DEBT AGENCIES

You may be approached by a Debt Collection Agency which guarantees to collect your debt from a customer that has gone out of business.

They may quote a section of the Insolvency Act which states that ‘any director of a company that allows that company to continue trading whilst knowing that it is insolvent may be guilty of wrongful trading’ . . . and further that such a director could be held liable for the debts incurred by that company during the period of wrongful trading.

Most likely they will have got your name from a creditors’ list of a failed company and will know that you have been hit.  They will guess from the size of your business in relation to your loss how serious the situation is for you - in fact they will take an informed guess as to the ‘desperation factor’ involved in your loss.   They may assume that the greater that factor the easier it will be to sell their ‘services’ to you.

They may seek to convince you that no director can possibly be unaware of the state of their business prior to calling a Meeting of Creditors - or even to the appointment of a Receiver or Administrator - and therefore that they can be accused of wrongful trading and made to pay the debt due to you.

They will ask you to pay a deposit ‘against Court Costs’ and I have heard of figures of between £600 and £1,750 - although larger sums may well be asked for.

This is where the Guarantee comes in - and goes out!
You will be asked to sign a contract instructing them to act on your behalf.  This contract guarantees your deposit back but only provided that you allow them to ‘exhaust every avenue’ to collect the debt.

Subsequently you may receive frequent demands for payments for this charge and that cost (one wonders where the deposit is!) and this could continue until you cry ‘enough’!

It is at this point that they could get obstreperous!  They will tell you that you cannot have your deposit back because you have not let them ‘exhaust all opportunities and avenues’ for the recovery of your debt.

How do you deal with such an approach?
Here are some points to consider.

1.  Their initial contention is correct - a director convicted of wrongful trading can be made to repay personally charges incurred during the period of wrongful trading: was your debt incurred during that period?   You don’t know until after a conviction is given and at that point you don’t need the services of a debt collector - the Official Receiver will see that you get your money - eventually!

2.  Instances of convictions for wrongful trading are much rarer than, perhaps, they should be.  Convictions are more likely to follow a compulsory liquidation but even then they are not the norm.  An external third party such as a debt collector is unlikely to be able to initiate proceedings on his own initiative - it most likely would involve a civil Action, with horrendous costs, far in excess of the deposit you may have paid.

3.  The contract that you will be asked to sign may well prove extremely complex to the non-legal person - so complex that one might wonder if it had been drafted that way deliberately!  By signing it you could be committing your self to paying numerous charges for obscure legal fees, to the point where you can no longer justify to yourself or your colleagues any further expense.  At that point you discover that you have lost your deposit.

How do you get rid of them?
These sales people can be as difficult to get rid of as cats’ fleas!

The simplest way is to ask them for a copy of the contract to pass to your solicitor for perusal prior to any signing.

Another way to discourage them is to tell them that you do not believe in paying in advance for Debt Collection Services.  Most reputable debt collection agencies work on a ‘No Collection - no Fee’ basis and still manage to make a reasonable living!

Try asking them for third-party references - they will most likely invoke a confidentiality clause, which is bunkum!  No creditor would object to giving a reference of efficiency to an enquirer - unless, of course, they had been stung!

Don't be afraid to show them the door - you are entitled to refuse their services - and without giving a reason.  If you are one of the lucky ones with money to spare, adopt a Charity and give it to them - it will do far more good that way.