Business Debt Recovery Solicitors

Here are summaries of the basic procedures for each.

Debt Recovery from an Individual or Sole Trader 

Letter Before Action

Issuing a Letter Before Action (LBA) is an essential first step under the Civil Procedure Rules (CPR) for recovering delinquent debts through legal action.

An LBA — also called a Letter Before Claim — sets out what the debtor owes you and a timeframe for payment.

If you fail to send an LBA that meets the legal requirements before attempting to proceed in court, you may be forced to restart the relevant Pre-Action Protocol. 

Other consequences may include:

• Reduced recovery from the debtor of legal costs
• Liability for the debtor’s indemnity costs 
• Reduced or disallowed interest

The exact requirements of an LBA depend on the industry sector. 

For example, a unique protocol applies to engineering and construction disputes.

Legal Action

If you don’t hear back from the debtor after 30 days, you can commence court proceedings.

However, it’s essential to note that individuals and sole traders have the right to delay legal action under the Debt Respite Scheme (Breathing Space).

There are currently two types of breathing space:

• Standard breathing space gives up to 60 days of leeway to anyone facing problem debt. Most enforcement actions, debt collection contact, and interest/charges must be paused for the duration of the breathing space provision.
• Individuals and sole traders receiving professional treatment for a mental health crisis may be eligible for additional protection under the Breathing Space Moratorium and Mental Health Crisis Moratorium. Suspension of debt collection efforts typically lasts for the duration of crisis treatment + 30 days. 

If your debtor has applied for breathing space protection, you must cease pursuing the debt until the period ends. 

If a debt you’re pursuing is protected by breathing space, you should receive an electronic notification. 

You must follow the dates specified in the notice.

Typically, breathing space protections last for the following periods.

Standard Breathing Space

• 60 days from start date
• The day after cancellation by a debt adviser or the court
• The day after a creditor’s death

Mental Health Breathing Space

• 30 days after treatment ends; or
• 30 days after the debt adviser has no response from the creditor’s nominated point of contact

Once the breathing space period has elapsed, the Insolvency Service will notify you, and debt collection actions can recommence.

You can once again start applying interest, fees, and penalties backdated to the day the breathing space period ended.

Additionally, you can recommence any legal debt collection actions and start or continue litigating to recover the debt.

However, you cannot take the above if your debtor has entered a formal debt or insolvency solution, such as bankruptcy or an individual voluntary arrangement with creditors to service the debt.

Judgment

If you’ve had no response from your debtor thirty days after the notice date on the Letter Before Action, court proceedings can commence.

If the debt you’re pursuing is less than £10,000, the next step is to take legal action through the County Court or, for larger amounts or more complex cases, the High Court.

Directions will then usually be ordered to trial, including the steps that must be taken.

Once the court sets a hearing date or if the debtor/Defendant fails to respond in the applicable timescales, you, your barrister, solicitor, or a representative can apply for Judgment, or the trial will take place at which you and they must appear.

If your debtor fails to respond and/or the claim is deemed valid, a county court judgment (CCJ) can be issued against the debtor.

You can then follow the appropriate enforcement steps to collect the debt.    

Enforcing a Court Order

A court order for debt repayment is essentially just a piece of paper with the court’s stamp on it. 

Court orders are registered against the debtor’s individual or business credit profiles, but the court itself doesn’t enforce repayment of monies owed. 

If your debtor refuses to pay, you must enforce the court order yourself.

There are various enforcement options for debt repayment.

The best approach varies based on the circumstances of your case.

With significant debts, the most common and effective form of enforcement is a Charging Order against property. 

Using this approach, we can secure a Judgment debt against a property with the land registry and ultimately force its sale. 

Completing form N379 is the first step in obtaining a charging order against your debtor’s land or property. 

It is essential that the order is registered correctly with the Land Registry.

Otherwise, the charging order may be ignored, and the property/asset may be sold or remortgaged without you being paid. 

Alternative Methods of Enforcement

You can first ask the court to order the debtor to appear and provide evidence of their ability—or lack of ability—to pay the debt.

Court fees apply when you instruct the court to enforce the judgment.

