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Since the start of the recession it appears that many businesses are finding it more difficult to recover their debts as debtors increasingly use questionable tactics to stall or evade payment.
Debtors may have what in their eyes seem legitimate reasons such as the debt is disputed or there is a counterclaim which they want to set off against the original debt. Nevertheless, Pearson Hinchliffe Commercial Law’s Litigation team is reporting that, since the downturn hit, it has been noticeable that more and more debtors allege that the debts they owe are not due in a bid to buy time while their own liquidity improves, in effect using their creditor’s money to run their business.
The ploy is often used by debtors to strengthen their position in negotiating a discount in paying their debt. They hope that their creditors will see it as too time consuming and costly to recover the debt either through the County Court or by issuing a winding up petition.
However, debtors should be warned against raising specious ‘defences’ or ‘counterclaims’ in order to avoid payment, as the debtor will have to prove it has a valid dispute or counterclaim should proceedings be issued. This will also increase the costs of these proceedings significantly, which ultimately the debtor will be ordered to pay.
The first port of call for a business wishing to recover a debt is a formal letter before action. They are rarely ignored by the recipient and generally bring an end to procrastination and hollow promises of payment. They are also important as failure to send a letter before action may result in the creditor being penalised in costs in any subsequent proceedings as the debtor may claim that had he known the seriousness of the situation, he would have paid without the need for the costs to have been incurred.
If you are owed commercial debts and would like advice on debt recovery or litigation, please contact our debt recovery department on 0161 785 3500 or email christopher.burke@pearson-hinchliffe.co.uk.
Alternatively, click here to contact a specialist litigation solicitor
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