Three ways to manage existing debtors

Jan 19, 2013


Not all overdue debts are of course, disasters. Most can be recovered through County Court proceedings. The secret of success, however, is to act quickly and firmly in order to maximise the prospects of recovery, before other creditors help themselves to any available assets.
A promise of payment as and when cash becomes available is often nothing more than a delaying tactic. It is therefore a case of knowing a customer and deciding whether the excuses are genuine or merely a ploy:
  • If it becomes necessary to resort to County Court proceedings, the procedure is relatively straightforward and has been made simpler and quicker in recent years. Court hearings usually take place in a matter of weeks rather than years, as used to be the case. However, most claims are resolved without the need for any hearings, either because the debtor pays up when confronted with a County Court claim form or because a judgement can be obtained without the need for a hearing, if no defence is filed;
  • It is important to stress the need to identify the debtor accurately. Full particulars must be given in the claim form of how the debt arose. Interest on late payment can usually be claimed in addition to the debt and an additional fee is payable to the court, based on the amount claimed;
  • Following judgement, there are a number of procedures available through the court for enforcement, including the issue of a “warrant of execution” which involves the County Court bailiff (or High Court enforcement officer – previously known as the sheriff) attending the debtor’s premises to retrieve goods that are then sold via auction, in the hope that sufficient cash will be raised to pay the debt and costs. Alternative remedies include asking the court to make a Charging Order over any land owned by the debtor, obtaining an Attachment of Earnings Order if the debtor is an individual who happens to be in salaried employment, or obtaining an Third Party Debt Order which enables a claimant to obtain payment from a third party who owes money to the debtor. For example, this might be the credit balance on a bank account held in the debtor’s name. 
Although these procedures are all relatively straight forward and County Court staff are often very helpful, the process can be time-consuming if not done correctly. It is therefore recommended that advice be sought from a specialist solicitor at an early stage. Any legal costs incurred by the solicitor will usually be recovered from the debtor, assuming a claim is successful.
Of course, a late payment can become a disaster where the debtor turns out to be insolvent and unable to pay their debts. Most cases like these result in a formal insolvency procedure, whether this is bankruptcy or liquidation (winding up), a voluntary arrangement or increasingly, administration. 
These procedures probably merit an entire article in themselves, but a common factor is that individual creditors are no longer able to take action to recover their debts, as the affairs of the debtor are taken over by an insolvency practitioner who is responsible for turning assets into cash and distributing dividends to creditors.
Where the assets are insufficient to pay all debts in full, as is usually the case, creditors will receive a percentage of their claim in proportion to the amount they are claiming as a percentage of the debtor’s liabilities as a whole.
Alan Hamblett is a partner at the Milton Keynes office of Shakespeares
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