Lovetts Solicitors today released a report looking into the potential implications of Brexit for the flight compensation sector, examining the possible legal outcomes of a deal, no-deal, or no-Brexit scenario. The Firm said that the ability for consumers to claim compensation from EU airlines not based in the UK would be ‘severely hampered’ in the event of a no-deal.

Timeline

• Since 2004, passengers traveling between, or on airlines registered to EU Member States, have been entitled to compensation for delayed or cancelled flights under the EU Law EC 261/2004.
• However on Thursday 23rd June 2016, the UK voted to leave the European Union, in a decision now commonly referred to as ‘Brexit’.
• On Wednesday 14th November 2018, Theresa May and the EU agreed a preliminary Withdrawal Agreement and Political Declaration.
• Despite its considerable length (585 pages), this document did not cover the future trading relationship between the UK and EU. It was originally rejected by the UK Parliament on Tuesday 15th January 2019, and has subsequently been rejected a number of times since.
• Failure to pass the Withdrawal Agreement means that the UK is now in a situation where it is approaching a hard-stop to its EU membership on 31st January 2020, with no legislation in place for a future trading relationship with the other 27 EU Member States.

Full report

The full report examines the potential legal implications for the flight compensation sector in the event of a deal, no-deal, or no-Brexit scenario, and can be viewed and downloaded in full here.

About Lovetts

Lovetts Solicitors is a UK-based firm providing domestic and international legal and pre-legal services, and specialising in debt recovery and dispute resolution. For more information, please visit www.lovetts.co.uk.

After weeks of speculation, British Steel has this week been placed into compulsory liquidation. It’s a move that offers a high profile example of how a company collapse can affect creditors, and in this article we look at what you can do about it if you’re owed money. 

Generally, when a company collapses it will enter into a form of insolvency: either administration or liquidation. We now know that in the case of the UK steel giant, it’s the latter. This will affect creditors of both British Steel and its sub-contractors, and if you do fall into one of these categories, it’s a good idea to consider your options.

According to the BBC, ‘The Government’s Official Receiver has taken control of the company as part of the liquidation process. The search for a buyer for British Steel has already begun. In the meantime, it will trade normally.’

If you are a creditor of British Steel you will now need to liaise with the Official Receiver. However, if you are a creditor of one of their sub-contractors, your rights in this developing situation may be subject to the terms of the contract you originally signed with the sub-contractor.

The Housing Grants, Construction and Regeneration Act 1996 (“the Act”) governs construction contracts. Normally the Act prohibits any term which allows a party to “pay when paid”. However, s113(1) of the Act permits a “pay when paid” where the terms specifically state that payment is conditional on receipt of payment from a third party and that third party is insolvent. This means that if your sub-contractor has such a clause and is owed money by British Steel you may have to wait for payment.

If there is no such term in the contract, the sub-contractor will not be entitled to withhold payment, whether or not the contract is a construction contract.

Still, there is reason to be positive. In January 2018, construction giant Carillion announced that they were going into liquidation, putting 43,000 jobs at risk worldwide and leaving a large number of sub-contractors and suppliers out of pocket.

However, many of Carillion’s suppliers and sub-contractors were able to secure payment of the debts owed to them. Debt recovery has helped them to avoid writing off unpaid invoices as bad debts, a step many companies will unfortunately have to take. Lovetts Solicitors was able to collect £290,000 from Carillion on behalf of clients without the need to issue legal proceedings.

The British Steel case offers another high profile example of the turmoil that insolvency can bring, not only to the company in question but to businesses across the supply chain. We would advise all companies associated with British Steel and its supply chain to start examining their options, and of course for unrivalled legal advice in this area, you can contact Lovetts Solicitors today to speak to a dedicated member of our team.

For many businesses and individuals that are owed money by customers, the idea of going to trial to retrieve payment can seem like a daunting prospect. Increasingly, however, in those cases that do make it all the way to the court, matters can be settled without the need for lengthy proceedings.

At Lovetts, we find that our letter before action service (available for as little as £1.50 plus VAT) secures payment within 86% of our cases. Where stronger legal action does need to be sought, summary judgment is an alternative way of dealing with your claim on a summary basis without the need to go to trial.

This means that if you have a strong case and/or the Defence is particularly weak, you have the option to apply for summary judgment at an early stage in the proceedings without the need to wait for the matter to go to trial or incur the costs of all the steps required in reaching this stage.

