Sometimes a debtor will change address without notifying creditors, leaving those creditors feeling pretty helpless as far as debt recovery goes. 

As a creditor it might seem like they have gone for good, but remember: nobody really disappears off the face of the earth.

So what can you do about it? Well, under the Civil Procedure Rules there ARE debt recovery measures you can take in order to improve your chances of seeing your money again. Just take a look…

Your Legal Position

As somebody suffering from disappearing debtor syndrome you can still take legal action for debt collection. All you need to show is that you have taken reasonable steps to find out the debtor’s current address.

If you don’t manage to discover the address, then it’s still not over… That’s because you can still issue debt collection proceedings by serving documents on the debtor’s last known address.

However, in such cases eventual debt recovery enforcement can be problematic. Therefore you should definitely take a long-term view about recouping the money owed.

Nevertheless, providing you obtain a County Court Judgment against the debtor, you can place a black mark on their credit record that could remain for six years.

In some cases this black mark will alert the debtor to your grievance immediately, providing they keep an eye on their credit score. If they don’t, the outstanding debt’s urgency may become apparent to the debtor the next time they apply for credit. If this happens you might be surprised by the results. Indeed, you could find the outstanding sum is paid relatively swiftly in order to have the Judgment recorded as having been paid and therefore improving their credit rating

Alternative Solution

Did you know? You can always use specialist trace agents to track down your disappearing debtor in order to ensure a successful debt recovery. Many of these work on a ‘no trace – no fee’ basis, saving you from exposure to further financial risk.

At Lovetts we have found trace agents to be very effective in tracking down disappearing debtors. Providing they ascertain the debtor’s current address you can avoid the course of action outlined above and follow the more usual debt recovery process. 

When you’re in business a bounced cheque or direct debit can feel like a major blow. However, it’s not all bad news… That’s because the payment failure represents solid evidence, not only that you are owed money, but also how much.

In the eyes of the law, a cheque is a promise to pay and that promise to pay must be honoured because a cheque is deemed to be the same as a cash payment. But what some people don’t know is that this principle also applies to direct debit mandates. Indeed, the rule for cheques was extended to direct debits in the case of Esso Petroleum Co Ltd v Milton back in 1997. They decided that a cheque and a direct debit mandate should be treated the same, namely that it was a promise to pay that should be honoured. 

Now here’s the really important bit… The failed transaction places you, as a creditor, in a very strong position when launching proceedings for debt collection. After all, it’s evidence that the amount is owed and isn’t disputed. What’s more, the bounced cheque or failed direct debit is likely to prevent the debtor using a counterclaim to offset the money owed. That’s because, once again, the payment-gone-bad demonstrates the debtor’s earlier intention to pay the full amount. A counterclaim cannot be used to off set against the amount of the bounced payment. The debtor must honour their promise and make payment of the bounced payment amount regardless of any dispute or counterclaim. 

As a claimant you should note that there ARE defences available to a debtor in the case of a bounced cheque or failed direct debit, but these are extremely limited. In fact, a defence will only succeed if the debtor can show the cheque or direct debit mandate was obtained through fraud, duress, or an illegal contract. When your debt collection process requires you to issue Court proceedings for the outstanding debt, you should always plead the bounced payment as well as the outstanding invoices. Just make sure you have all the relevant details to submit as part of your claim. 

These comprise of:

• A copy of the bounced cheque or direct debit mandate
• The date of the cheque or direct debit mandate
• The account name
• The account number
• The sort code
• The value of cheque or failed direct debit payment
• The date of default

That really is all you need in terms of evidence. So next time you suffer a bounced cheque or failed direct debt, just think: it could be the debt collection smoking gun that proves exactly what you’re owed.

Case Summary

Esso Petroleum Co Ltd v Milton

[1997] EWCA Civ 927

This was a case before Lord Justice Simon Brown, Lord Justice Thorpe and Sir John Balcombe in the Court of Appeal.

An application had been made by Esso to appeal the decision of His Honour Judge Thompson who had previously refused Summary Judgment against the defendant, Mr Howard James Milton for the sum of £167,886. 

The defendant was the licensee of two of Esso’s service stations, which he occupied and managed. It was a condition of the licence that he bought all his fuel from Esso and that he paid for it by direct debit. 

In 1996, Esso increased the defendant’s rent for these service stations. The defendant objected to the increase and deemed his relationship with Esso over. Nevertheless, between 1st and 9th April 1996, the defendant received 12 fuel deliveries to his service stations. Routinely such deliveries were paid for by direct debit in accordance with a direct debit mandate given by the defendant. However, due to the defendant cancelling the direct debit mandate on 11th April 2016, Esso were unable to take payments for the fuel. 

