Effective debt collection procedures are an essential part of any business; not only does debt impact on cash flow but also one’s ability to trade. If you find yourself in a sticky situation it is important to know the best way of recovering money when the debtor is unwilling or unable to pay.
Here are some of the most common options available to a creditor to recover debt.
This is the most common method, but litigation is never without its risk and remains an expensive exercise (although there are various methods open to a party to fund a claim). Recently, there has been a significant rise in court fees and a claimant must also be aware that obtaining a judgment against a defendant may only be half the battle, as it can be both time-consuming and expensive to enforce a judgment.
Winding up proceedings
A creditor can make an application to wind up a company on the grounds that it is unable to pay its debts. The advantages are that the threat can put considerable pressure on a company to pay a debt promptly and that the basic procedure is relatively quick and inexpensive. Set against that, winding up proceedings are not something to be undertaken lightly and should not be used where the debt is disputed or if the company has a genuine cross-claim or right to ‘set-off’. Furthermore, there may be very little by way of a dividend to be paid to unsecured creditors once the company has entered into liquidation and, even when there are assets available for distribution, there is often a substantial delay before the dividend is paid.
This can be a very effective tool in resolving disputes and is now actively encouraged by the courts, so much so that, if a party unreasonably refuses to engage in mediation first, then this can lead to them being penalised. Perhaps more importantly though, mediation may allow the dispute to be resolved without significant harm to the creditor’s trading relationship with the debtor.
Nick Southwell is an experienced litigator who handles a range of commercial disputes. These include contractual disputes, landlord and tenant matters, property disputes and professional negligence claims. He is an accredited civil and commercial mediator.We're here to help