An application for summary judgment can be made to the Court to request the summary disposal of your claim and judgment against your debtor. This application is required to be supported by a witness statement explaining the facts of the case and why it should be dealt with on a summary basis.

For an application for summary judgment to be successful, the Court must be persuaded that the Defendant has no real prospect of successfully defending the claim and that there is no other compelling reason why the case should be disposed of at trial.

In certain instances therefore, it may make sense to opt for summary judgment. These judgments can often come sooner and usually at less cost than proceeding to trial. It also means that you do not need to provide witness evidence in person at Court – an at times daunting prospect that can deter many claimants from receiving what is rightfully theirs. The decision is simply made from the application and supporting documents.

If a summary judgment application is not granted then the matter will continue to proceed as a normal defended action and will then at that stage go to trial.

For those considering court proceedings, Lovetts dedicated Litigation Department can provide you with the right advice to make the best decision regarding your case. In many cases, depending on the strength of your claim, an application for summary judgment may be appropriate. 

Credit control is one of the many components needed for an effective business model, but implementing an effective credit control process can be a difficult task. At Lovetts, we work with professionals in this area every day, and here we look at some of the key strategies for success.

Research current and new clients

Research is pivotal in credit control because it allows a business to assess the risk that an existing client or prospect could pose in terms of making payments. Resources like Experian Business provide full credit reports on any business that allow credit control professionals to assess the risk. These reports allow you to gain clarity into who you’re doing business with, and if they have a history of bad credit and payments.

 Act swiftly

Ensuring invoices are paid in a timely fashion can become an art for many credit controllers, in terms of striking the right balance between being proactive versus not wishing to agitate trusted customers.

 There are a few different ways in which you can help to avoid delays:

Track and Manage

Keeping track of clients does not have to be onerous. Effective communications – and effective business relationships – are built on trust and transparency. Something as simple as a courtesy call or reminder email could be as much appreciated by your customer as it is at your end. In addition to tracking, you also need to manage the days that debts are allowed to go overdue before further action is taken. It’s a good idea to cultivate an understanding of how different payment amounts and time scales are met and the average time taken by a debtor to pay different amounts that are due. This data will also allow you to prioritise specific invoices and from there you can also consider outsourcing some of your more difficult debt chasing to a third party service provide.

Involve the whole team

One common practice for credit control departments is to put in place written procedures that explain step by step how to issue invoices and what the standard follow-up process for chasing invoices is. It is then much easier for a number of individuals to follow these guidelines and play a proactive part in protecting your business’s cash flow.

The right tools

Finally, finding the right tools to meet your businesses cash flow requirements can be an important piece of the puzzle in effective credit control management. While advanced software is becoming increasingly integral to credit control departments, it’s essential not to over complicate the process and to find the right tools for you. Services that help you to store all invoice communications and histories in one place for example can significantly simplify the process. 

Ultimately, implementing an effective credit control process is about thinking about the entire journey from invoice creation, to client communications, to how to deal with late payments. Lovetts is on-hand to help you with this every step of the way, and you can find out further information here on our transparent and ethical service here. 

In the last budget, UK Chancellor Philip Hammond delivered a tax-focused budget announcing plans to make HMRC a preferential creditor in insolvency. It’s a move that comes with serious implications for UK business, most notably in reducing the chances of unsecured creditors being paid from insolvency.

Once a company is ‘Wound up’ all creditors are informed and an insolvency practitioner goes into the business to assesses whether there are any assets available for liquidation. But before creditors can be paid, it’s important to know that there is a strict payment priority protocol in place. Not all creditors are created equal at least in the eyes of the law and, since there is almost never enough money to go around, the process must start somewhere.

The liquidation priority process works as follows: 

  1. First in line for the payment is the Liquidator and the costs of their 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. After, and only after, the secured creditors have been paid, preferential creditors such as the company employees can get in line for their payout (and those claims are still subject to certain limits that the government has set in place).
  4. After the company employees have been paid, unsecured creditors like suppliers, landlords, contractors and customers can be paid, and crucially for the purposes of this change, the taxman.
  5. The last in payout order of priority are the shareholders.


By making HMRC a preferential creditor in insolvency, the Chancellor has effectively jumped the government to the front of the queue, ensuring that in his words, “tax that has been collected on behalf of HMRC is actually paid to HMRC.”

