What are your debt recovery options
Nothing hurts more in business than not getting paid for work you do or goods you supply to a customer. Being out of pocket is bad enough, but all the time, effort and cost required to recover the debt only adds insult to injury. So what do you do after the phone calls and dirty letters don’t work? Here are the basics of what your options will be when you come to a business lawyer who specialises in debt recovery.
Issue a letter of demand
Issuing a letter of demand under the letterhead of a law firm is a cheap and often effective option for debt recovery. Many slow payers will be motivated by the escalation in tactics by their creditor and will make amends quickly.
Filing a claim
Aka suing someone. Filing a claim with a Court and then having it served upon the debtor, with the seal and authority of the Court, is a serious weapon in your debt recovery arsenal. You can claim the original debt, interest and your legal costs (although these are not normally 100% of your actual legal costs).
If you are successful in your claim or the debtor does not respond to it, you will obtain a judgment of the Court. You can then enforce this judgment in a number of ways. Enforcement warrants are useful for seizing and selling assets such as land and personal property, redirection of earnings or debts, or even compelling the debtor to attend Court and answers questions about their finances.
If you have obtained a judgment against an individual, you can issue a bankruptcy notice to the debtor. If the debt is not paid within 21 days of the notice being served, the debtor is deemed to have committed an act of bankruptcy and in all but highly unusual circumstances, will be declared bankrupt by the Court. A trustee will then be appointed who will deal with the bankrupt’s assets and determine what, if any, payment can be made to creditors.
If the debt owed to you is owed by a company, then you can issue a statutory demand. If the amount owed is not in dispute than you are not required to obtain a prior judgment, but if there is some dispute as to the nature or amount of the debt, then you will need to obtain a judgment beforehand. Once the statutory demand is served upon the company, it has 21 days to pay the debt. If it fails to pay, the company is deemed to be insolvent and can be wound up by the Court and a liquidator appointed. As with bankruptcy, the liquidator will deal with the company’s assets and determine what, if any payment can be made to creditors.
There is one size fits all approach for recovering debts. Early steps can be quite similar but if a debtor remains unwilling or unable to pay then careful consideration is required before proceeding. Each debt and each debtor can require a different approach based on the size and nature of the debt, the financial status of the debtor and the importance of the debt to you.