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Unfortunately, most businesses will likely need to take action to recover debt at some stage of their business journey. Court action should always be the very last option after attempting to recover the debt in other ways. This article will explore how a business can start an action for debt and the key stages to understand.
Before Going to Court
There are various ways you can attempt to recover debt before going to court. For example:
- politely chasing the outstanding sums;
- agreeing a repayment plan with the debtor (e.g. your customer) who owes you money;
- undergoing Alternative Dispute Resolution methods to resolve the problem, such as through negotiation or mediation; or
- using external parties, such as debt collectors or lawyers, to try to recover the debt on your behalf.
If all else fails, you can pursue a court action to recover the debt.
Letter Before Action
You will first need to comply with pre-action protocol rules. You must follow these rules before your claim can go to court. The first step is sending the debtor (the party owing you money) a ‘Letter Before Action’ setting out how much debt they owe you and how you have calculated the sums due. The debt claim may include interest that has accrued for late payment. You should typically give the debtor 14 days to pay off the debt or provide a response to your letter.
As a practical tip, a Letter Before Action can be highly effective at getting a debt paid off. Particularly, a letter sent by a law firm may alarm the debtor and get them to pay the sums owed rather than risk legal action.
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Key Steps to Starting Court Proceedings
If the debtor does not pay, then you can go ahead and issue county court proceedings. There are several steps involved, and below is an outline of these steps in simple terms:
- Decide which court to issue your claim in. You can issue a proceeding in the High Court for very high-value and complex claims (if the debt is over £100,000). However, smaller claims will be issued in County Court.
- Complete a claim form and particulars of claims, setting out the basis on which the debt is owed to you and a calculation of the debt sums. You will also be required to pay a court issue fee, which is based on the amount you are claiming. The court fee ranges from £35-£10,000, depending on the value of your claim.
- Pay legal costs to your solicitors or barristers (if applicable).
- The court will send out a Notice Of Issue. This notice will set out the date you issued the claim and when it was deemed to be served on the debtor. The Notice Of Issue will also set out when the debtor needs to respond (when they need to file an acknowledgement of service or defence to the claim).
- The debtor must file their acknowledgement of service or defence of the debt claim. This will state whether they will defend the claim or pay you the amount claimed. If the debtor files an acknowledgement of service, they will have another 14 days to file and serve their defence.
What Happens After You Bring the Claim?
If the debtor agrees to pay you, they can ask the court permission to pay in instalments. However, they will need evidence to request this.
Alternatively, if they choose to defend the debt claim, court proceedings will begin and continue until the claim is settled between the parties or the court decides what to do. The court will have the power to order the debtor to pay the outstanding debts.
Notably, a court proceeding is lengthy, and various steps are involved. For example, you will need to disclose documents and witness statements and wait for the court to hear the case, depending on availability. It can sometimes take years for disputes to reach the court hearing stage. Remember that litigation can get extremely expensive and time-consuming.
If the debtor fails to respond altogether, you may be able to apply for judgement in default. This means the court can make a judgement on the case without the case going to trial. Once the judgement is received in your favour, you can take steps to enforce it against the debtor.
This guide outlines how to resolve commercial disputes.
Important Considerations
There are various steps to follow when starting a court action for debt. Ensure you understand the steps and the costs involved with your claim. If the debt is a very small amount, it may not be worth pursuing court action (e.g. if the fees and time involved will be disproportionate). You should take legal advice if you are unsure about any part of the process and whether it is worth pursuing the claim.
Always remember, if the debtor does not have the money to pay you, it is not worth pursuing them in court. In such a case, an informal repayment plan might be a more sensible option.
Key Takeaways
You should consider alternative options, such as negotiation and mediation, before starting a court action for debt. If no other option works, understand the claim process and costs involved with bringing court proceedings. Court action can be extremely time-consuming and costly. If you are unsure about the merits of your claim and whether it is worth pursuing, you should seek legal advice on your options.
If you need help recovering debt, our experienced disputes lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
Mediation is an alternative dispute resolution process where a third-party mediator will hear your dispute and help the parties resolve it. It is much cheaper, quicker, and less formal than taking the claim to court.
These are the fees you paid to the court for hearing your case. The court fees will range from £35-£10,000, depending on the value of your claim.
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