Navigating the legal aspects of debt recovery in the UK is crucial for credit managers to protect their business and maintain a healthy cash flow.
This blog will provide you with essential insights into the legal steps involved in debt recovery from pre-legal actions to the legal enforcement of a County Court Judgement (CCJ) or security.
- Letter Before Action (LBA): The first step in the legal process of debt recovery is sending a Letter Before Action. This formal letter serves as a final warning to the debtor, informing them of the outstanding debt and the consequences of non-payment. It’s a crucial document that demonstrates your intent to take legal action if the debt remains unpaid. Include details of the debt, payment instructions, a reasonable deadline for repayment and when applicable consider negotiating a structured repayment plan, allowing debtors to avoid legal action.
- Pre–Action Protocol: If the debtor fails to respond to the LBA, it’s essential to follow the relevant Pre-Action Protocol. These guidelines outline the procedures both creditors and debtors must adhere to before taking legal action. Following the protocol is necessary as it demonstrates your fair and reasonable approach to the court.
- Statutory Demand: If the debt remains unpaid despite the LBA and adherence to the Pre-Action Protocol, you can issue a statutory demand. This formal written demand gives debtors 21 days to settle the debt or reach an agreement with the creditor. Failure to comply may result in legal action, potentially leading to bankruptcy or winding-up proceedings.
- Winding Up Petition: Filing a winding up petition, typically presented to court, can result in the forced liquidation of the debtor’s assets, to pay off the outstanding debts. It’s a serious legal action that can have far-reaching consequences for the debtor’s business. Depending on the companies circumstances a liquidation may result in you only receiving a partial return of the debt.
- Bankruptcy Petition: When dealing with personal debt (individual debtors), the equivalent to a winding-up petition is a bankruptcy petition. It may lead to the debtors’ assets being sold to repay the debt if they are made bankrupt. As with a winding-up petition, bankruptcy may lead to a partial return only.
- County Court Judgement (CCJ): Obtaining a CCJ is a common outcome when pursuing legal action for debt recovery. A CCJ is a court order stating a specific amount that the debtor owes the creditor. It can significantly impact the debtor’s credit score, making it challenging for them to obtain future credit.
- Legal Enforcement of a CCJ or Security: Once you have a CCJ you can take various legal enforcements to recover the debt. These may include:
- Attachment of Earnings: This allows you to deduct money from a debtor’s wages.
- Charging Order: If the debtor owns a property, you can place a charge against it, which can be redeemed when the property is sold.
- Third-Party Debt Order: You can seize funds held in the debtor’s bank account or funds owed to them by a third party.
- High Court Enforcement: In certain cases, you can transfer the CCJ to the High Court for enforcement, who have substantial powers to seize and sell goods to clear the debt.
Seek professional advice before proceeding with any of the above steps to ensure adherence to the correct procedures and make informed decisions throughout the debt recovery process.
Contact us today to find out more about how we can support you with recovering unpaid invoices, overdue payments and throughout the legal process.