Debt Recovery and Legal Cost Implications

Published on: 27 April 2016

Read Luke Curran & Co's guide to debt recovery in Northern Ireland, with advice on the costs involved.

1. The Last Option

We recommend that you lift the phone to your debtor and speak to them personally as it is much more difficult to ignore a verbal request for payment as opposed to throwing your latest reminder by letter in the bin with the others.

Quite often your debtor is juggling your invoice against many others and the balance of credit left in their overdraft facility so it’s a case of making your debt a priority. This can be done gently or more persuasively by legal action.

After all attempts to encourage payment of the debt have failed you can turn to the legal route.

2. Letter of claim

Pre legal action protocol dictates that the debtor should be warned of your intention to issue court proceedings in the event that they do not make payment within a reasonable period of time. The letter should set out the debt clearly and preferably be supported by a copy of the invoice. If interest is chargeable under terms and conditions it should be noted and finally the debtor should be made aware that such legal proceedings shall result in additional costs which you shall seek to recover from them.

  • Court Rate of interest is currently 8%
  • Late Payment of Commercial Debt (Interest) Act 1998 provides for interest at Base plus 8%
  • In addition compensation is payable
  • Less than £1000 – £40
  • Between £1000 and £10000 – £70
  • £10000 and over – £100

The letter can come from your business directly if you do not wish to jeopardise relations by involving solicitors but generally by the time you are considering taking legal action the debtor has already delayed payment to such an extent that there may well be no other alternative. If the debtor already has a list of creditors time is of the essence.

Remember Debt Recovery will add cost in the short term
“Never sue a man of straw” – Know your Debtor

The Enforcement of Judgments Office can make a search for a person or firm for a fee of £8. This will show if there are any previous debts outstanding against the respondent. You can then use this information to help you to decide whether or not it would be practical for you to proceed with this action. Even if you succeed with your claim, if the respondent has other large amounts of debts outstanding, you may find that you will not get your money back immediately, if at all.

In additional you may wish to carry out a Bankruptcy Search to see if a Petition has been issued by the Debtor or a Creditor.

The idea being that there is little point throwing good money after bad.

If it is decided to proceed then dependent on whether the debt is disputed or not there are a range of options available.

3. Court Proceedings

Options if the Debt is disputed –

  • a) Small Claims Court (up to £3000)
  • b) County Court (up to £30,000)
  • c) High Court (£30,000 and over)

a) Small Claims Court (up to £3000)

Small Claims Courts allow certain types of claims to be decided informally by the county court, usually without the need of a solicitor or barrister. In general a small claim is one where the value to be claimed
is not more than £3000.00 and which does not relate to personal injuries, road traffic accidents, libel or slander, title to land, legacy or annuity or any property of a marriage.

Proceedings can be issued quickly and with little expense

Court fees are subject to the level of debt and range from £30 to £100 and there are generally no issue as to legal costs.

Therefore given the level of debt and inability to recover legal costs parties are generally self- represented and whilst the Judge will encourage negotiation between the parties at Court in the event that the matter should proceed to hearing is very aware that parties are not accustomed to presenting their case in court and will assist in order to achieve a fair resolution.

If a decree has been awarded and you do not receive the amount awarded after a reasonable amount of time, 14–28 days after the issue of the decree, you will have to enforce the decree using the Enforcement of Judgments Office (EJO).

b) County Court (up to £30,000)

Civil Bill will be issued and Court fees are subject to the level of debt and range from £150 to £185

Parties will be legally represented and therefore the will be legal cost implications. Generally costs follow the cause and you will be able to recover your costs from the Defendant however you should be aware that if the Defendant is unable to meet the debt and your costs then you will have to meet your own.

  • County Court Costs are scaled in accordance with the value of the claim –
  • Undefended costs are typically low and range from £76 – £366 plus VAT and outlay
  • Defended costs can range from £517 – £2759 plus VAT and outlay for Solicitors
  • And from £173 – £690 plus VAT and outlay for Barristers

There will also be additional Court fee to set the matter down for Hearing £250.

c) High Court (£30,000 and over)

Writ of Summons will be issued and the Court fee is £200

Parties will be legally represented and therefore the will be legal cost implications. Generally costs follow the cause and you will be able to recover your costs from the Defendant however you should be aware that if the Defendant is unable to meet the debt and your costs then you will have to meet your own.

