How do I deal with bad debtors? [Jul 2009]

Frequently asked questions

What can I do to avoid getting bad debtors?
Review your contractual documents to ensure that they afford you maximum protection. At a minimum, your existing contractual documents should permit the recovery of interest and full costs from your debtors.
Make sure the content of your demand and final demand letters are appropriately worded for maximum effect. They should refer to the debt being transferred to solicitors for collection which will for a number of debtors result in payment being made.

What is the first step?
A letter from your lawyer with the threat of legal proceedings will often get a response when your efforts have failed. If a payment is not made, court proceedings are the next step.

What is involved with bringing proceedings?
If no satisfactory response is received, we can discuss with you the available recovery options, whether it be the issue of summary judgment proceedings, ordinary proceedings, or service of a statutory demand. Legal proceedings are more likely to have a favourable outcome where the debtor's whereabouts are known and it is known that the debtor has the means to pay.
Ordinary Proceedings - with ordinary proceedings a statement of claim is filed at court and served on the debtor. The debtor then has 30 days in which to file a statement of defence, failing which, you are entitled to a judgment. Ordinary proceedings are the most cost effective way of obtaining judgment if the debtor does not file a statement of defence.

If the debtor files a statement of defence, the court will then give directions to get the case ready for trial, with a judge then making a final decision.

Summary Judgment Proceedings - with summary judgment proceedings a statement of claim and affidavit are filed at court and served on the debtor. With summary judgment proceedings you are asking the court to give you immediate judgment on the basis that the debtor has no reasonably arguable defence. The advantage of this kind of proceeding is that if the debtor files a statement of defence they must also file an affidavit which satisfies a judge that they have a reasonably arguable defence to avoid immediate judgment.

If the debtor satisfies a judge that they have a reasonably arguable defence, the court will then give directions to get the case ready for trial.

Statutory Demands - while statutory demands are not a proceeding, they are a common method of debt recovery. Where the debtor is a company and the debt is undisputed a statutory demand can be served which gives the company 15 working days in which to pay the sum demanded. If the company does not comply with the demand, liquidation proceedings can be issued.

What is involved with enforcement proceedings?

Even though you may have a judgment requiring the debtor to pay you money, if they do not, it will be necessary to enforce the judgment. Enforcement proceedings can include a court bailiff seizing the debtor's goods, an order that the debtor's employer make deductions from their salary or wages at a level fixed by the court, an order that a third person who owes the debtor money pay you instead, a charging order against land preventing it being sold until the judgment debt is paid, or subsequently an order that the land be sold.

Before deciding to issue proceedings it is important to find out as much as you can about the debtor's financial position to determine whether they have the means to pay.

What about Bankruptcy Proceedings?

Once a judgment has been obtained bankruptcy proceedings can be issued against an individual. The first step is to issue a bankruptcy notice, followed by bankruptcy proceedings. Bankruptcy notices and proceedings often result in payment being made due to the legal and financial constraints bankruptcy brings.

How much will it Cost?

The cost will depend on how much the claim is for and whether or not the claim is defended. We are able to provide you with estimates of the indicative costs and disbursements prior to any legal work being undertaken. Where your contractual documents with the debtor provide for the recovery of solicitor-client costs and interest, your full legal fees incurred and interest can be recovered from the debtor, subject to the discretion of the Court. Where your contractual documents do not provide for the recovery of costs and interest, the Court will generally award scale costs and may award Court interest at 7.5% pa. Scale costs do not reflect the actual costs incurred.

Who do I contact?

Glaister Ennor's debt collection team is headed by Paul McKendrick and Brett Vautier. Please contact either of them .(JavaScript must be enabled to view this email address), or .(JavaScript must be enabled to view this email address)

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