In addition to charging orders, the following methods for enforcement exist:

• Apply for a warrant of control and send bailiffs to collect the debt. You can apply to the county or High Court for debts between £600 and £5,000. You may require legal advice for applications to the High Court.
• You can enforce a judgment using the Money Claim Online service if you filed the claim online.
  Alternatively, or if you used a paper claim form, you must complete:
  • Form N323 – to apply at a county court (you must be owed £5,000 or less)
  • Form N293A – to apply at the High Court (you must be owed at least £600)
• Ask the court for an attachment of earnings to recover monies owed from a debtor’s wages
• Apply for a third-party debt order to freeze money or assets in the debtor’s bank, building society, or business accounts by filling out form N349.

Although not technically a method of enforcement, it’s worth mentioning the value of obtaining a Personal Guarantee from a property owner in England and Wales. 

If the primary debtor fails to pay, the ability to pursue a guarantor adds considerable value. 

When the time comes to enforce a judgment, our commercial litigators will discuss all available options with you, including obtaining personal guarantees.

Debt Recovery from a Limited Company

The debt recovery protocol differs if you’re owned money by another business — such as a private or public limited company — rather than an individual or sole trader.

However, it’s essential to note that each case is unique, and you should formulate a plan before taking action — preferably after taking expert advice.

Blindly following any process risks missing something obvious, such as preventing a debtor from dissipating assets while you take the next steps.

With that in mind, here’s a step-by-step summary of the standard process for recovering commercial debts. 

Preaction

Commercial debt disputes are adjudicated under the Civil Procedural Rules (CPR), which contain pre-action protocols for the steps you must take before proceeding with court action.

Some types of commercial disputes have specific pre-action protocols, including:

• Construction and Engineering Disputes
• Professional Negligence
• Defamation

Helix acts in a wide range of disputes within the above categories, and we often find that a matter that starts in one category can lead to another. 

For example, if a company is in difficulty because of a poorly drafted contract, that might lead to a professional negligence claim. 

In commercial disputes without a specific protocol, the  Practice Direction on pre-action conduct offers guidance on what must be done before you can take a case to court.

According to the UK Ministry of Justice, the first aim of pre-action protocols and Practice Direction is to ensure each party has shared “sufficient information” to:

(a) understand each other’s position;

(b) make decisions about how to proceed;

(c) try to settle the issues without proceedings;

(d) consider a form of Alternative Dispute Resolution (ADR) to assist with settlement;

(e) support the efficient management of those proceedings; and

(f) reduce the costs of resolving the dispute.

To reduce the burden on the legal system, “litigation should be a last resort.”

If parties to the dispute fail to comply with the relevant pre-action protocols or Practice Direction, this may negatively impact the outcome of the case if it goes to court.

Letter of Claim or Letter Before Action

The party pursuing the debt should notify the debtor of the claim by issuing a letter of claim or letter before action. 

It’s essential to get this step right.

If legal action is needed, you must be able to show the court that your approach has been consistent from the outset.

If your position shifts, your conduct can be criticised for having wasted time and costs.

Perhaps more importantly, taking an unfocused approach makes you appear unclear on your own position, which could ultimately suggest you don’t have a consistent or strong case.

The exact requirements for a letter of action vary depending on the type of dispute. 

At a minimum, the letter before action should contain sufficient information about the claim for the debtor to investigate and decide whether the company legally owes the debt.

Claims, Service, and Pleadings

As the creditor, you must complete the correct claim form, pay any relevant fees, and file it with the appropriate court.

Full details of the claim must be sent to the debtor, who will have 14 days to acknowledge service or file a defence.

The claim and defence (if entered) are called pleadings.

The defendant is under no obligation to enter a defence. 

If the debtor fails to respond to the claim, the court will typically enter a default judgment against the defendant.

If you don’t follow up on pursuing the debt, the court may issue a stay of proceedings or order directions to trial.

In most cases, a default judgment has the same effects as winning the case before the court.

Default judgments can be set aside, but only in rare circumstances where strict conditions under the CPR have been met.

Case Management and Track Allocation

If the defendant in a commercial debt recovery dispute offers a defence, the case may have to be settled in court.

In commercial cases involving a claim for monies owed, there are four case management tracks. 

Track allocation in debt recovery proceedings is based primarily on the value of the claim.

