Debt collection is crucial for UK businesses operating domestically or internationally. Unfortunately, outstanding debts are a common challenge that can pose significant financial risks. These risks are amplified when dealing with overseas debtors due to varying debt recovery laws and procedures across countries. That is why having a law firm that understands the intricacies around cross-border debt collection can be of vital importance to your business operations.
Pre-Action Protocol for Debt Claims
On 1st October 2017, the Pre-Action Protocol for Debt Claims is a set of guidelines UK businesses must follow before initiating legal action to recover debts from individuals and sole traders. Its primary purpose is to encourage early resolution of disputes without the need for costly court proceedings through the following components:
- Early communication: Businesses must make prompt contact with debtors to discuss the debt and attempt to reach an amicable settlement.
- Information exchange: Both parties are expected to share relevant information about the debt, such as copies of invoices and payment records.
- Alternative dispute resolution (ADR): The protocol encourages exploring ADR options, like mediation or arbitration, as a means of resolving the dispute.
- Pre-action letter: A detailed letter outlining the debt, the basis of the claim, and the desired resolution must be sent to the debtor before legal action is taken.
Non-compliance with the Pre-Action Protocol can have serious consequences, including:
- Cost implications: The court may order the non-compliant party to pay the other side’s legal costs.
- Delayed proceedings: Failure to comply can lead to delays in the legal process.
- Adverse inferences: The court may draw negative conclusions about the claimant’s case if they have not followed the protocol.
More info here: https://www.justice.gov.uk/courts/procedure-rules/civil/rules/pd_pre-action_conduct
Steps to debt recovery
This guide outlines the steps involved in the UK debt recovery process, from initial contact with the debtor through to potential legal action. By understanding the various stages and options available, businesses can increase their chances of recovering owed funds efficiently and effectively:
- Initial contact and demand:
- At first, it may be useful to contact the debtor by telephone call informing them about the delinquent payments and asking for the reasons that possibly justify the delays in settling the outstanding invoice(s).
- Following the calls, it is advisable to send the debtor a written demand letter that details the total outstanding amount inviting them to settle it within a reasonable time scale. It normally also provides that if the debtor fails to make the payment in such a timeframe immediate legal action will be started with further costs for the debtor.
- Pre-action procedures:
- In case the debtor fails to meet the agreed deadlines it is advisable to instruct a law firm that will carry out a preliminary due diligence to collect all the information and to check the current situation of the debtor. Indeed, it is fundamental to understand if the debtor’s asset will be able to cover the debt before starting a legal action.
- Alternatively, it could be worth settling at this stage to encourage your customers to settle their outstanding debt, saving them court fees and further costs.
- Legal action:
- Alternative Dispute Resolution: If the debtor is not cooperating during the preliminary phase, despite your efforts to settle it, before starting the consequent legal action, Alternative dispute resolution (ADR) can be the quickest and cheapest way to settle disputes through mediation, in case the debtor is cooperative and is willing to engage.
- Judicial Debt Recovery: in case all the previous attempts did not have the expected impact on the debt collection, it is time to take legal action through the following options:
- European Payment Order (EPO): in the event of an undisputed claim between the parties – when based within an EU Member State – it is possible to apply for a European Payment Order (EPO). If such a procedure is suitable for your case the creditor is asked to fill out a standard form and submit it to the competent court. Once EPO is issued and served, the defendant is allowed to object within 30 days. On the contrary, the applicant can ask the Court to make the order for payment enforceable. So, the order is now valid and enforceable in any Member State. PLEASE NOTE: even if this procedure can be really fast and cheap, the EPO is not advisable in case of disputed matters as upon objection of the defendant the procedure is immediately converted into an ordinary civil procedure losing the above advantages.
- Ordinary Civil Proceedings
- Small claims (debt collection for less than £10,000) with fewer and quicker hearings (or no hearings at all). Costs are rarely charged to the losing party;
- Fast track: for non-complex matters of a higher value (usually up to £25,000). They normally take longer than ‘small claims’ but the court could order the unsuccessful party to bear the costs of the proceedings, except where this would be unfair or unreasonable;
- Multi-track: Claims larger than £25,000, or particularly complex cases, are dealt with in ‘multi-track’ proceedings. On average, these proceedings take longer, with the final hearing usually lasting more than one day. It is likely that the losing party has to pay the costs of the proceedings, the amount of which is at the discretion of the court;
- Winding-up and bankruptcy petition: in the United Kingdom and unlike in other European countries, petitioning for bankruptcy is not very fast or cheap. Considered a ‘last resort’ in the debt recovery process, the UK bankruptcy procedure takes several months and is quite expensive.
By understanding the steps involved and seeking expert legal advice when necessary, your business can protect its financial interests. Our Italian law firm specialises in cross-border debt recovery, providing tailored solutions to help you navigate complex legal landscapes and maximise your chances of recovering outstanding debts.