When Esso issued Court proceedings for the outstanding sum due to them, the defendant counterclaimed for damages for a repudiatory breach of contract. The defendant sought to set off this sum against the sum claimed by Esso. His case was that he should be entitled to set off his claim because a direct debit mandate was not the same as a cheque. It was submitted that with a direct debit, it is the creditor that withdraws payment rather than a debtor giving payment to a creditor. 

This argument was rejected by Lord Justice Thorpe and Sir John Balcombe who found in favour of Esso. It was stated that where goods were effectively sold for cash, the seller should have the security that cash brought regardless of what banking mechanisms the parties choose to transfer cash from one account to another. 

Twenty years ago prior to the case, payment would probably have been made by cheque. Theoretically the tanker driver could have demanded a signed cheque upon delivery of the fuel. However, Esso’s daily petrol sales varied between £9 and £20 million and the modern mechanism for handling what were effectively cash sales on that scale was the direct debit system. Accordingly, a seller accepting cash transferred by direct debit should be in no worse a position that if it had accepted a cheque on delivery.

In light of this, the defendant could not dishonour his promise of payment and could not set off Esso’s claim with his counterclaim. Judgment was awarded to Esso.     

Is chasing late payments getting in the way of your other business priorities? Get in touch today at [email protected] to see how Lovetts Solicitors, the debt recovery experts can assist.

Debtors are becoming more sophisticated in avoiding enforcement of a debt. This is partly due to the exchange of information through some online forums. However, there is always a solution to every problem. There are many enforcement options, one of them being a Third Party Debt Order, formerly known as a Garnishee Order. Here, we focus on the pros & cons and other relevant details of Third Party Debt Order. 

A Third Party Debt Order is basically a method of legally enforcing a County Court Judgment (CCJ) by obtaining payment from a third party that owes money to your debtor. This approach is often used by creditors who know the debtor’s bank account details or they are aware of a large contract the debtor may have. 

The major benefit of using a Third Party Debt Order to enforce your debt is that you retain an element of surprise. The debtor will not know when you make the application and they will not be notified until after you have served the third party with the Court Order. By the time the debtor is made aware of your application and Court Order, their bank account or funds held by a third party have already been frozen. 

The problem with a Third Party Debt Order is that it can be a gamble. If the debtor’s bank account is held jointly with another person that does not owe you money, your application will be rejected. Even if the bank account is in the debtor’s sole name, the order will be ineffective if the account is not in credit on the date you serve the order. Likewise, if the sums held by the third party, other than a bank or building society, are not due to your debtor on the date you serve the order, the order will also be ineffective. For example, if the invoices issued by your debtor to a third party are still within the credit period and not payable yet, the sums will not be frozen and paid to you.

A Third Party Debt Order will not accelerate the time for payment because a Judgment creditor cannot, by means of a Third Party Debt Order, stand in a better position than the Judgment debtor did with the third party. 

In light of the above, the date you serve the Third Party Debt Order will be crucial to increasing your chances of success. If you believe a Third Party Debt Order could work for you or you would at least like to try and enforce a debt this way, we have set out the process below for guidance. However, we would always recommend using or at least obtaining advice from a Solicitor before taking this action. 

Third Party Debt Order Procedure:

1. Obtain a County Court Judgment (CCJ)
2. Complete Court form N349 and send the application to Court with a Court fee of £119.00. Note – It may be essential to serve the Order on a particular date when you believe funds will be available. If that is the case, ensure you notify the Court that you wish to serve the Order yourself.
3. Court will issue an Interim Order with a hearing date.
4. Serve the Order on the Third Party. Once served, file a certificate of service with the Court.
5. The Third Party will write to you disclosing the amount available/frozen. If it is a bank, they will also disclose any other bank accounts the debtor may have. Send this correspondence to the Court.
6. Prepare for and attend the hearing listed at Court.
7. Obtain the Final Order and serve on the third party (if not done so by the Court) and await for the funds to be sent to you.

Check out the Unlimited Legal Advice Service on your outstanding debt disputes:

UNLIMITED LEGAL ADVICE

Retention of Title is a clause found in a variety of business terms and conditions. It’s imperative to understand what it means as it can affect the business relationship considerably if payment is not made by the customer.

What the Clause Means

A retention of title (ROT) is a provision within a contract that essentially means that the customer does not own any goods that have been delivered to them until payment is made in full.

If for any reason the customer defaults on the payment, a company has the ability to enforce the clause by recovering the goods directly from the customer. Particularly if the goods are of value and have the ability to be sold again, it’s a good idea for a company to include a retention of title clause within a business contract.

