DEBT COLLECTION

Since April 1999 when the Woolfe Reforms came into force, the paperwork necessary for County Court claims has been greatly simplified - and the Court Fees have gone up!

Certain constraints have been imposed upon would-be claimants and these include the need to demonstrate that a real attempt to collect the debt has been made prior to resorting to the Courts.

The best way to satisfy this requirement is to have a laid down procedure - or Protocol - for chasing overdue accounts.  The possession of such a Protocol and the ability to show that it has been followed in a given case would suffice if a judge requested proof of your attempts to collect the debt and would justify your Claim in Court.

The Legal Process

1.  Make a Claim
2.  Request Judgment
3.  Get Paid

Obviously it is not that simple, or everyone would do it.  On the principle that the Defendant (your debtor) is innocent until proved guilty, the onus is on you to substantiate your claim.  In the Small Claims Court Defendants can get away with incompetence to a ludicrous degree, whereas the Claimant is expected to have everything neatly indexed and cross-referenced so that the judge can read it easily.

Even when you get judgment by default (the Defendant does not reply to the Claim within 14 days) the defendant can apply to the Court to have it set aside on almost any pretext - and will at least get a Hearing - meanwhile you do not get paid!

Assuming that you get judgment and the defendant does not apply to have it set aside, you then have to enforce it and this can be another time-consuming and frustrating exercise.  An explanation of the various steps you may have to take - and the ways of reducing the defendant’s room to manoeuvre - now follows.

Making your Claim
If you are intending to sue a debtor, the last step of your Collections Protocol should be a written warning to the debtor of your intent to ‘make a Claim in the County Court’ for the outstanding sum.  Seven days’ notice is adequate.

If part of the debt is disputed you can expect the debtor to defend the action, tying up all of the debt pending a Hearing.  If the undisputed part of the debt is large enough you may consider suing the debtor for that amount first and then making a Claim for the disputed amount subsequently.  (See ‘Statutory Demands’ below).

The County Court Claim Form is simple to complete but it must be signed on the back by a duly authorised person, normally an ‘officer’ of the company, or a partner, or the proprietor of a firm.  The Statement of Truth is a legal commitment to the accuracy of the Claim.

In completing the Form, do not forget to apply Statutory Interest at 8% p.a. (0.022% per day) to the debt from the date that each invoice became overdue.  Calculate the total daily interest rate and include that calculation together with ‘and at £?.PP per day until judgment’.

Three copies (at least) of the form must be sent or taken to the Court, together with the scale Court Fee, which can be paid by cheque or, if attending in person, by cash.

(The number of copies required by the Court is ‘One for each Defendant, one for the Court files and one to return to you’.  If suing a partnership of a few partners you can comply exactly with this requirement.   If you are suing a large professional firm, you sue ‘Mr A Partner (name one!) and Others, Trading as (name the Firm)’.  Send one extra copy of the Claim for the ‘Others’, regardless of number.

The next Step
You will receive from the Court a ‘Notice of Issue’, together with your copy of your Claim Form.  On the Notice of Issue there will be a date by which the Defendant has to respond to your Claim.  If he fails to respond by that date you can return the bottom part of the Notice of Issue, which is a ‘Request for Judgment’ to the Court and, usually, you will receive a copy of the Court Order instructing the Defendant to pay you the sum claimed plus interest and Court Fee ‘forthwith’.  (See ‘Enforcing your Judgment’ below).

The Debtor may enter a Defence.  He can do this by filing an ‘Acknowledgement of Service’ giving notice of his intention to defend all or part of the Claim and thus win himself an extra 14 days to put his defence together - or he may submit his defence with the Acknowledgement of Service, bringing the whole action forward a few days.

Life now starts to get complicated!

Dealing with a Defence
You will receive notification of the Defence, when filed, together with an ‘Allocation Questionnaire’.   The purpose of this form is to enable the Court to decide at what level your case should be heard and there are three levels, or ‘Tracks’.

The Small Claims Track is usually chosen for debts of up to £5,000 - unless they are very complex.

The Fast Track is usually chosen for claims between £5,000 and £15,000, although it is possible to get a Small Claims hearing if the matter is straightforward; really complex ones would be allocated to the Multi track.

The Multi Track is used for most cases over £15,000 and up to £50,000 (normally the maximum the County Court will Hear).  I have at present an application before the Court to Hear a £33,000 claim in the Small Claims track, simply because the defence is total rubbish.  (To be asking for copy of invoices a year after the transaction took place is the height of frivolity, especially when the Claimant can show that these were provided nine months ago.)

Your Allocation Questionnaire should be returned to the Court with a payment of £80 and with any supporting documentation that you intend to rely on - and the names of any witnesses or Expert Witnesses that you will call in person or by way of Witness Statements (used to be called Affidavits!) during the Hearing.  You should provide the defendant with copies of all documentation, including Witness Statements, with the Allocation Questionnaire - if they are available then, but anyway you must ‘disclose’ all documents to the defendant at least 14 days before the hearing.

