Debt Recovery
What is it?
Businesses, including companies, partnerships and sole traders, who issue invoices often accept the risk of non-payment by their customers. A good credit control process can encourage late payers to settle their outstanding invoices. However if, after a reasonable period of trying to secure payment, you remain unpaid, you may need a debt recovery process.
The Process
A debt recovery process would typically involve sending a final reminder letter to the debtor with a deadline for responding and threatening court action and other consequences such as enforcement action if no response is received. In some cases, it is appropriate to charge interest. A letter like this can often achieve better results when coming from a solicitor rather than from the business that the money is owed to. A solicitor’s letter can often be enough to persuade the customer to pay promptly, bringing the matter to a close quickly.
If the initial letter does not result in payment, a court action may require to be raised. The court will normally grant a decree for payment if the claim is not defended or if any defence is unsuccessful.
What kind of action do I need?
The type of court action required for cases that include a demand for payment of money depends on the amount of money owed.
Court action: Simple Procedure
This type of court action is used for claims with a value of £5000 or less. Simple Procedure replaced actions such as Small Claims in November 2016. It was designed to provide a quick and inexpensive way to resolve disputes.
The court charges a fee for raising a simple procedure action. This fee currently stands at £123 for claims with a value of £300 or more, and £22 for claims with a value under £300.
Simple procedure actions are now raised online, using the Scottish Court Service’s Civil Online Portal.
Anyone can raise a simple procedure claim using this service. The help of a legal professional is not always necessary.
The Process:
To raise a Simple Procedure action the Claimant fills out a Simple Procedure Claim Form and submits it on the Civil Online portal along with any supporting evidence. Evidence can include correspondence with the debtor relating to terms of business, agreed fees and chasing of outstanding fees in the form of letters, emails or phone calls and any invoices or statements relating to the outstanding sums.
After the claim form has been submitted and the Court dues paid, the Court will then issue a timetable including key dates such as the last date for serving the Simple Procedure Claim Form on the debtor, and the last date for the Respondent (the debtor) to give a response.
If the Respondent is an individual, they are given an opportunity to fill out a time-to-pay application.
The Simple Procedure Court Rules can be found on the Scottish Court website and outline each step of the process in detail.
If the Respondent does not respond within the specified timeframe, the Claimant must submit an Application for a Decision using the Civil Online portal, no later than 2 weeks after the last date for a response. The court will then issue a decree, usually ordering the Respondent to pay the Claimant the sum of money claimed for, along with interest and expenses. (The amounts of interest that can be charged will be the subject of a future article.)
The successful party in a Simple Procedure case is entitled to ask the Court to order the unsuccessful party to pay legal expenses. Legal expenses are capped at 10% of damages (or £300) for certain types of Simple Procedure action and are not the same as solicitors’ fees. (Fees and expenses will also be the subject of a future article.)
Court action: Ordinary Cause
Ordinary court procedure is the set of rules which applies in cases where the value of the claim is over £5000.
The process:
An ordinary court action requires the Pursuer to submit written pleadings in the form of an Initial Writ and the court charges a fee of £171.
Solicitors are commonly instructed where an Ordinary court action is raised because of the higher value of the claim; the need to use more detailed written pleadings; and because of the possibility of claiming a higher level of legal expenses, compared to Simple Procedure claims.
In an ordinary court action for payment of money, the Pursuer lodges an Initial Writ at court. The court will issue a warrant which allows the Pursuer to serve the Writ on the Defender and the Defender must lodge a Notice of Intention to Defend, usually within 21 days, if they wish to defend the action.
If the Defender does not respond, the Pursuer may ask the court to issue a Decree for Payment against the debtor.
What happens if the debtor still doesn’t pay?
If a court decree does not result in payment, enforcement action, otherwise known as “Diligence” in Scotland, can be taken which would include instructing Sheriff Officers. Initially, a charge for payment will be served on the debtor which lasts for a period of 14 days, after which further diligence can be instructed if payment is not forthcoming. Types of diligence can include bank arrestment, earnings arrestment, arrestment in execution, inhibition, attachment or even bankruptcy. (These will be outlined in more detail in a future article.)
Alternatives to Court Action
Alternative options to Court Action include a Statutory Demand and mediation.
Statutory Demand
A statutory demand is a formal request for payment of debt. It gives the debtor 21 days to make payment, after which time if no payment is made the creditor may present a petition to the Court for sequestration, bankruptcy or winding up.
Mediation
Mediation is an option for resolving debt between parties without going to court. It involves parties appointing a mediator (independent third party) to assist them in coming to a solution.
How can we help?
At Macleod and MacCallum, our court department can help you with all of your debt recovery needs, from sending an initial letter, to raising a court action, to enforcing a court decree. The cost of debt recovery services will depend on how soon payment is made, how complex the circumstances are and how much resistance (if any) is met from the debtor. We are able to offer a fixed fee service for debt recovery up to the point of court action.
Contact us for more information on our fixed fee service using our contact details below.
Tel: 01463 239 393
Email: debtrecovery@macandmac.co.uk