The Debt Collection Process - Northern Ireland

Late payment and its effect on the financial viability of your business is of concern regardless of what business you are in.  It is a well known fact that the earlier a debt is processed through the legal route the easier it is to recover.

Before submitting a file for legal debt recovery creditors need to know the following information;

If the Debtor is a Company:

• The full title of the company involved

• Is the customer a Limited Company / Sole Trader / Partnership / Individual?

• Where the company ’s Registered Office?

• Does it trade from any other address?

• What is the company’s Registration number?

If the Debtor is an Individual:

• What is his/hers full name and address?

• Do they trade under any other title?

Company Search

It is important that legal proceedings are entered under the correct debtor name, therefore, it is Morgan McManus policy to conduct a Company search in order to ascertain the correct title for each customer submitted.

On receipt of instructions to collect a debt Morgan McManus provide to the client a very clear and precise Instructions Sheet to ensure that the correct information is collected at the start of the process, thus ensuring more speed in the debt collection process and less chance of the Debtor escaping liabilityLiability
Liability means legal responsibly for one's acts or omissions. Failure of a person or entity to meet that responsibility leaves him open to a law suit for any resulting damages or loss which may occur to the other party. by reason of misidentification or missing critical financial information.

Terms & Conditions

It is a good policy for each business to have clearly written Terms & Conditions as this will assist you in the event that you have to issue legal proceedings for the recovery of outstanding monies. Credit terms should also be clearly set out to ensure that customers are fully aware of your company’s credit terms.

Morgan McManus have created a FREE template Credit Application Form for clients to furnish to their customers at the start of the business contract. To obtain a copy of this Form, please contact us.

 

Enforcement Of Judgments

Judgment

If a Creditor successfully obtains Judgment against the Debtor (whether in a defended or undefended case) statutory interest, currently at the rate of 8% per annum, will be applied to the Judgment amount.

Statutory Interest on Commercial Debts

This can be claimed under the Late Payment of Commercial Debts (Interest) Act 1998. In some circumstances costs of up to £100 can also be claimed.

• The rate of interest is 8 per cent over the Bank of England reference rate - the base rates are set on 30 June and 31 December.

• Statutory interest does not apply when you sell to the public. Both seller and buyer must be acting in a commercial capacity.

• For contracts made since 7 August 2002, all businesses and the public sector can claim against all businesses and the public sector.

• Statutory interest can be claimed after late payment has been received. The limit is six years in Northern Ireland.

• The interest usually runs from 30 days after it was due and claimed. A contract or custom and practice may change this, but only if it gives a substantial remedy.

• A contract can't exclude statutory interest, but it is not compulsory to claim it.

Costs can also be awarded but tend to be relatively minimal if the case is not defended.  Once Judgment has been obtained, there are various options and enforcement methods which can be pursued.

 

Enforcing the Judgment

It can be difficult to enforce any judgment made by the courts. There are a number of steps you can take to recover what you are owed following a court decision in your favour. It is important to bear in mind that (unlike the Republic of Ireland, where the Creditor undertakes these Applications himself through his solicitor) in Northern Ireland a lot of these Applications are undertaken through the Enforcement of Judgments Office on payment of specified fees.

It is necessary first to check that the debtor can afford to pay you. You start by asking  the court for an Order to Obtain Information from the judgment debtor. This orders your debtor to go to court for questioning under oath about their finances. Once you know your debtor's circumstances, you can decide whether it's worth applying to the Court for one of the enforcement actions described below.   

Attachment of Earnings Order

This usually applies to an individual person in employment, but it can apply to private pensions too. The Court can make an Order instructing the employer to make deductions from the debtor's wages or salary at source.

Third-Party Debt Order

This is where the Court orders a freeze on money held by a person, institution or organization, which might otherwise be paid to a Defendant Defendant Also known as the Respondent , the defendant is the party who is sued in a civil law action. against whom you have a Judgment. Thus, the holder is the third party and the Order will prevent withdrawal of the money until the Court decides whether all or part of it should be paid to you.

Charging Order

The court places a 'charge' on the debtor's property, equivalent to the amount you are owed. The property could be a house, stocks or shares, or money. A Charging Order does not oblige the debtor to sell their property, but if they do, they must pay you before they can take the rest of the proceeds. This would have the effect of prohibiting any dealings on that property until the relevant debt is discharged. The Creditor can also apply to have the property sold to obtain funds to discharge the debt. This is done by way of an application for an Order for Sale. Statutory Interest of 8% per annum, continues to be incurred while the Charging Order remains in place.

Receiver for an Equitable Execution

If you believe that you can't recover your debt using the methods above, you can apply to the Court to approve a Receiver - who you have selected - to conduct an Equitable Execution. This involves the Receiver collecting money which the debtor is owed, eg rent, in order to repay you.