The Court will notify you of a Hearing Date and Time.  Be warned that, to the Courts, times are very approximate and they have a tendency to allocate the same time slot to several cases, on the basis that too many people do not bother to show up and they do not want vacant Hearing Slots.  However, they do seem to get through the day’s work on the day in most cases!

Disclosure
The object of Disclosure is to ensure that neither party springs surprises on the other on the day of the Hearing.   The most likely result of such an action is that the evidence will be disallowed if presented by the Claimant.   If presented by the Defendant the judge may disallow it or he may choose to adjourn the case (usually involving at least 3 months’ delay) so that you have time to consider the documentation concerned!

The Hearing
Two or three days before the Hearing, fax the Court and ask for confirmation that the Defendant has not filed notice that he cannot attend and has asked for an adjournment.  I have twice recently been the victim of non-appearance by a defendant - who had advised the Court but not our Clients that he could not make a hearing date.  I had checked with the Court by telephone but had been given the wrong information by someone who was too busy to check properly.

Be at Court at least 15 minutes before the time allocated for your Claim - and make sure that you have some work or a good book to help pass the time!

As soon as you arrive, ‘clock in’ with the Court Usher, who will be able to tell you the state of play with your particular judge.

Make sure that your papers are in sequence so that you can refer to them as you need them.  Have an extra copy available for the judge and for the defendant, who may not be so well organised.  You will win Brownie Points with the judge if you are seen to be being ‘helpful’ to the defendant!

Speak politely, quietly and frankly to the judge.  Address him as ‘Sir’, her as ‘Madam’.   State your case and then let the defendant state theirs.  DO NOT INTERRUPT EITHER THE JUDGE OR THE DEFENDANT.  Make notes of the defendant’s claims and of any misinterpretation that the judge appears to be putting upon them.  You will have the opportunity to cross-examine the defendant and to make submissions to the judge, in which you can clarify any situation that he appears to have misunderstood.

Let the defendant ramble on - very often he will trip himself up and you can seize the opportunity to ask him to confirm a statement which gives you the judgment!

When telling the judge he is wrong - be tactful!  ‘With respect Sir, the fact is that . . .’ goes down a lot better than ‘That's not right!’

If the judge gives a ruling that you consider unfair to you, try to summarise in a way that allows him to change his mind without having to admit he was wrong!  Tough, I know, but that is why our clients use us instead of doing it themselves!

Enforcing Judgment
Once you have obtained judgment you may have to enforce it!  The tools of enforcement are:

1.  A Warrant of Execution.  Despite its grandiose title a Warrant of Execution does not allow you to hang your Debtor!  It is an instruction to the Court Bailiffs to levy distraint upon the defendant’s goods & chattels (which used to include his wife - but with Women’s Lib., that has all changed) and to pay you and their costs out of the proceeds of sale.  All too often the Bailiffs fail to find any goods upon which to levy, which means you have spent another £45 without getting near to your debtor.

2.  An Oral Examination.  Nothing to do with Dentists, an Oral Examination means that the debtor has to appear in Court and explain why he cannot pay the debt.  You can submit any questions you like to the Court and he has to answer them under oath.  This tends not to be very productive because, in too many cases the examinee simply produces a copy of the liquidator’s report!  However, it does have one interesting side-effect.  If the debtor fails to attend court, he is served with a second Order, an ‘N39’.  This Order states that he must appear and, if he does not, he could be held in contempt of Court and be arrested.  Currently I have one N40 arrest warrant that the bailiffs are trying to serve!

3.  An Attachment of Earnings Order can be applied if you know where the debtor works.  Briefly, the Court orders the defendant’s employer to pay a given sum out of the defendant’s net wages to you every week or month.  This can work well but the defendant can confound the system by changing jobs and it doesn’t work with the self-employed.

4.  A Garnishee Order.  A Garnishee Order allows you to seize the assets of a debtor and sell them to dispose of your debt.  Most frequently Garnishees are applied to bank accounts but I think that this is a waste of time, because the debtor who cannot pay you is unlikely to have a credit balance in his bank!  However I have been able to use it very successfully on a trade debtor of the defendant and also on a director who has had a loan from his company!  Do not rule out Garnishees!

5.  Statutory Demands.  A Statutory Demand is a legal document giving the debtor a specific time to pay a debt or to face a petition in insolvency or Bankruptcy.  Great care has to be exercised when issuing a Statutory Demand, to ensure that there is no valid dispute on the account.  Consequently most people prefer to use them when trying to enforce a judgment debt.  You can also use this weapon when dealing with a returned cheque, since even a STOPPED cheque can be regarded as an admission of liability.  If you issue a Statutory Demand you will need to employ a solicitor to present the Petition - and if you get to petition stage you are unlikely to get paid because, once it is published, other creditors can ‘attach themselves to the Action’ and your debtor will most likely go down.  To be used with caution - and by a specialist, which is why most of our clients use us!

In the final analysis, if the money is not there, you won’t get it - but at the very least you have caused your debtor some acute problems, including a (or possibly another) black mark on the Nation’s Credit Registers.