What sort of things should I consider before commencing court proceedings for a debt recovery claim?

Far too often parties commence Court proceedings when one of their invoices has not been paid without giving sufficient thought to the matter.

This article looks at some of the matters you should consider before embarking on Court proceedings.

Who is my claim against?

Before commencing Court proceedings you should satisfy yourself as to who your claim is against. This may sound like an obvious point. However, a surprisingly large number of claims are brought against parties who have been incorrectly named. Quite often this is because businesses often operate under a trading name and it is not immediately clear what the legal status and correct identity of the business is. On other occasions confusion may arise where the name or legal status of a party has changed.

You should, therefore, ask yourself whether your claim is against an individual, a partnership, a company or some other type of organisation and whether you know the correct and full name of that party.

In the case of limited companies and limited liability partnerships basic information can be obtained from Companies House free of charge. This may, for example, help in clarifying the correct name of a party or checking when a company was incorporated.

If a claim is brought against the wrong party or a party who has been incorrectly described you may end up needing to amend the claim and re-serve the Court documents. This could be a costly process.

Will my debtor be able to satisfy any judgment I obtain against them?

If your debtor does not have the money to satisfy any judgment you may obtain against them there is little point throwing good money after bad.

If you do not know what assets your debtor has or you have concerns as to their financial position it may be worth making further enquiring before embarking on Court proceedings. Carrying out a credit check is one way of doing this.

If your debtor is a limited company you may wish to check with Companies House that the company hasn’t been dissolved, placed into liquidation or administration or struck off. It is also possible to check with Companies House whether the company has filed its accounts and annual return on time. If they have not this may be a sign that the company is in financial difficulty. This information can be obtained free of charge. Copies of any accounts and annual returns filed with Companies House can be obtained upon payment of a fee. However, you should bear in mind that a company’s financial position may have changed since such documents were filed.

In the case of individuals you may wish to obtain “office copies” from the Land Registry for the property they live at. There is a small charge for obtaining these. The office copies will confirm whether your debtor owns the property, whether there are any outstanding mortgages or charges on the property and when it was purchased. In the case of properties purchased after December 1994 the office copies will also show the price paid for the property. The office copies will not tell you how much is outstanding on any mortgages or charges. However, they may enable you to form a view as to whether there is likely to be any equity in the property. If, for example, the property was purchased many years ago and there are no recent mortgages on the property then it is generally, although not always, safe to assume that there will be some equity in the property.

In the case of individuals you may also wish check with the Insolvency Service whether the individual is bankrupt or has recently been subject to a bankruptcy order. There is no charge for carrying out a search of the Individual Insolvency Register.

Can I prove my claim?

If your debtor defends the Court proceedings you will need to prove your claim by satisfying the Court that it is more likely than not that the sum claimed is due.

If you are unsuccessful in your claim or you discontinue your claim you could end up having to pay the other party’s costs. Their costs could be substantial. For this reason it is a good idea to ensure that you have sufficient evidence to support your claim before embarking on Court proceedings.

In a typical debt recovery case you will need to produce evidence as to the amount claimed and showing how the debt arose. Typically such evidence will consist of copies of the invoices claimed, an up to date statement of account, a copy of any formal written contract relied upon and/or standard terms and conditions, correspondence relating to the matter, order forms, delivery notes and witness statements confirming the matters set out in the documents and any other matters not dealt with by the documents.

In practice it is quite unusual for claims to be won on the basis of written evidence alone. You should, therefore, consider who will be able to give witness evidence on your behalf, what their evidence is likely to be and whether they will be able to attend Court to give evidence on your behalf, if required.

What will court proceedings entail?

Court proceedings can be costly and can be time consuming. For this reason you should carefully think how much the proceedings could cost you, particularly if there is a likelihood that your claim will be defended. You should also bear in mind that management and employee time will be lost in dealing with the claim and attending Court.

Are court proceedings the only answer?

Court proceedings are not the only answer. In fact these days the Courts expect parties to consider alternative methods of resolving their disputes. There are a number of ways in which disputes can be resolved without recourse to the Courts. These are collectively known as “alternative dispute resolution” (commonly referred to as “ADR”) and include processes ranging from informal negotiation to mediation.