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To sue, or not to sue? That is the question.

14/01/2014 | Simon Walton

As a litigator, I am often approached by individuals and companies alike who are, unfortunately, owed money. Many have, before coming to me, been patient in the face of broken promises. On the other hand, some say that the debt they are owed is disputed – be it on spurious grounds or otherwise. Others say there is no dispute but they are simply being ignored either because the person or company that owes them is unscrupulous, or because they have no money to pay. Naturally, anybody in that situation wants to know how they can get their money. Many say they want to ‘sue’ but do not understand the process, the costs, or the likely end result.

Broadly speaking, there are two routes you can travel to try and recover monies owed to you. The first is the more traditional County Court/High Court route. This entails ‘suing’ the debtor by issuing Court proceedings. The alternative, assuming the debt is at least £750, is to serve on the debtor a statutory demand for payment which ultimately leads to the insolvency of the debtor (by way of bankruptcy if the money is owed by an individual or compulsory winding up if by a company) if the debt remains unpaid after the time limit on the demand expires. I deal briefly with each of these below.

The Court Claim

The first step in the process is to draft a Claim Form and Particulars of Claim. These documents set out all the key information about you and the debtor, the amount of the debt and how the debt arises. The length of the documents – the Particulars of Claim in particular – will depend on the complexity of the case. Smaller claims (say up to £50,000) would usually be issued in the County Court.  Larger claims (those over £100,000) are issued in the High Court. There is a fee payable on issue which varies depending on the amount of the claim. The fees range from £35 for a claim up to £300, to £1,670 for claims more than £300,000.

Either the Court would then serve the documents directly on the Defendant or the proceedings are returned to us by the Court for service. Once served, the Defendant has 14 days to file an Acknowledgment of Service form with the Court in which the Defendant will indicate whether the claim is admitted, part admitted, or disputed. If the Defendant fails to file anything, then an application can be made for Judgment in Default (the Judgment is “in Default” because the Defendant has failed to respond to the Claim in the allotted time period). In most cases the Defendant does file the Acknowledgment of Service within the 14 day deadline. When they do, and assuming they indicate an intention to defend, the Defendant then has until the 28th day after the original date of service of the Claim Form and Particulars of Claim to file a Defence with the Court.

Once a Defence is served, broadly speaking the parties will seek to agree a timetable for the onward conduct of the claim including the exchange of documentary evidence (disclosure) and witness statement evidence. Thereafter, the time it will take for the case to reach the Court for a trial will depend on a number of factors. Typically, and if the matter is not settled along the way, you should expect a claim to come to Court no sooner than 12 to 18 months after issue of the claim.  The process takes some time and can become costly over that period, particularly if the matter does go to trial.

Statutory Demand

Serving an individual or a company with a statutory demand is an aggressive and often effective tactic in debt recovery especially in circumstances where a debtor accepts they owe you money but is being slow or difficult in paying. It forms part of the insolvency regime and is used to demonstrate to a Court that the debtor in question is, by failing to pay the sum demanded, insolvent. A recipient of a demand knows that when served with one, if they have no good reason why they are not paying, then in 21 days’ time they could be served with either a bankruptcy or winding up petition. In this sense, it can have quicker results than issuing proceedings in Court and, in the first instance, is cheaper. There is no Court fee to pay. Whilst the statutory demand must be completed correctly in accordance with strict Insolvency Rule requirements, it is a relatively straightforward task which can be completed by us at low cost.

However, because it is an insolvency tool designed to prove that a debtor is either unwilling or unable to pay, if the debt you are claiming is disputed on material grounds, then ultimately the statutory demand may not be the right avenue to pursue. This is why the first question I ask my clients when faced with this situation is whether or not the debt is disputed and, if it is, on what grounds. Feeble and unmeritorious excuses dressed up as a genuine dispute will not suffice nor should it prevent further action being taken after the 21 day deadline has expired. Indeed, in cases where you believe you are being “fobbed off” by the debtor then the statutory demand has proved to be excellent encouragement for payment to be made. However, if there is a genuine dispute from the debtor then, in most cases, the statutory demand will not be the appropriate method and you will have to issue proceedings at Court.

Further, whilst the upfront costs for the statutory demand are small, if the demand is ignored and you then wish to present a petition, the fees – specifically the Court fees – do increase to around £2,000 which includes a deposit paid to the Insolvency Service. In addition, it may be necessary to serve the statutory demand and/or petition personally using a process server – which adds additional costs.

Does the Debtor have money?

One of the key questions I ask my clients when faced with a situation where they are owed money is whether or not there is a good prospect of recovery. Whether you issue proceedings through a Court or serve a statutory demand you are unlikely to get any money back if the debtor has no money. Nobody wants to spend significant amounts of time and substantial sums of money on legal fees and third party expenses to achieve “victory” only to discover that there is no chance of recovering actual money.  Similarly, making somebody bankrupt or liquidating a company may provide personal satisfaction, but may ultimately result in no returns from the insolvency estate when you join a long queue of other creditors.

How we can help

Rosenblatt’s Dispute Resolution team offers advice and commercial solutions to fit your particular problem. We recognise that in times of great need you need practical, straight forward and useful advice and not just what we think you want to hear. We have an excellent track record at achieving positive results for our clients wherever possible and do so promptly and efficiently. If you would like to know more about the services our Dispute Resolution department provides please contact me on 020 7955 1455 or simonw@rosenblatt-law.co.uk, or my Partner, Anthony Field on 020 7955 1440 or anthonyf@rosenblatt-law.co.uk

This bulletin should not be taken as definitive legal advice on any of the subjects covered. If you require legal advice on any of the subjects covered please contact Simon Walton on 020 7955 1455 or simonw@@rosenblatt-law.co.uk

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