Debt Recovery Part 3

We have already looked at financing, factoring and invoice discounting, as well as mediation and court action when the sum involved is less than £25,000 and relatively straightforward, but what about if the sum involved is greater than £25,000 or is less than straightforward?

In this instance, the multi-track system can be used.

Typically, commencement of proceedings will involve:

• Serving on the correct party a letter before claim in a format that complies with the Practice Direction on Pre-Action Conduct

• Preparing and serving on the correct party a claim form

On receipt of the claim form, your customer may defend the claim and/or file a counterclaim within the time limit specified on the claim form.

Issue a Statutory Demand

A statutory demand is a prescribed form which details who the creditor and debtor are, what the debt is and the circumstances upon which the debt occurred. If the debtor does not comply with – or set aside – a statutory demand within 21 days, then the creditor can issue a petition for winding up or bankruptcy.

The debt must be for a liquidated sum. A liquidated sum is a specific sum which has been fully and finally ascertained. A claim for damages is not a claim for a liquidated sum.

The debt must not be one which is disputed, or in relation to which the debtor has a counterclaim that would reduce the debt to less than £750.00.

In the case of corporate insolvency, the debt must be “then due” at the date of the service of the statutory demand.

Statutory demands are often used as a precursor to insolvency proceedings. While it is not necessary to serve a statutory demand before issuing insolvency proceedings, it may be an effective means of recovering a debt because preparing and serving a statutory demand does not involve the court and is relatively inexpensive. Receipt of a statutory demand and the threat of insolvency can prompt settlement.

When preparing a statutory demand, you should use the relevant prescribed form set out in the Insolvency Rules 1986 (SI 1986/1925) and paragraph 13 of the Practice Direction: Insolvency Proceedings.

In relation to personal insolvency:

• Form 6.1 if the debt is a liquidated sum payable immediately;

• Form 6.2 if the debt is for a liquidated sum payable immediately, following a judgment or court order; or

• Form 6.3 if the debt is payable in the future

In relation to corporate insolvency:

• Form 4.1

You should also:

• Comply with the formal requirements of the Insolvency Rules 1986

• Correctly and carefully identify the debtor and the creditor

• Provide details of the debt and how it arose

• Include details of interest that is accruing

• If you intend to issue insolvency proceedings (winding up or bankruptcy), then you must state this (although you do not have to then issue proceedings)

• State the time and methods of compliance with the statutory demand

• State that the debtor has the right to apply for the statutory demand to be set aside and specify the court to which the application should be made; and

• Sign the statutory demand.

The effect of a mistake on a statutory demand is that it may be set aside if the debtor can show that it was defective in some way.

It is important that you have evidence that the statutory demand was properly served on the debtor. This is particularly so if you intend to rely on non-payment of the statutory demand as evidence for insolvency proceedings. You might like to engage a process server who will provide the evidence of service.

When serving on an individual, the statutory demand should be served personally on that individual or, alternatively, you should take all reasonable steps to ensure that the statutory demand comes to the attention of the debtor.

When serving on a company, you can leave the statutory demand at the company’s registered address.

On receipt of a statutory demand, the debtor can, amongst other things:

• In the case of an individual, apply to the court to set aside the statutory demand. Such application should be made within 18 days from the date the demand was served. A court may set aside a statutory demand where any of the following apply:i) The debt is disputed on substantial grounds ii) The debtor appears to have a counterclaim which is equal to, or exceeds the amount of the claim iii) The creditor holds security for the value of the debt iv) The court is satisfied on other grounds that the statutory demand should be set aside

• In the case of a company, apply to restrain the presentation of a petition.

After service of a statutory demand, a petition should not generally be presented until three weeks have elapsed after the statutory demand was served. There is an exception in the case of bankruptcy, where there is a serious possibility that the debtor’s property or value may be significantly diminished during the period of statutory notice.

After three weeks, there is no requirement to serve a petition. However, if a petition is served, consideration should be given to serving the petition within four months of the date on which the statutory demand was served as otherwise you will have to give reasons for the delay in a statement of truth.