Exactly where the moral high ground sits on this decision is open for debate. On the one hand, companies collect tax on behalf of the government as soon as they begin to accrue revenues. So Her Majesty’s percentage is, in theory at least, only ever resting in company accounts. Conversely, if the government is seeking to reignite economic growth by way of business breaks then you could argue that leaving itself further down the payment pecking order would be a strong, low risk way to help out creditors and facilitate UK business cash flow.

Either way, the newly announced legislation comes into play in 2020, and it’s important that businesses are aware of the full implications of these changes and prepare themselves accordingly.

“Usually in the case of an insolvency payout there is just enough money for the secured creditors,” says Michael Higgins, Managing Director for Lovetts Solicitors. “More often than not the rest don’t get paid and if there is any money left for the unsecured creditors, it’s all placed into a creditors’ pot to be shared out equally. For example, each creditor might receive 10 pence for every £1 of debt.”

“For UK businesses, now is the time to get up-to-speed on your options and make sure you are as buttoned up as possible. For instance, when giving credit to a company consider whether you obtain a Personal Guarantee from a director. This way if a company does become insolvent you can have another chance of getting paid in full, this time from the director personally.”

For the Chancellor, bumping HMRC up to preferential creditor status may prove to be a good way to ingratiate the government with to the wider electorate, at a time when largescale corporate tax evasion is never far from the headlines. However in practice, we need to remember that such legislative changes always carry significant economic implications for businesses on the ground, and it is important to stay on top of these updates.   

This week Lovetts spoke to a UK-based client who had recently used our international debt recovery service to recover £8,500+ of debt from overseas. Having had no joy in tracking down the debtor directly from their end, the client passed the case onto Lovetts Solicitors. We are delighted to say that we were able to help, passing remuneration onto the client within two working days of payment.

What was the background to your debt?
“I had a customer based overseas that owed me thousands of pounds for nearly six years. I called the debtor several times and kept getting the run around and my calls were not being picked up. After many years of sheer frustration and anger, I came very close to giving up and thought I’d lost my money for ever.”

Why did you choose Lovetts Solicitors?
“Lovetts has a dedicated team of lawyers and agents in the UK, Europe and Africa and they did not want to charge me any upfront fees. The service was based purely on a no-collection no-fee basis.”

What were the benefits of using Lovetts Solicitors?
“Lovetts took all the stress by handling a very bad debt for me. When Lovetts secured payment for me, I had one of the best night’s sleep in my life. I would like to thank the firm for their friendly and efficient service and would strongly recommend Lovetts to others in the future. Without Lovetts Solicitors I am 100% certain I would never have got my money back.”

Over the years our debt collection has reached more than 100 countries across six continents, collecting an average of £1.7m worth of international debts per year. Lovetts’ international debt collection service operates on a no-win no-fee basis, and you can find out more about the service via the video below. We are delighted to have received such positive feedback from another satisfied client and for further information on how we can help your business internationally click here.

Your customer has paid you but you now find they have gone into liquidation and the liquidators want the money back. Why? What can you do?

Payments made by a company after a Winding Up Petition has been presented are void if a winding up order is made. This is the case even if the petition had not been served or advertised when the payment was made, meaning you or the company would not know about it without making enquiries/searches (see ‘Could you have known about the petition’ below).

Until the last few years, liquidators often did not pursue repayments if the payment had been received in good faith i.e. you hadn’t known about the petition. These days, liquidators are much more likely to go after repayment. So, is there anything you can do?

Is it worth arguing with the liquidator?

Cost effectiveness is an important consideration. If you are going to argue with the liquidators, you need to consider the likely legal costs and the cost of you or your staff being diverted from other profitable activities. When calculating this keep in mind that any repayment comes straight out of your profit. If your charge to your customer and the payment was, say, £650 and your profit margin is 10% then only £65 will be your profit.

However, if you repay the money, it all comes out of your profits and you would need to earn another £6,500 to replace it. So, it may well be worth incurring costs up to a significant part of the payment in trying to resist the liquidators’ demand.

Before paying the money back you should check the following:

Change of position


Estoppel


Would you be entitled to a validation order?


Have you supplied the company on favourable terms?


More generally


Is there anything else that makes it unfair for you to repay the money?

Most of us feel it is unfair to have supplied goods or services and then not get paid, or worse still, have to make a repayment. The law says this unfairness has to be shared equally by all creditors. However, if there is something else, apart from the points dealt with above, perhaps some action or statement, that makes it additionally unfair, it is worth taking advice.