• Small claims track: For debt recovery claims under £10,000
• Fast track: For claims between £10,000 and £25,000 (including interest)
• Intermediate track: Relatively straightforward claims between £25,000 – £100,000 
• Multi-track: Complex claims exceeding £25,000 (including interest)

Helix Law specialises in disputes allocated to the Fast Track, Intermediate Track, and Multi Track.

The track your case is assigned to will significantly impact case management, court proceedings and potential outcomes, including:

• Wait time before the case is heard
• Duration of court hearing(s)
• Payment and recovery of court costs and fees

To complicate matters further, intermediate and fast track cases are assigned one of four complexity bands, 1 being the most straightforward and 4 the most complicated.

Parties to the dispute can request a complexity band level, but the courts have the final decision.

The track and complexity band determines certain fixed costs that can be awarded in the dispute.

• Fast Track Fixed Costs
• Intermediate Track Fixed Costs

Alternative Dispute Resolution (ADR) and Settlement Offers

Parties in commercial disputes are strongly encouraged to engage in Alternative Dispute Resolution (ADR) methods like mediation, negotiation, or arbitration to reach a settlement agreement before the case lands in court.

Traditionally, ADR has been a voluntary process requiring the consent of all parties to a dispute.

However, recent developments, such as the Court of Appeals judgment in Churchill v Merthyr Tydfil County Borough Council, confirm that ADR can be mandated by court order. 

If the disputing parties don’t at least attempt to reach a settlement through negotiation or ADR, the court can penalise them regardless of who ultimately wins the case. 

Find out more about ADR in Commercial Disputes here.

Depending on the particulars of the dispute, an offer of settlement can also be appropriate.

For example, a Part 36 offer is a tactical option that can provide protection against legal costs in claims above £10,000 and can be made at any time during the proceedings.

In most instances, the earlier a Part 36 offer is made, the more potential benefits can accrue.   

Either the claimant or defendant can make a Part 36 offer, although the benefits to each differ.

Part 36 Offer Benefits for Claimants

If you make a genuine Part 36 offer to settle and your debtor refuses, it can lead to a better financial outcome if you win the case. 

If you secure a court award equal or better to your Part 36 offer, you may be entitled to the following.

• Indemnity costs after the Part 36 offer period expires (typically 21 days from the notice date)
• Additional interest on costs of up to 10% above the base rate
• An additional 10% on top of the amount awarded by the court (up to £75,000)

Part 36 Offer Benefits for Defendants

In rarer circumstances, a Part 36 offer may also benefit debtors, such as reduced exposure to costs if the claimant’s case weakens or the claimant fails to obtain a more favourable award than the settlement offered by the defendant under Part 36.

Part 36 offers should be made “without prejudice save as to costs”, keeping them confidential from the court until a judgment is reached.

Interim Applications

Before a trial begins, either the debtor or the creditor can make an interim application to the court.

The party requesting the application is known as the applicant, and the other party is the respondent.

Interim applications are typically made for two reasons:

• Case management issues such as document disclosure and exchange of evidence
• A request to the judge for payment of costs. If granted, the recipient will likely be subject to a court order to pay the applicant’s estimated costs up until the end date of the application.

Evidence; Inspection and Disclosure   

Prior to a case proceeding to trial, the court will issue a standard disclosure order.

Disclosure of evidence enables the disputing parties to evaluate the strength of each other’s legal positions and — perhaps — reach a settlement before going to trial.

What must be produced in a disclosure order varies by what track the case is on and/or by the relevant Practice Direction.

In broad strokes, disclosure generally requires all parties to produce the following:

• Documents that support their case
• Documents that may adversely affect their position
• Documents that support the case of opposing parties

To achieve a successful outcome through litigation, you must prove your case before the court.

In many commercial debt recovery cases, this is a relatively straightforward process.

However, more complex claims may require evidence in addition to documents, including:

• Witness statements
• Expert evidence

Depending on directions from the judge, witness statements and expert evidence can be submitted in written form or given as oral evidence at trial.

Trial

Once you’ve exhausted all viable options to reach a settlement, the case can proceed to trial.

The formality of hearings before the court varies widely, based largely on which track the claim is on.

Small claims track hearings can be relatively casual, while complex fast or multi-track claims result in a more formal trial.

