Commercial debt recovery solicitors: Recover business debts
Commercial debt recovery should be at the forefront of any business owner’s mind: how can you recover what you’re owed when you have limited resources?
What is commercial debt recovery?
Commercial debt recovery is the process of recovering money that is owed to a business or organisation by another business or individual. Debt recovery can be achieved through a number of legal means, including:
Sending a letter of demand: This is a formal letter that requests payment of the debt and sets a deadline for payment. If the debt is not paid by the deadline, the creditor may take further action.
Negotiating a payment plan: The creditor and debtor can agree on a schedule for repaying the debt, either through a lump sum or in instalments.
Using a debt collection agency: The creditor can hire a debt collection agency to contact the debtor and negotiate payment on their behalf.
Court action: If the debtor does not pay the debt or respond to letters of demand, the creditor can take legal action to recover the fees. This can include issuing a County Court Claim, obtaining a judgment and, if the debtor continues not paying, enforcing the judgment through a process such as Bailiff or Third party debt order.
Insolvency proceedings: If the debtor is unable to pay the debt, the creditor can consider taking steps to make the debtor insolvent, such as issuing a winding-up petition or a bankruptcy petition.
It’s important to note that the laws governing commercial debt recovery in England and Wales can be complex, and it’s recommended that businesses seek legal advice when pursuing commercial debt recovery.
Commercial debt recovery claims
Commercial debt recovery claims can be made under the Debt Recovery Pre-Action protocol. The Debt Recovery Pre-Action Protocol is a set of guidelines that outline the steps that businesses and organisations should take before taking legal action to recover a debt. The protocol applies to most types of business-to-business and business-to-consumer debts, and its aim is to encourage communication and cooperation between creditors and debtors in order to resolve disputes without the need for court action.
The key steps of the protocol are:
- Creditor should send a letter of claim: This letter should include details of the debt, including the amount, the basis of the claim, and any interest and charges that have been added. It should also set out the steps that the creditor intends to take if the debt is not paid, and invite the debtor to make a proposal for repayment.
- 30-day response period: The debtor should be given at least 30 days to respond to the letter of claim, during which time they can either pay the debt, make a proposal for repayment, or dispute the claim.
- Consideration of the debtor’s response: If the debtor disputes the claim, the creditor should consider the dispute and respond to the debtor with a final letter before action.
- Mediation attempt: The creditor should consider mediation as an alternative to court action, as this can be a faster, cheaper and less adversarial way to resolve disputes.
- Court proceedings: If the debtor does not respond to the letter of claim or the dispute is not resolved, the creditor can take legal action to recover the debt, but it should provide the debtor with a notice letter before doing so. When the court has served the claim, the debtor has 14 days to file their defence or enter an acknowledgement.
It’s important to note that the protocol is not legally binding, but failure to follow it may be taken into account by a court when assessing the conduct of the parties and determining debt recovery costs. It also applies only to disputes arising out of unsecured debts and not to disputes arising out of secured debts or disputes involving land or property.
Annecto Legal’s debt recovery solicitors
Commercial debt disputes often arise when you can least afford them. Take cash flow insolvency as an example. You may be in profit but also over-invested in staff or equipment, or maybe your customers have unpaid invoices, and you are left with a shortfall.
We provide access to specialist debt recovery solicitors and help you find the most cost-effective way to fund your commercial debt recovery case.
Funding a debt recovery claim
Many debt recovery solicitors are looking for alternatives to traditional fixed fee structures to provide an affordable debt recovery service. Commercial debt recovery can result in high levels of legal costs. Fortunately, there are funding and insurance options available to help both large and small businesses conduct litigation in a cost effective manner.
Third party funding
One funding method that is commonly used for commercial debt recovery is third party funding. Third party funding acts as a form of non-recourse financing for litigation. Third party litigation providers take on the financial risk of litigation so that clients can pursue a claim without having to worry about the legal fees associated with it.
In return for taking the risk, the litigation funder will typically seek a share of the proceeds in the region of a fifth to a third of any damages recovered. This means that you keep up to 80% of the reward, having taken none of the risk. If the claim is unsuccessful, the funder will lose their investment.
Damages based agreement
A damages based agreement (DBA), also known as a contingency fee agreement, is a type of arrangement made between a client and a solicitor in which the solicitor agrees to fund their case and share the risk of litigation. In return, the solicitor will be paid a percentage sum of the damages recovered as long as the client’s case is successful.
DBAs provide that, instead of being paid on a conventional hourly rate, the solicitor’s legal fees are only payable in the event that the case is successful. Therefore, these types of agreements allow clients the opportunity to pursue a case without having to worry about the solicitors’ fees associated with it. In some circumstances, however, fees for Counsel and other disbursements may still be payable by the client.
After the event (ATE) legal expenses insurance is taken out after the event that has led to a dispute has taken place. ATE insurance can protect you from paying your opponent’s legal costs, should your claim not be successful.
However, ATE insurance is not free, and it is important to remember that if your case is successful, you may have to use some of your reward to pay the cost of the insurance premium, which will be included in the terms and conditions.
The use of third-party litigation funding, CFAs and ATE insurance can sound complicated, but they are simply risk management tools and when used correctly, they can make all the difference to a partnership or shareholder dispute case.
How Annecto Legal can help with commercial debt recovery
Are you worried that taking legal advice from a commercial debt recovery team could be too expensive? Or that speaking to a lawyer will escalate matters?
Getting the right advice early, and without spending lots on legal fees, is the best way to save money and ensure effective company credit control.
Annecto Legal helps clients realise the value of their commercial debt recovery claims. We work closely with litigation funders, insurers and lawyers that seek alternatives to the traditional hourly rate funding model.
Annecto Legal Ltd, 106 Kennedy Building, Murray Street, Manchester , M4 6HS
0800 612 6587