Debt Collection in United Kingdom

Practical Guide

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United Kingdom

Is there a minimum amount to start a legal action?

When invoices, requests and reminders haven’t done the job and you’re owed money in the UK, how do you get it?

Whether the debt is big or small you can make a claim for it in the Courts. And there’s no minimum value threshold you need to meet before you can claim. So while the sums involved do affect the specific courts you use (and how you use them), so long as you want to sue you can get to court and get what’s yours.

Will the due amount condition the type of procedure and does the looser pay?

If you expect to get less than £100,000 you will generally have to start your claim in the County Court. This can be done online via a portal called the County Court Money Claims Centre.

If the debt is higher than £100,000 you will begin in the High Court which is where higher value and more complex disputes are resolved.

Other than the specific Court in which you begin, the size of your claim also affects some of the procedural and costs rules which apply. Remember the basic rule in England and Wales – Loser Pays.

If the value is under £10,000 the Small Claims Track gives you a simplified procedural system for dealing with the claim. However there is a limited capacity to recover your costs if you are on the Small Claims Track – in short, the loser pays rule does not apply so you can only recover a small amount of costs even if you win. This includes the Court Fee, for example, but you will only get a tiny amount of your legal costs back.

If the debt is worth between £10,000 and £25,000 the case will probably be on the Fast Track. Costs recoverability is different here again: the loser pays rule applies but only until the trial begins. At that staged ‘fixed costs’ come into force for the trial; and these are modest (for example you can only recover £1650 in legal trial costs even where the dispute is worth more than £15,000).

What is more (or rather less!) even the pre-trial costs will be limited by the Court to those which are ‘proportionate’ and the Court will take a very active role in deciding what that means.

All other claims are Multi Track claims and generally this means the dispute has to be worth over £25,000. Reflecting the complexity of disputes, the practices and procedures on this track are more flexible than on the other tracks. But on costs the normal rule applies: loser pays.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

These are critical. In particular, you (or your lawyers) need to identify which Pre-Action regime applies to your claim and comply with it; whether this is the Practice Direction Pre-Action Conduct or a more specific Pre-Action Protocol. This means that, before you start your claim, you need to send a Letter Before Action (‘LBA’) – a formal letter requesting payment of the debt and warning of Court action if the other side do no pay.

The Pre-Action regimes are important because the legal system here expects you to try and negotiate a settlement and you may be penalised in costs if you do not. So, even if your contract does not have an alternative dispute resolution (‘ADR’) clause, considering some type of ADR is sensible. It is important to send the letter as soon as possible after deciding to pursue the legal route as the debtor will be expected to reply and you may be expected to give them further time to reply in certain circumtances.

Ultimately, warning letters are key to the Pre-Action regimes and form an important step which should involve lawyers.

What are the best practices for creditors to increase the possibility to recover the debt?

Act early and try to maintain as much documentation as you can. In England and Wales the Courts require the parties to disclose relevant documents to the other side and you to allow your opponent to inspect them.

Most judgments are satisfied voluntarily by the judgment debtor. However, if the debtor still does not pay, then you will need to use Court processes for enforcing judgment debts. These can be complex, so it is sensible to get legal advice.

How can a foreign creditor start a procedure for international debt collection the United Kingdom (England & Wales)?

This happens in the same way for foreign entities and individuals as it would for domestic ones. In brief, after your warning letter is sent, you will need to ‘issue’ the Claim which means paying (a modest sum) for a document called a Claim Form, and this form will need to be sent to the debtor in a lawful way (the rules on this are technical so again it best to lawyer up!).

This Claim Form creates the legal proceedings. Without it no claim exists. Alongside the Claim Form your lawyers will prepare other documents which set out the basis of your claim and the money you seek in more detail.

What documents are necessary for the debt collection in the United Kingdom (England & Wales)?

You will remember from earlier that documents are key for litigation in England and Wales. For example, in the words of the Pre-Action Protocol for Debt Claims

‘Where any aspect of the debt is disputed (including the amount, interest, charges, time for payment, or the creditor’s compliance with relevant statutes and regulations), the parties should exchange information and disclose documents sufficient to enable them to understand each other’s position.’

What happens after the first demand of payment

So far, this guide has proceeded on the basis that you do not want to make the debtor insolvent – after all, this can have catastrophic commercial consequences in terms of your relationship.

But the threat of insolvency proceedings can persuade some debtors to settle their debts – and here demands for payment can have quite different effects.

There are a number of risks with this option though. Most importantly, you must not start insolvency proceedings if you know the debt is genuinely disputed by the debtor because this will abuse the process of the Court. Moreover, if the debtor is put into formal insolvency proceedings you may end up getting only get a small amount of your debt, and perhaps nothing at all.

Can interim measures be taken?

Interim measures (such as freezing injunctions preventing the debtor disposing of their assets) can generally always be applied for in English law and tactical use of these may be indispensable in ensuring that, if you do obtain judgement for the debt, there are assets from which it can be satisfied.Can interim measures be taken?

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