Debt Recovery

Angela BradyBrady Solicitors

©Angela Brady 2012

Overview

• Good practice on developing contractual arrangements

• Demonstrate the processes and records to follow to ensure you are paid on time and are able to easily pursue outstanding debts

• Demonstrate how to bring an application in the Small Claims Court

You will receive:

• Guidance on Terms of Business and standard clauses• Guidance on creating a “paper trail” in dealing with

debtors• Provision of a standard pre proceedings letter• Overview of the Small Claims Court procedure

including a standard endorsement for the application

• Guidance on how to present a case in the Small Claims Court

How is a contract formed?

• An offer is made by one party• The offer is accepted by the other party• The agreement is supported by consideration –

usually payment• A contract can be verbal but it good practice to

have the terms written down• The more the terms of the contract are written

down the less chance there will be for argument later as to who does what and when

Do’s and Don’ts

• Do not be afraid to ask customers/clients to sign your TOB – it can be of as much benefit to them as to you

• If you are asked to sign another company’s TOB then make sure you READ them first!

• Ideally ask a solicitor to review them for you - he/she will seen issues that may not occur to you

• Use the review of the contract to negotiate better terms

• If your customer/supplier is a large organisation you may not be able to renegotiate terms but you should still be aware of what their TOB contain and use that as part of your management of the contract

• If some terms are not acceptable to you notify the other party – if your notification is the last communication then it is more likely to be binding

Your TOB

• The big boys all have contracts/TOB for a reason – why shouldn’t you?

• Either have a standard contract to send out on each job or have your TOB on the back of your order form/invoice

• If you don’t have TOB when are supposed to get paid?• What if you want out of the contract – how and when

can you do that?• If you import/export and you need to sue which

jurisdiction/ country do you issue proceedings in?

Some Standard Terms

• Does your customer have any obligations? e.g. does your customer need to make any facilities available to you free of charge?will you need any information from the customer to complete your end of the contract?do you need a right of access to the customer’s premises?• Charges/interest – e.g. The customer shall pay MyCo Ltd

the price agreed on the invoice plus vat plus any other taxes/ interest charges if not paid within 30 days

• Terms of payment – The customer shall pay MyCo Ltd all sums due within [30] days of the date of the invoice (If exporting state the currency payments to be made in)If payment is not made on the due date, interest will accrue at the rate of [4]% over Northern Bank base lending rate from time to time from the due date to the date of payment together with any other expenses incurred in recovering the debt

• Ownership of all goods supplied whether fixed or unfixed shall remain vested in MyCo Ltd until payment of the total amount due including such interest as may be chargeable in accordance with clause [3] above

• Delivery dates – MyCo Ltd will not be held liable for late delivery or any consequential loss arising therefrom

• WarrantiesWhat do you warrant about the standard of your product? Substantially performs?MyCo Ltd will not be liable if someone outside the company causes or affects the product or modifications are made to it by the customerYou will want your customer to warrant that it will not do or omit to do any act or thing which might impede the operation of the product

• TerminationEach party is able to terminate the contract by written notice of [] days if either party commits a breach of any terms of the agreement and if that breach is not remedied within [30] days after receipt of notice in writing to do soThe other party goes into administration etcTermination shall not affect the rights of any party already accrued and which continue after termination

• Confidentiality – if this an issue in your business you will need a clause dealing with it

• Force Majeure – means that you will not be in breach if e.g. strike, natural disaster prevents your performance of the contract

• No waiver of rights if either party delays to act to enforce terms

• If any provision of the contract is struck out by a court then the rest of the contract continues to be valid

• No conferring of rights to Third Parties• Law and jurisdiction – The construction,

validity and performance of this Agreement shall be governed by the law of Northern Ireland and the customer hereby submits to the exclusive jurisdiction of the Northern Irish Courts

General Points

• Review your TOB every year – it is important that your TOB reflect how you run your business and the market in which you operate

• One size does not fit all!• There will be other issues to consider

depending whether you provide any design work e.g. who owns the Intellectual Property Rights? Is a licence required? Is Data Protection an issue?

Paper Trail

• Your TOB feeds into the paper trail• E.g. The clause on payment within 30 days – use

this as part of your credit control. As soon as the 30 days are up ring or email the customer to chase payment.

