’s credit for up to six years, after which it will be removed.

You can still enforce a judgment after it is six years old, provided that you can obtain permission from the Court to do so. Although you will need to provide the Court with a good reason as to why enforcement action has not been taken or delayed.

A More Structured Approach

For businesses managing overdue accounts, having a clear understanding of limitation periods is essential, but having a good credit control process is better.

Knowing when a debt becomes due, monitoring any payments or acknowledgements and introducing a structured recovery process at the appropriate stage can make a significant difference.

Often the longer a debt is left the harder it is to recover and in some cases you may miss the opportunity to try to recover the debt through the legal process if you wait too long.

At Lovetts we can help businesses stay on top of their credit control processes and provide support for this in our pre-legal team. We will also note any limitation deadlines when you instruct us.

Taking the appropriate action at the right time can be the difference between successful recovery and a write off.

Many business owners assume that once a legal claim has been issued and a County Court Judgment (CCJ) is obtained, the debt will be paid automatically. However, while a CCJ marks an important legal milestone, it does not guarantee payment and this is where enforcement becomes crucial. 

What Is a County Court Judgment (CCJ)?

A CCJ is a Court order that formally confirms that the amount of the judgment debt is owed by the debtor. It establishes your legal entitlement to payment of the debt and is recorded against the debtor’s credit record, often affecting their ability to obtain credit in the future.

Obtaining a CCJ is often the next step when an overdue invoice remains outstanding after pre-action steps and the issue of a Court claim.

Key Enforcement Methods After a CCJ

Once a CCJ has been entered against a debtor, a number of enforcement routes become available. Each route has different strengths and can be tailored to suit each debtors circumstances – which is why experienced advice is valuable.

1. High Court Enforcement Officers (HCEOs)

High Court Enforcement Officers are often the preferred method for enforcing CCJs where the debt exceeds £600 (and where the debt is not regulated under certain consumer legislation). They are incentivised to collect the debt and can take more robust action, including attending the debtor’s premises and, in some cases, forcing entry to recover assets. 

2. County Court Bailiffs

County Court bailiffs can also visit the debtor’s premises and attempt to recover the outstanding judgment debt — they can also seize certain goods to satisfy the debt. This option can be used for debts under £600 or subject to consumer legislation. This can be an appropriate method of enforcement for certain CCJs and is another practical way to exert pressure when informal communication fails. 

3. Attachment of Earnings Orders

If the debtor is an individual with regular employment, an Attachment of Earnings Order can be sought. This means deductions are taken directly from their wages by their employer to satisfy the judgment amount. This option is not available where the debtor is self-employed.

4. Charging Orders

Where the debtor owns property, a Charging Order can be used to secure the debt against that property. This does not force immediate payment but creates a legal charge that must be settled when the property is sold. This may be a suitable option where the debtor’s circumstances mean that they are unable to access sufficient cash to pay the debt in full or the debt is significant and the debtor wishes to pay by instalments and you wish to secure the debt.

If the debt is of a significant sum and there is sufficient equity in the property you may be able to consider an order for sale in some circumstances after a final charging order has been secured over the property.

5. Third Party Debt Orders

A Third Party Debt Order can be used to freeze funds owed to the debtor, such as money held in bank accounts or by third parties, before the debtor is even notified. This gives a strategic advantage by reducing the debtor’s ability to dissipate funds and the Court can order the third party to pay funds directly from the debtor’s account.

6. Winding-Up Petitions or Bankruptcy

In certain situations, issuing a winding-up petition (for companies) or bankruptcy proceedings (for individuals) may be appropriate if the debtor is genuinely unable to pay their debts as and when they fall due. These are more serious options and require careful consideration. This option is only available where there is no dispute and can be used both before and after obtaining a CCJ.  

Choosing the Right Enforcement Route

There is no one-size-fits-all enforcement strategy – the best course of action depends on the debtor’s circumstances, the size of the debt and commercial considerations. For example, while High Court Enforcement Officers can be very useful as they will make direct contact with the debtor at their home (individuals) or at their offices (companies) and can quickly obtain information about the debtor’s circumstances that will help with enforcement. However, they may not be suitable for smaller debts where other options might be proportionate.

At Lovetts our legal team can assist and assess each case individually to help you decide the most appropriate enforcement method based on experience with similar situations. This tailored approach helps you to find the most cost effective and expedient way to enforce a CCJ and protect cashflow.