Quiz night in aid of Cotswold Care Hospice on 18 June 2009
10/07/09
How long do you give a debtor before taking them to court? New rules require you to send a specific Letter Before Claim.
Thursday 9th July 2009
You used to be able simply to write to a debtor to give them a last opportunity to pay before you issued court proceedings. Often, the time limit for payment was 7 days. However, the court rules have recently been amended to include a new Practice Direction which governs parties’ behaviour before court proceedings are issued. Failure to comply with it could be very costly indeed. Even if you win the court could decide not to allow you your costs or worse could order you to pay the other sides costs with interest up to 10% above base rate.
The good news is that the new Practice Direction does not apply if you are going to issue insolvency proceedings. The bad news is that it is likely to lengthen the time between you deciding you want to issue proceedings and actually being in a position to do so.
So what difference does the Practice Direction make? The main changes are that specific, detailed information must be given in and with the Letter Before Claim and that you will have to allow a reasonable time (consider 14 days to be a minimum) for the debtor to respond before you can issue proceedings. In particular, it will have to include:
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Your full name and address,
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The basis of your claim,
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A clear summary of the facts,
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A list of the documents relied upon (with copies enclosed)
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Whether mediation or other form of alternative dispute resolution is appropriate
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A list of any documents concerning the debt the debtor has which you wish to see.
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If the debtor has not instructed a solicitor, you must mention the Practice Direction and the courts’ powers to penalise them if they do not comply with it.
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If the debtor is an individual and you are a business, details of how to pay, the possibility of instalments payments and availability of free independent legal advice
All of this will lengthen the time before you can issue court proceedings, but when you do, you must state in the claim whether you have complied with the Practice Direction. If you have not, the court is likely to suspend the proceedings for you to go through all this anyway.
The good news is that this process allows the parties to understand each other’s position and their evidence and to try to negotiate a settlement in order to keep legal costs down.
So, what can you do to minimise the delay? Firstly, have a robust credit control system with specific stages and a tight timeframe which is followed every time, without exception.
Secondly, you (or your solicitor) can send a formal letter of demand to flush out real disputes or rattle late payers into paying up. If they ignore this, however, you will still need to send the letter complying with the Practice Direction. Therefore thirdly, be ready with the supporting paperwork when you want to send the Letter Before Claim.
The court rules are not clear as to how closely or fully this Practice Direction must be followed for small claims (up to £5000) but until there have been some cases to clarify this, it is better to be safe than sorry, as costs are always at the discretion of the court.
This article provides general information and should not be relied upon. For further information on the new practice direction and details of how AES Winterbothams commercial disputes team can assist with your credit control and debt recovery needs please contact: Partner: Susan Castle on 01453 847214 or sfc@aeswinterbothams.com Solicitor: Catherine Green on 01453 847209 or cjg@aeswinterbothams.com.