Being pragmatic

Often in the law, it’s not a question of being absolutely right or absolutely wrong but of being able to make a reasonable argument. If you can do this, you may be able to reach a satisfactory compromise rather than having to accept defeat.

Could you have known about the petition?

It is relatively easy to find out about petition once it has been advertised. You can search the London Gazette online for the notice that the petition has been presented and the petition should show up on a credit check. Before a petition is advertised the only way to find out about it is to phone the court. Not something most creditors would think of doing. However, the liquidators may argue that you could/should have known about the petition when you received the payment and would not therefore be entitled to a validation order.

Overpayment of wages can be a difficult issue to deal with, not least because it places financial strain on both employer and employee Such instances can be notoriously hard to correct historically and even when a professional solution is found it can still leave human headaches in place. Here, we look at 3 areas in which businesses can apply practical improvements to the payroll process and avoid overpayment issues before they occur.

Process

As in other areas of financial management, it’s important to have an efficient payrolls process in place. But businesses should be wary of seeking too much short-cutting in this area, particularly because the monthly wage bill often represents a company’s largest recurring expenditure. Full training for all payroll staff is essential, and additionally it’s important to have good procedures and systems in place across all departments. This ensures that the most accurate and up-to-date information is constantly being fed into your HR and Payroll professionals.

Details like notifications of changes in hours, pay increases, and leaving dates should all be funneled into a standardised workflow process. Some might consider this back to basics, but where outbound payments are concerned, diligence is key. Different checks are vital when running payroll to reduce human error. It is important to check that any adjustments for the month have been entered correctly on the payslip, and in-turn payslips can be checked against the previous month’s record.

Communications

Strong communications may seem like an intrinsic component of any business practice, but in this area it is something to be especially mindful of, on multiple levels. As well as inter-departmental communications, maintenance of the employer-employee relationship is key. If any errors do occur, it’s important to discuss them with the staff member who has been overpaid before you take action. If you were to request full overpayment be returned in one go for example, this could have negative financial consequences for the employee and also damage morale.

Communications efficiencies can actually be increased even further by adding more people to the process. There is a growing understanding that in an age of AI it can be useful to have additional sets of human eyeballs looking over the changes that have been made within a given month. If somebody finds an error somewhere within the chain, that will be communicated.

Technology

Of course the march of technological advancement cannot be ignored, and in areas of quantitative work new technologies and the accuracy/efficiencies that they bring can be particularly useful. Dedicated payroll software makes running the payroll easier and more efficient, automating certain areas of the process to free up staff time for supervision/checks. Larger companies could even look at introducing HR software to link to payroll software, providing an electronic way of notifying changes.

The key is to find software that would benefit your business, whether big or small, and will generate cost-savings. It’s also very important to have backup systems ready in case of an IT glitch or a security breach. Beyond this, you might also like to consider bringing on-board a specialist third party provider. They are likely to be working with the latest technologies in this area and keeping a keen eye on the latest legislation, as well as offering that all important additional level of human checks.

However you approach your payroll process, it has traditionally been an area of business that is open to errors, particularly in terms of overpayments. By looking more closely at the three related areas of process, communications, and technology, it is possible to head-off more payroll problems before they occur.

For many businesses, the idea of using a single outsourced supplier to assist with credit management remains a relatively new concept, let alone using two. But the ‘Two Supplier’ strategy can have significant benefits in creating choice and flexibility, improving quality, strengthening contingency plans and competitive pricing.

Choice and flexibility

Whether it be a trace agent or High Court Enforcement Officer, the two supplier strategy is one that has allowed Lovetts to compare service levels and performance, ensuring we maximise and enhance our debt collection success over the years. Equally, as a supplier of debt recovery and legal services we have always been happy to work in this way, recognising that the different strengths and perspectives we and indeed our competitors provide offer different ways of doing things.

Improved quality

A study by ISG Director Michael Kushner describes the use of multiple suppliers as an ‘agile’ practice and one that has evolved from a maturing outsourcing market. Sarah Burnett, research director for Public Sector BPO at Nelson Hall, says that the introduction of a second supplier represents “a desire to adopt best-of-breed for a particular process or domain and ensure access to superior capability”. In other words, healthy competition is still a key driving force behind business innovation.