At the conclusion of the trial, a judge will decide the following:

• Liability: If the defendant loses the case, they will likely be found liable for all or part of the monies owed and/or damages claimed.
• Quantum: The amount of financial compensation to be paid 
• Costs: The general principle of costs in commercial disputes is that the loser pays the winner’s costs as well as their own.
  
  However, the judge has discretion over whether any party to the case must pay all or a portion of another party’s costs.
  
  The framework for awarding costs also differs by track.
• Small Claims Track: Legal fees for consulting or instructing a lawyer are not recoverable in cases allocated to the small claims track. Whether you win or lose, you may be able to recover court fees and nominal fixed costs.
  
  
• Fast and Intermediate Track (Fixed Costs): Intermediate and fast track claims have a schedule of fixed recoverable costs based on various factors, such as the value and complexity band of the case.
  
  If your actual expenses exceed the fixed recoverable costs, you will be liable for the difference, no matter who wins the case.
  
  You can find the current fixed cost tables under Practice Direction 45 here.
  
  
• Multi-Track: Cases allocated to the multi-track are typically complex and/or high-value claims (over £100,000).
  
  Legal costs in many multi-track cases valued below £1m are “pre-managed” by the court. Each party with legal representation must submit a cost budget for approval by your opponent and/or the court.
  
  Costs management by the court sets out the rules and a timetable for the case. It helps ensure all parties are treated fairly and that costs remain reasonable and proportionate.
  
  If you’re involved in a multi-track claim, reviewing the budget during proceedings is essential to ensure it tracks the actual costs incurred. 

Otherwise, you may be limited in how much of your costs you can recover — even if you win the case.

100% recovery of costs in multi-track cases occurs rarely, if ever.

If you achieve a successful outcome and are awarded costs, it’s common practice to negotiate with the losing party and settle on recouping a percentage of your total expenses.

We usually expect costs recovery in the region of approximately 65-70%.

If you cannot reach an agreement with your opponent, the matter of costs will be assessed by the court on either a standard or indemnity basis — which can be like a miniature trial in itself.

The court can also order that interest be paid and, in some instances, impose punitive damages of up to 10% of the awarded costs. 

Unfortunately, there’s no guarantee that you will be able to collect the awarded costs, especially from a debtor facing insolvency or bankruptcy.

You remain liable for your costs even if you cannot recoup an award from the court. 

Why Choose Expert Commercial Litigation Solicitors over Collection Firms?

Collection firms sell their services by making it sound easy for businesses to recover commercial debt for unpaid invoices.

However, in reality, debt collectors have limited leverage over debtors and few tools at their disposal.

In many instances, the steps collection firms take merely add up to what a proactive company owed money will have already taken, such as calling, writing, or otherwise trying to speak with the debtor and threatening bailiff attendance or insolvency. 

Many commercial debt collectors are not legally qualified and are uninsured. 

More crucially,  they’re frequently ineffective. 

By contacting the debtor, you’re putting them on notice that the debt is being pursued. 

If a debtor doesn’t take proactive steps to pay, the risk is that they take the warning and opportunity to dissipate assets or formulate arguments over why monies are not due and owed. 

When the collection firm process is unsuccessful, it makes life harder for a solicitor pursuing the debt — and for the creditor.

The legal process for recovering the debt becomes more complex and expensive if the debtor has taken steps to avoid paying the monies owed.

By that point, significant time and often money will have been wasted, and the debtor may have made themselves harder or less attractive to pursue.

Your debt recovery options become more limited as a result.

Taking a well-reasoned and considered approach at the outset is fundamental to positioning you to recover your money successfully — ultimately saving you time, money, and aggravation.

Our commercial litigation team at Helix Law specialises in high-value disputes, with sums often ranging from hundreds of thousands to tens of millions.

We can also assist with lower-value disputes. 

Whatever your situation, we’re well-versed in taking the appropriate legal steps to protect and improve your position — especially where a debtor or guarantor is known to have assets but seeks to delay or avoid paying you. 

If you find yourself in this unfortunate — but all too common — situation and would like an initial conversation, please complete the form below, and we will be happy to assist you. 

Helix Law acts nationally, and we aim to respond to queries within an hour.