Further, because of the nature of the clause, there should also be a comment about the seller having the right to enter the premises of the buyer in order to repossess the goods. This will prevent any kind of trespassing charge from occurring.

The business contract can be written in such a way that it makes it easy for the company to handle the repossession. This includes such things as:

• Marking the goods as property of the seller
• Storing the goods separately
• Allowing the seller into the premises in order to verify compliance

Handling Retention of Title

When you are a seller and you decide to add a retention of title clause within a business agreement, you need to make sure you handle everything appropriately in the event that a customer fails to pay.

The detail in which you write the retention of title is of the utmost importance. For example, if you do not identify that the buyer provides you with the right to enter their premises, you cannot force entry into their premises. If they refuse your entry, you would be required to obtain a court order, which would involve the customer having to “deliver up” the goods. This simply means returning the goods to you.

Other problems can arise when enforcing the retention especially if the customer sells your goods or they attach the goods to something else, making it difficult to remove or identify. Essentially, the moment the goods leave your hands, it can be difficult to enforce what the customer does with them. If they store the goods separately or mark the goods as you identify within the clause, it will be easy to obtain. However, should they do anything else with them, it becomes difficult to enforce.

There are various provisions that you must deal with as well. For example, should you issue proceedings for the invoice value or other price, you then lose the right to reclaim goods using the retention of title clause passed the state. In some instances, payment of the price is a better alternative than the return of goods, particularly if you are unable to resell those goods at a similar price.

There is also the “all monies clause” allows you to reserve title and all of goods supplied to the buyer until they are up to date on all of their outstanding invoices. This is beneficial because it eliminates the need to relate specific goods at the premises of the buyer with specific invoices that are unpaid.

In the end, a retention of title for cash or goods can be beneficial, although you need to make sure that the contract is written in such a way that you protect all of your monetary interests.

Find out more about debt collection law by visiting the legal proceedings section of our website. 

Receiving part payment for money owed is a good thing, right? Actually no, it isn’t always… That’s because you could be waving goodbye to the full amount if you’re not on your guard. 

How come? Well, it’s all down to the ‘full and final settlement’ trap where a debtor makes a written or verbal statement saying the payment now settles the matter. This is quite often because of a grievance related to the product or service you provided, and what’s more, you may not be aware the grievance even exists. To make the situation even less clear, the statement could be made in a casual and informal manner, like a note on the back of cheque or a verbal aside on the phone. Although, having said that, it could also appear in a more official form like the small print at the bottom of a remittance statement. Critically, if you accept the payment in conjunction with the ‘full and final settlement’ statement, then you could be deemed to be accepting an offer to wipe the slate clean. As you can imagine, this could leave you seriously out of pocket.

So how can you avoid the ‘full and final settlement’ trap?

First of all, be alert to the possible intent of any communication sent by the debtor. Remember: he or she could be trying to lure you into accepting a ‘full and final settlement’ offer. If you spot a statement suggesting this is the end of the matter, then don’t worry because you can still process the payment. However, be sure to inform the debtor straight away that the money has been accepted as a part payment and definitely NOT in ‘full and final settlement’ of the debt. To add greater certainty, you could inform the debtor in writing that the balance is still due even if he or she doesn’t mention ‘full and final settlement’. This will prevent the debtor from claiming verbal representations were made and accepted. Plus, it could be deemed reliable evidence of your intent if the matter ever ends up in court. As you can see, it’s not difficult to protect yourself. All you need is the awareness that some debtors could attempt to induce and rely on tacit agreements. So, having read this article, make sure you don’t fall into the trap.  

Get your demo login and check out how CaseManager gives you complete control over your cases – 24/7

•  Issue instructions at every stage of a case
•  Instruct on payments, credits and write-offs
•  Receive prompts when your input is required
•  Discuss cases via internal messaging system
•  Comprehensive reporting
•  Download case documents (letters, email, etc)  

GET YOUR FREE DEMO

In February 2016, A Civil Courts Structure Review – Interim Report was published by Lord Justice Briggs which proposed an Online Court and effectively raising the small claims threshold to £25,000.

The proposal was potentially the biggest shake-up of the Court system in almost 20 years. Lovetts attended meetings with Lord Justice Briggs through the Civil Court Users Association and we also sent a full comprehensive response to the interim report. Lord Justice Briggs has now reviewed all responses and has submitted his final report.