Stronger Contingency Plan

Having two or even more suppliers offering the same service allows companies to better protect themselves against unforeseen circumstances, e.g. if a supplier goes out of business or they are unable to supply what was agreed at the last minute. It’s another reason why an increasing number of companies have made it a companywide policy to always contract two suppliers for the same service.

Competitive pricing

And of course, having multiple providers in the same area can only help with cost-efficiencies. The common apprehension here is that this practice implies ‘playing one party off against the other’ to drive down costs, but this is not necessarily the case. By assessing what individual service providers are delivering in a professional and impartial way, you’ll be able to better understand where third-party investments are most effectively being made.

Ultimately, being open to a two supplier service strategy and beyond keeps your business open for growth and development, and it’s a way of working that Lovetts is experienced in both as a buyer and as a service provider ourselves.

If you are interested in trialling Lovetts services, we are offering the opportunity to send Letters Before Action (LBAs) for FREE throughout November 2018 to all current and new clients.

The Pre-Action Protocol for debt claims was introduced in October 2017, amidst much debate within the industry around the potential strengths and weaknesses that this new legislation could bring. One year on we look back at some of the key changes that were implemented in the new protocol, and assess how they have impacted the industry.

What is the Pre-Action Protocol?
Introduced in October 2017, the Pre-Action Protocol for debt claims was introduced specifically to tighten the legislation around cases where the creditor is a business and the debtor is an individual. The protocol does not apply to business to business debt claims, but does cover sole traders. It was originally designed to encourage parties to enter into discussions about the reasons for non-payment early, and as a consequence help to resolve matters before proceedings are issued.

What are some of its key components?
The new legislation introduced a number of changes to the legislation around individual debtors, inclusive of: 

  1. Additional information now needs to be supplied alongside a Letter Before Action, including details of the contract between the parties and details of outstanding invoices, together with further documents annexed to the protocol.
  2. The debtor now has 30 days to respond to a letter before action.
  3. The debtor must reply using a standard form provided within the protocol.
  4. If the debtor advises that they are taking debt advice, the creditor must allow a reasonable period of time for advice to be obtained.
  5. Proceedings cannot be issued until 30 days after the receipt of the completed reply form from the debtor (or 30 days from the creditor providing any documents requested by the debtor, whichever is the later) or failure by the debtor to respond at all.
  6. If the debtor requests documents from the creditor, the creditor must provide these as soon as possible and cannot issue proceedings less than 30 days from receipt of the Reply Form from or 30 days from the date the creditor provided any documents requested.
  7. If a payment plan is agreed and subsequently defaulted upon, a fresh Letter Before Action must now be sent.
  8. If no agreement has been reached following a response to the Letter Before Action, the creditor is required to provide the debtor with at least 14 days’ notice of its intention to issue proceedings.


All of which means that the new process has succeeded in expanding the amount of correspondence issued prior to proceedings, but arguably also complicates the process of debt recovery. 

How have these changes affected claims?
In a recent feature titled ‘Breaking Protocol: The Pre-Action Protocol (PAP) promised much but has it delivered?’ Sean Feast, Managing Editor for Credit Management magazine, asked Lovetts Managing Director, Michael Higgins, if the changes had improved the customer experience? 

“Possibly not,” says Higgins. “Prior to the protocol changes, the customer would receive one letter requesting payment. After the protocol changes, the customer is now receiving around ten pages of documents. Some customers appear to mistake this for a claim form/legal proceedings and are more fearful that legal action may have been taken without them having received prior warning.”

For Lovetts, the number of cases that have paid at the pre-action stage has almost doubled since the changes. However, there has also undoubtedly been some evidence of consumers using the protocol to delay payment.

“Some debtors are using the 30-day requirement as a delaying/stalling tactic,” he explains. “This is frustrating because it affects the creditor’s cash flow. However, increased engagement following PAP has seen the amount of time cases are resolved halved because of a more proactive approach to engagement.”

Does PAP need further amendments?
Certainly a rethink on the implementation of the Pre-Action Protocol could help to improve things further. The legislation is still too onerous on creditors in respect of time given (30 days) before legal action can be taken. It is also fair to say that the initiative has increased creditors’ costs, not least because of the amount of paper that is now being created, and that hasn’t necessarily improved the customer experience.

From a collections point of view PAP has undoubtedly been successful for a third party agent like Lovetts Solicitors and also achieved the ultimate aim of avoiding claims being issued, both of which are positive moves. The key now will be how the industry responds to preliminary implementation feedback and if it can update the protocol accordingly.