Your top five commercial debt recovery questions answered: January 2019

Following the launch of our series of FAQ insights in September 2018, our legal experts answer the latest top five commercial debt collection and debt recovery questions that they have received from senior credit professionals in the last quarter.

Will the ‘breathing space’ proposed by the Chancellor in the 2019 Budget impact debt recovery?

The new ‘breathing space’ proposal, also known as the Debt Respite Scheme, is to provide individuals in problem debt a fixed period without fees, charges, interest or enforcement action, to allow them time to catch up with, and take control of, their finances before they spiral out of control.

The proposed scheme will undoubtedly offer a lifeline to consumers that are struggling with debt commitments, but will this mean longer delays to debt recovery for lenders and will any ongoing cases be affected?

If you have a high propensity of debtors who are sole traders, then the answer could be yes.

The key point to note is that sole traders have been included in the proposal, therefore, business-related debts qualify for this purpose. However, the breathing space proposal is not simply a means for debtors to extend their credit terms further, which some may seek to do. Your sole trader debtors will have to show that they qualify for the breathing space and that they have not already received the same benefit within the previous 12 months.

Ultimately, the new rules can be viewed as a positive step, despite it not initially feeling like one. Debtors will be allowed breathing space to get their finances in order and come up with a suitable payment plan that they will actually be able to adhere to. This could be through a statutory debt repayment plan or an existing insolvency solution, such as an individual voluntary arrangement or debt relief order.

This may also seek to prevent some burying of heads in the sand for those who do not know how to tackle all the debts incurred by trying to run their own business. And there is nothing to force you to keep allowing debtors credit terms, so you will still be able to control ongoing and future debt risks.

Can a debt still be recovered from a sole trader debtor after they have died?

There is a common misconception that when a sole trader dies, any debts associated with their sole proprietorship are automatically discharged which prevents creditors from taking any collection actions to recover any monies owed.

However, once a personal representative, also known as an executor, is appointed to the estate, the executor must take reasonable steps to ascertain any debts due. In addition, the executor will also have to take on any contracts that the sole trader entered into along with any claims made by, or against the sole trader.

So, you can recover a debt from a sole trader who has died, however, careful consideration must be given as to whether it is economical to dedicate time and resources to pursue the debt.

It is a well-established principle that executors should wait six months from the date of death before distributing an estate to enable potential creditors to intimate any claim.

Payments will be made in order of priority, thus funeral and administrative fees will be paid first. It is also worth noting, that if the assets of the deceased’s estate are insufficient to meet the liabilities, then the estate is insolvent and some or all debts may be irrecoverable.

When can late payment compensation and interest be added to the debtor’s liability?

The Late Payment of Commercial Debts (Interest) Act 1998 may entitle creditors to claim interest and compensation from a debtor for a payment that is overdue.

Late payment compensation can be added for every ‘qualifying debt’ that the debtor is liable for. This arises from any obligation to pay the debt under a contract. Depending on your terms and conditions, this can apply separately for each invoice that is raised and not just for the total amount that is due.

The amount of late payment compensation that can be applied will depend on the value of the invoice:

• £40.00 per invoice up to £999.99
• £70.00 per invoice between £1,000 to £9,999.99
• £100.00per invoice over £10,000.00

There is no minimum debt value.

While you are entitled to add late payment compensation for each invoice, it may be worth exercising some commercial discretion when considering this for debts consisting of low-value invoices.

The legislation also allows for statutory interest to begin accruing from a date agreed between you and the debtor in your terms and conditions, for example starting 14 days after the invoice is raised or 28 days after delivery.

The statutory interest for business to business transactions is currently 8% over the Bank of England base rate. It is possible for interest to continue to accrue up until the date the original debt is paid off, or when judgment has been obtained.

It is worth noting, if you have a clause relating to late payment in your terms conditions, you must charge compensation and interest in line with the amount stated, as any contractual terms will override the general right under this Act.

What is the procedure for pursuing debts in Jersey and is it costly?

At the pre-legal stage of debt recovery, the process remains the same as in England and Wales. It is, however, different and costly if court proceedings are issued, as this would be an out of jurisdiction claim.

Little or no distinction applies when a letter before action is sent providing the debtor with seven days to respond or with any extended pre-legal collections.

Depending on the outcome of your collections and careful consideration of the costs involved, you may wish to proceed with a claim.

If your contract allows it, the claim will need to be issued in England or Wales, however, pursuing debts in England and Wales for debtors outside this jurisdiction, you will require the court’s permission to take the matter further.

Once the permission of the court has been obtained, you will then need to seek the services of a solicitor based in Jersey to serve the relevant documents on the debtor. The costs of doing so are approximately £300.00+VAT.

It is also worth noting the prospect of higher costs being incurred at the enforcement stage, but this should be considered on a case by case basis and of course, may not be necessary should payment be made following claim issue.

We have joint debtors in a matter based at different addresses, is it possible to issue a claim against them both?

It is possible to issue a claim against as many debtors as the matter dictates, with only one court fee being payable.

You must ensure that each debtor has been treated to the appropriate pre-action protocol i.e. each debtor must receive a letter before action and claim form to their address of service.

If the claim is issued online, the claim form will be automatically served at each service address. Depending on the complexity of the claim, the claim may need to be issued on paper rather than online.

In order to meet the requirements for service, separate copies of the claim form and supporting documents should be sent to the court for each debtor, so that the originals can be sealed by the court for service.

Still got a question?

If you have any other debt recovery related questions which are not answered here, or you would like to submit one of your own questions to be included in our next issue of FAQs, please contact us and a member of the team will reply back to you as soon as they are available.