We are pleased to say that it appears Lord Justice Briggs has listened to our submissions and has backed down from his original proposal of not awarding costs to successful litigants. The report stated: “7. A limited fixed recoverable costs regime should be developed for the Online Court, designed to be or contribute to an economic model for the provision of early, bespoke, affordable advice to would-be litigants on the merits of their case (including defence) from a qualified lawyer, by the use of unbundled services from solicitors and direct access to barristers: (6.22-39) A modest element of fixed costs might also support the provision of skilled cross-examination in cases really needing it: (6.39). Otherwise the costs regime for the Online Court should be modelled on that applicable to the Small Claims Track: (6.104).” The target date for launching the new Online Court is 2020.

The Online Court will still deal with disputed cases up to the value of £25,000 and it anticipates a 3 stage process as set out below: 

Stage 1 – An automated process using software to assist litigants in identifying the nature of and issues in dispute;

Stage 2 – A mix of conciliation/mediation and case management conducted mainly by a ‘case officer’ by telephone or online but not face to face; and

Stage 3 – A determination by judges either on the documents, by telephone, by video or face to face. Overall, the proposal is to be welcomed and Lovetts will seek to work with HMCTS in order to deliver a more efficient service through the Online Court in particularly for all Claimants that have to use the Court service in order to recover debts due to late payment from their customers.    

Debt Collection Clauses
for Terms & Conditions

Costs recovery clauses to assure a cost free debt collection service

Download Now – it’s Free! 

When you have issued a claim and the defendant defends your debt, you can either settle the matter or go to a hearing for the Court to resolve the dispute. Before reaching a hearing at the Court, each case has to be allotted to a “track”. A track represents a process your case has to go through before you get to a hearing.

There are three types of tracks – small claims, fast track, and multi-track. If you are wondering what track your case will be allocated to, here are the differences listed below.

Small Claims

If you have a case where the debt is below £10,000 in England and Wales, it will most likely belong to a small claims track. These types of claims are usually much simpler to deal with, and reaching a hearing is usually within the first 6 months. Courts can attempt to settle the debt by mediation, often done over the phone. This service is free of charge. If that doesn’t work and the debt is still not settled, the next step is the hearing. A mutual exchange of the witness statements with the supporting evidence should occur at least 2 weeks before the hearing. The hearing usually lasts half a day. When it comes to small claims track, no costs are awarded to the successful party except the court fees. 

Fast Track / Multi Track

Fast Track is reserved for claims between £10,000-£25,000. The hearing can only last for 1 day, and usually, it takes up to a year to reach it. Multi Track is for claims that surpass £25,000. Usually, more than 1 day is allowed for a hearing, but depending on the complexity of the whole case, it can take anywhere between 1 and 2 years to reach a hearing. 

The Courts generally encourage mediation, but opposed to the small claims track, here both parties share the costs and they mutually settle for a venue and a mediator. Sometimes the Courts can suspend the proceedings for a month or two in order to allow the parties to reach the settlement. If there is no settling, there are several steps both parties have to take before the hearing occurs. First, both sides should submit a document where they provide anticipated costs. When these costs are agreed upon, usually both sides are limited to these values.

Also, both parties should disclose all case-related documents, witness statements and expert reports before the hearing. A pre-trial checklist that confirms compliance should be delivered to the Court. A Case Management Conference may take place so that the compliance and readiness for the trial are confirmed.

Only after all these steps are taken a hearing can take place. After the hearing, a successful party gets the costs; however, that’s usually an average of ⅔ of their costs. After the successful trial, the party that lost will get a court order to pay the owed amount, and if they still refuse to pay, you can take further steps to enforce the Judgment and collect the amounts due to you. So, let’s recap the differences: 

Small Claims

• Debt below £10,000 in England and Wales

• Hearing within 6 months

• Free mediation attempt over phone

• Hearing lasts half a day

• No costs awarded to the successful party except the court fees

Fast Track / Multi Track

• Debt between £10,000 – £25,000 for fast track, over £25,000 for multi-track

• Hearing lasts 1 day for Fast Track but can be more than 1 day for Multi Track cases

• Takes up to a year to reach the hearing

• Mediation costs are shared by both parties

• Possible Case Management

• Successful party is awarded with costs, usually ⅔ on the average

Required documents:

• Anticipated costs

• Witness statements

• Expert reports approved by the Court

• Pre-trial compliancy checklist

Are you claiming debts from individuals or sole traders?

Watch the video!

More about the Pre-Action Protocol for Debt Claims

When it comes to payment disputes it’s easy to take things personally. After all, you’ve kept your side of the bargain and the non-payment can feel like a slap in the face. At this moment it’s important to take a step back and look for the positives. And there ARE positives in most payment disputes. For example, it could be that only 20% of what you’re owed is disputed, which means you can work on getting the undisputed 80% immediately. This is definitely worth doing, mainly because money in your bank is better than money in your opponent’s bank. Plus it gives you a fighting fund to pursue the remaining sum if necessary.

