When payment never comes

In the last edition we looked at the processes you should follow both when taking on clients and when it comes to chasing those that have not paid you on time. Once you’ve completed your debt collection processes and your legal letters and everything else has failed, you are left with four choices: Bringing a claim in the County Court yourself; using a solicitor to bring a claim in the County Court, making your customer insolvent or using a debt collection service...

Before suing anyone, whether you use a lawyer or not, always ask yourself: Do I stand a good chance of winning my case? Will the customer have the means to pay me? Is the amount outstanding worth the time, money and effort you’ll expend trying to get your money back? There’s no point even starting legal action if the customer either doesn’t have the money or assets to be able to pay you. If the customer has gone bust – i.e. as an individual, they’ve been made bankrupt or if it’s a limited company, it’s gone into liquidation – then don’t waste any more time and effort in chasing the debt. You just need to find out who is dealing with the affairs of your client (the trustee in bankruptcy or liquidator) and let them know that you are owed money. Thereafter it is simply a case of waiting to see what, if anything, you are offered. It may be a certain amount of pennies in the pound because by definition the client does not have enough money to pay everyone what they owe.

Going to Court

Should you decide to sue, remember, there’s no such thing as the small claims court. You actually start your case in the County Court, and provided it’s straightforward and the amount you’re looking to recover is below £10,000, then it’s highly likely it will be allocated to the small claims track. Don’t even think about engaging a lawyer if your case is suitable for the small claims track, because you’re unlikely to be able to recover your lawyer’s legal cost even if you win your case and it’s very possible that you’ll end up out of pocket. Most claimants start their claims online using Money Claim Online – www.moneyclaim.gov.uk Don’t forget either, that even if you win your case and get a judgment, the court doesn’t collect the money for you. You actually have to force the issue by using the court to enforce the judgment. Again, if your customer is penniless, you may get nothing.

Getting what’s owed

Although the small claims track rules are less formal and there’s less procedure to follow, you’re still running a court case and, ultimately, could end up appearing before a District Judge.

It’s possible your customer will admit that they owe you the money by saying so on the court form. If this happens and they don’t request time to pay, you can apply to enter judgment. Alternatively, your customer might admit the claim and put in an application to pay by installments. They should also enclose a statement of means so you can make a decision as to whether you want to accept their offer. Unless the offer is ridiculously low, don’t dismiss it out of hand. Ultimately the amount can be determined by the court and if this happens, the likelihood is that it may only be slightly increased.

Dealing with disputes

Often, of course, your customer will dispute the claim, and this may be for all manner of reasons, most obviously because they are not happy with the work you did. Clearly if this happens, and your client files a defence, this should not come as a surprise to you. You should, or course, have tried to deal with any issues which the customer had with the work either during the job or thereafter, so you should have a good idea about the arguments your client will be putting forward. This is where you are looking at a fill hearing whereby the Judge will hear the evidence and make a decision. Cases are decided ‘on the balance of probabilities’, so things do not need to be proved ‘beyond reasonable doubt’. You should be aware that a Judge also doesn’t have to see things as black and white, i.e. that you are right or you are wrong... He could decide that both parties are partially right, and make a judgment accordingly. If you are involved in a case such as this you should make sure that you ring the PDA advice line at the earliest possible opportunity for guidance, and this really should be well before the matter even gets to court.

Sending ‘the boys’ round

If you end up getting a judgment against your customer, that’s the easy bit! The tricky part is deciding which is the most appropriate enforcement method to recover your money. The court provides the means to enforce your judgment, but they won’t advise you on the best option.

Before you commit to enforcement, try and find out as much as possible about your customer’s financial position. For example, use an enquiry agent, search the Land Registry and the County Court judgment register, Companies House etc.

If you don’t know much about your customer’s finances, then you can ask the court to find out for you by making an order that debtor attend court for questioning. There are four options available to enforce your judgment: warrant of execution, attachment of earnings order, third party debt order and a charging order. Which option you choose depends on what you’ve found out about your debtor’s financial position – if your customer works for someone as an employee, you should go for an attachment of earnings order, or if your customer owns property, go for a charging order. Bailiff enforcement for a debt of less than £600 can only be made in the County Court, unless the judgment itself was obtained in the High Court. Debts of between £600 and £5,000 can be enforced in either the High Court or County Court, and debts over £5,000 must be enforced solely through the High Court. If your debt is worth at least £600, it’s perfectly possible to enforce your judgment in the High Court by having it transferred there from the County Court. It’s worth considering this option because, generally, High Court Enforcement Officers are much better in seizing a customer’s assets than County Court bailiffs.

A strongly worded letter

Finally, as an alternative to issuing legal proceedings, you could consider threatening your customer with insolvency (or liquidation if they’re a limited company) if they don’t pay up. You can’t bankrupt an individual unless the debt owed to you is more than £5,000 or wind up a company unless the debt owed to you is more than £750. To start the ball rolling, you’ll need to complete a form called a Statutory Demand, and the debtor then has 21 days to pay otherwise they run the risk of being made insolvent. Using a statutory demand can be effective as a threat to get a customer to pay up. It’s more often than not used, though, as a bluff. The problem comes if your customer ignores the threat. You’ve then got to decide whether to take the next step to make them insolvent.

The fees alone are £990 for a bankruptcy deposit and £280 for court costs and there’s every chance you might end up with little or nothing. You must not use a statutory demand if your customer disputes the debt, for example, by claiming the work was defective. If the dispute is regarded as being ‘substantial’, then you’ll get short shrift from the court for having pursued this course of action and could end up getting costs awarded against you.

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