Registration of Judgments

One option open to a Creditor involves the registration of the Judgment.  Various Trade Gazettes publish these Judgments on a weekly basis and the threat of publicity is sometimes considerable encouragement for the Debtor to pay his debts, especially if the Debtor is actively trading.   However, it is important to be cautious when adopting this option as it may result in an outcome beyond that which was intended.  Registering a Judgment may have serious consequences for the Debtor. It may even result in the Debtor becoming insolvent and going out of business. If this occurs, recovering the debt may become an expensive and time consuming process with no guarantee of a successful action.  It is also extremely important to note that if Judgment is registered mistakenly or after payment of the debt has been received, the Debtor is permitted to sue for defamation and may be entitled to claim damages.  Furthermore, when Judgment has been satisfied, it is important to remove it from the register.

Winding Up and Bankruptcy Petitions

Most suppliers, investors and staff try to get their money by issuing a claim. But you can issue a winding up (company) petition or a bankruptcy (individual) petition instead.

Winding Up and Bankruptcy are also ways of enforcing a Judgment after a claim has been won, in an effort to actually get your money. However, unpaid tax and wages take priority over other debts for any of the debtor's available funds.

How Winding Up works

• It applies to a company rather than an individual.

• After the winding up the company ceases to exist.

• If the company is insolvent at the time, not all the creditors get paid in full.

• Rules apply and each creditor gets a percentage of what they are owed.

How Bankruptcy works

• Bankruptcy applies to a person or a general partnership.
  If it is a general partnership, all the partners are made bankrupt.

• The assets are sold and the proceeds are paid to the unpaid creditors.

• Each creditor gets a percentage of what they are owed.

The threat and how it works

Often the mere threat of Winding Up or Bankruptcy is very effective. But if the customer still refuses to pay you might consider the following steps:

1. A Statutory Demand can be prepared and issued by the creditor.

2. On receipt, the customer has a fixed number of days to pay or respond.

3. If they do not do so, you can issue a Winding Up (company) or Bankruptcy (individual) Petition.

4. If you follow all the procedures correctly, and the court finds in your favour, the customer will be wound up or made bankrupt.

5. But just because you issue the petition does not mean you get priority over whatever money becomes available.

The law assumes that a Statutory Demand merely paves the way for a Petition but it can be a very powerful debt collecting device in its own right, without the need to proceed to a Petition. If the Demand results in the issue of a petition (not an order for winding up), no matter how easily dismissed by the court, it can trigger a reaction from your customer's other creditors. The Petition may be publicised on the internet, which means that small businesses have an effective debt collection tool against customers of all sizes. It is important to note that you can only go down this route (without Judgment) where is money is definitely owing.

As a last resort, if the amount you're owed is more than £750, you can apply to make an individual debtor bankrupt, or issue insolvency proceedings if the debtor is a limited company. Such proceedings can be costly.

Appointing a Liquidator or Trustee

Where a company is put into liquidation or a person is made bankrupt, you may have to appoint a licensed liquidator or trustee in bankruptcy.

Insolvency practitioners charge fees to the money recovered and you may have to guarantee these fees if the money recovered is not enough.

Restoration of a Company

Where a company has been wound up, leaving debts owing to a Creditor, the Creditor can apply to have the Debtor company restored to the Register of Companies, to facilitate the pursuit of the company and its directors to recover the debt owing.  This is sometimes the only means by which a debt can be recovered from a company that is dissolved prior to paying off its debts. In such cases, the Revenue Commissioners may seek to recover any monies owing to them.  

Legal Fees

Our fees and charges are agreed with the client in advance of any action by us.  Those fees and charges are tailored to suit our client’s needs. Our charges can include a commission element or, if the client prefers, our fees can include more of a fixed fee element.  Often the receipt of a solicitor’s letter by a debtor will often be sufficient to bring matters to a satisfactory conclusion and court action can be avoided. The letter often prompts full or partial payment or a negotiation process in which we are often active participants usually by way of negotiation over the telephone based on instructions from our client.

If the matter proceeds to the issue of court proceedings, in addition to our commission charges on monies recovered, there are also scale fees.

The scale fees are set by the Government and are calculated by reference to the amount of the debt. These are recoverable from the Debtor if the case is successful. As the scale fee and the commission tends not to be an economic return for the work undertaken for issuing and serving court proceedings , we also charge you for certain costs of the firm which are not recoverable from the Debtor. Such costs reflect the time cost undertaken and also cover outlays such as postal charges.  The scale fee and costs charges are in addition to the commission on monies recovered.

If we are obliged to attend in court or are required to proceed to a Judgment in one of the above courts, then there will be additional costs in connection with preparing for the Court Hearing or the enforcement of the Judgment and any further action. There will also be additional charges incurred if it is necessary to engage a barrister in the Circuit Court or High Court proceedings.

It should also be noted that we are obliged to charge Vat on all our fees.

Should you wish to engage us in your debt recovery cases, we will provide to you a more precise and definitive guide to the fees and costs likely to be incurred by you in relation to your particular case and this will be based, as appropriate, on a detailed review with you of the circumstances of the monies owing to you.