Importantly, this strategy also helps build consensus, which can lead to an upturn in relations, making the nuclear option of going to court less likely. In fact, only 6% of non-payment claims made through us are eventually defended in court: a figure that should inspire you to take a pragmatic and unemotional approach to future payment disputes. 

In the unlikely event your claim is defended, it will help your case if you can show you took reasonable steps to secure a resolution. But please note: on occasions when a matter does end up in court, a defendant may seek to offset the value of any allegedly defective goods or services by mounting a counterclaim. This is quite undesirable for you, the claimant, and can be avoided if you use the right terms and conditions in your contracts. Indeed, a ‘no set-off’ clause, which is in effect a ‘pay first, dispute later’ agreement will put you in a position of strength when making claims related to payment disputes. That’s because courts will enforce the clause unless there are exceptional circumstances that make it inappropriate. As a result, you can reasonably expect both payment in full and immunity from spurious counterclaims. 

Unlimited Legal Advice – Lovetts Solicitors

The Ministry of Justice have confirmed that following a debate in the House of Lords on 20^th July 2016 and the swearing in of the new Lord Chancellor, Elizabeth Truss, there will be an increase to some Court fees from 25^th July 2016 following the approval of the Civil Proceedings, First-tier Tribunal, Upper Tribunaland Employment Tribunals Fees (Amendment) Order 2016. The Court fees for issuing money claims remain unchanged. The Court fee increases mainly relate to enforcement of a Judgment.

A summary of some of the Court fee increases are set out below: 

The minutes (point 18) from the meeting can be found here.

The Court fee increases also coincide with the Insolvency Service increasing the Official Receiver’s deposit fee under The Insolvency Proceedings (Fees) Order 2016 (SI 692 of 2016) from 21^st July 2016. The increases are set out below: 

In addition, when deposits are now returned following a withdrawal or dismissal of the petition, the official receiver will deduct an administration fee of £50.

As mentioned above, money claims are not affected. Other services such as draft winding up petitions also help you avoid incurring Court fees and Official Receiver’s deposits on 81% of cases due to payment being received by our clients. To find out more information click on our blog article below:

https://www.lovetts.co.uk/blog/how-to-shout-the-loudest-in-debt-recovery

PRICING

When a company has a major financial issue, they can become insolvent. Insolvency comes into effect when the company doesn’t have enough cash to pay its debts on demand. When this happens, a creditor can issue a Winding Up Petition against the company or the company itself can start the insolvency process eventually resulting in the company being wound up and closing its doors for good. 

What comes after a Company is ‘Wound Up’?

All creditors should be informed about the insolvency and will be given a proof of debt form. If creditors do not receive this proof of debt form, it is important they make contact with the nominee Insolvency Practitioner and ensure that they are listed as creditors. An insolvency practitioner can be formally appointed at a creditors meeting providing they have the necessary support from creditors. Approval of at least 75% of the value of creditors is needed by the insolvency practitioner. Once appointed, an insolvency practitioner will go on and assess whether there are any assets ready for liquidation and take action accordingly.  

Liquidation Debt Recovery Priority

If monies are realised from the assets of the company, these will be released in accordance with a certain priority. The priority of payment is listed below:

1. First in line for the payment are the liquidator and the costs of his services. 

2. Then there are the creditors who had been granted security – like banks, lenders and finance providers. These are called the Secured Creditors.

3. Only after the secured creditors have been paid, the company employees claims can get in line for the payout, and those are still subject to the limits that the government has set in place.

4. After the company employees have been paid, next in line for the payout are unsecured creditors like suppliers, landlords, contractors, clients that are due for a refund, and taxmen.

5. The last in payout order of priority are the shareholders. 

What Happens With Insolvency Payout?

These are the priorities but usually in a case of an insolvency payout, there is just enough money for the secured creditors. More often than not the rest don’t get paid. If there is any money left for the unsecured creditors, it’s all placed into a creditors’ pot. For example, each creditor might receive 10 pennies for every £1 of debt. The creditors will be deemed as unsecured unless they gain security by having a charge against the assets. Even if you have a County Court Judgment, you will be deemed an unsecured creditor.  

Belts and Braces

When giving credit to a company consider whether you obtain a Personal Guarantee from a debtor. This way if a company does become insolvent you can have another chance of getting paid in full, this time from the Director personally. If you are concerned about the solvency of a company you are currently trading with, please feel free to contact us.