• If you ring ensure that a written record is kept – this will be important if you have to go to court later

• Print any emails/replies and keep them with your credit control file

Sample email

Dear Tom,It was good to talk to you this morning. I note that you said a cheque was in the post for payment of my invoice number123. I will send you confirmation of receipt of payment as soon as I get it.Many thanksThis reminds the customer what he has agreed to do and also shows him that you are keeping a record

Do’s and Don’ts

• Set yourself a target date by which you want paid. Keep it tight – you’ve provided the goods or services and you deserve to be paid.

• Send a pre proceedings letter.• Keep the letter short and to the point.• Do not engage in storytelling! You don’t need to

– that’s what your TOB are for.• Your TOB/invoices/emails etc are the paper trail

or ammunition you need to go to any court.

Sample Pre Proceedings Letter

Dear xxxxWe refer to our invoice number 123 and statement of account which remains unpaid despite phone calls and emails to your office.Unless we receive payment in full together with interest as calculated in clause [] of our terms of business, within seven days from the date of this letter, we intend to issue Small Claims proceedings against you without further notice.Yours faithfully

Small Claims Procedure• For debts up to £3000• You can do it online – go to www.courtsni.gov.uk• If debtor has no money – no point in issuing proceedings. You can contact

the EJO to see if the debtor has any other judgments – 02890245081• Application forms from local Court office, CAB, Trading Standards office• Ensure Debtor/Respondent’s name and address including post code are

correct – if Respondent is a limited company check Companies House – 08456048888

• Bring the completed form – the original + two copies, the fee and copies of all supporting documents eg TOB, invoices, statements, emails, pre proceedings letter etc to the Court office.

• If there are a number of invoices use the same Application for all of them

• If the total amounts to more than £3000 you can decide if you wish to abandon the excess over £3000 or instruct solicitors to issue proceedings for the full amount – but will be costs implications and may take longer

• If you are abandoning the excess over £3000 you must state this on the form• You sign a statement that you have not issued ant other application in relation to this

claim• The Court office serves the Application by post on the Respondent. If personal service is

required they will arrange a process server but may require you to pay the fees for that• When the form is sent out it will have a return date on it and both parties will receive an

information pack• If the debt is accepted, the debtor may make an offer to pay over time. If you accept this

offer and payments are not made you can take the matter to the EJO• If the debtor disputes the claim, the case will be listed for hearing before a judge• If the debtor ignores the application then after the return date you can apply for a

decree from the court office. There will instructions on how to do this in the information pack

Claiming Interest

• If your TOB states an interest rate use that otherwise you can use the court rate of 8% p.a.

• You need to set out the interest calculation by showing the amount, the rate and the period you are claiming interest for. The interest amount added to the original debt may take you over the £3000 limit but this is allowed the original debt is not over £3000

• The form contains a statement of truth that you must sign. This means that you must believe the facts to be true and if they are not you may be held in contempt and may face a fine or imprisonment

Sample Interest Calculation

Amount of debt - £1000Interest rate per year (365 days )Interest claimed from 1-4-10 when the money became owing until the date the claim is issued 24- 7-10 inclusive – 115 days8% of £1000 = £80 which is the interest for 1 year£80 ÷ 365 = £0.21 which is the daily rate of interest£0.21 × 115 = £24.15 which is the interest from 1-4-10 to 24-7-10

Sample Endorsement for Application

The Applicant’s claim is for £1000, being monies due and owing to the Applicant by the Respondent in respect of goods supplied by the Applicant to the Respondent at the Respondent’s request on foot of invoices (number) dated …….And the Applicant claims interest in the sum of £… in accordance with clause …. Of its Terms and Conditions of Sale at the rate of …% and continuing at the daily rate of …, until payment or judgment, whichever is sooner.ORAnd the Applicant claims interest thereon in accordance with Article 45A of the County Courts (NI) Order 1980

The Hearing• Wear a suit• Have all of your documents with you, in order• It is an informal hearing but you will be asked to take a religious oath or affirm• Call the Judge “Your Honour”• The Judge will tell both sides to try to settle• If no settlement is reached the Judge will explain the procedure• You as Applicant tell your side first• The Respondent can ask you questions• Then it’s the Respondent’s turn to tell his side and you can ask him questions• Be measured, don’t rise to any provocation from the Respondent• Losing you temper will not impress the Judge. However, remaining calm in the face of the

Respondent’s temper will impress the Judge• The Judge then makes a decision• If you are successful, you will be sent the Decree for the amount of the debt, any interest and the

court fee• If the Respondent does not pay on foot of the decree within 14-28 days you can go to the EJO which

has its own procedures• The decree is a County Court judgment and may affect the Respondent’s credit status