Undefended again are Undefended costs are typically low.

Otherwise costs will be calculated on an hourly rate that should be agreed with your solicitor in advance.

Barristers will mark a fee based on the complexity and level of debt.

Please note that commercial actions can attract uplift in the Commercial Court.

4. Options if the Debt is undisputed or proven –

  • a) Statutory Demand followed by either a Bankruptcy Petition (Personal) or a Winding Up Petition (Company)
  • b) Enforcement of Judgements Office (EJO)

a) Statutory Demand followed by either a Bankruptcy Petition (Personal) or a Winding Up Petition (Company)

A Statutory Demand can be served personally on a Debtor for any debt exceeding £750.

You must have proof of service and therefore a Process Server is employed at a cost in the region of £100 -£150 depending on how difficult it is to effect service.

Thereafter he/she will have 21 days to discharge the debt in full or the Creditor will be at liberty to issue a Bankruptcy Petition to declare the Debtor Bankrupt.

This is a High Court application and will attract High Court costs.

The Bankruptcy Petition must be served on the Debtor personally and again a Process Server is employed.

There is a fee has been paid to DETI Insolvency Service of £700 and a Court fee of £150

There is also a fee for advertising the Petition in the Belfast Gazette.

It is an aggressive method to force payment from the Debtor and often the most successful but it can be an expensive risk if the Debtor proves insolvent.

In a similar manner a Winding up Petition can be served on a Company.

If the debt is disputed then the Master will not proceed and the debt will have to be determined in Court.

Therefore this method requires either an undisputed debt or a decree from Court for a liquidated sum.

If a Bankruptcy / Winding-Up Order is made an Official Receiver (Trustee in Bankruptcy) is appointed and who will administer the Bankrupts assets. The Bankrupts affairs will be investigated and assets sold with a view to distributing funds to creditors.

b) Enforcement of Judgements Office (EJO)

It is the duty of the Enforcement of Judgments Office (EJO) to enforce Court Orders for the recovery of money, property and goods obtained by creditors in the Civil Courts of Northern Ireland.

Before an application is made you should carry out an enforcement of judgement search to establish if there are any existing judgements lodged against the debtor in the last 6 years. Fee £8

If the Debtor is an individual it also advisable to carry out a Bankruptcy Search. Fee £8

A notice of intention to enforce must be sent to the EJO who will in turn serve it on the Debtor allowing them 10 days from the date of service to discharge the debt. Fee £20

Thereafter you apply to enforce the judgement. Fees are subject to the level of the debt and range from £15 – £645 for debt up to £10,000 plus £1.80 for every £100 of debt thereafter.

Application for repossession of Land £515

Application for repossession of goods £165

5. Enforcement Orders

a) Money Judgements

i) Attachment of Earnings Order

When a debtor is in employment this office can make this order to deduct a regular sum of money from his/her salary. The debtor is given a ‘protected earnings rate’ after a report has been done on them to assess their means.

ii) Instalment Order

If a debtor is self-employed his/her income cannot be attached by the above means, the office then considers what appears to be a reasonable amount for him/her to pay over a period of time either weekly or monthly which is paid directly to the creditor.
A debtor may be committed to prison for failure to keep up payments due on an Instalment Order.

iii) Order Charging Land

If a debtor owns land or has an interest in land/property the Office may ‘charge’ that land/property to secure payment of the debt and the order has the effect of a charge created by the debtor in favour to the creditor. It is the Creditor/Solicitors responsibility however to register the Order in the Land Registry or Registry of Deeds accordingly. Under current legislation the order ceases to have effect on the expiration of 12 years from the date of the judgment.

iv) The Seizure Order

This is an order directing the Chief Enforcement Officer to seize the debtors’ goods to pay the debt/s and enforcement costs.

v) Order Appointing Receiver

This type of order is a remedy used very extensively and successfully in day-today practice and is where the Office obtains information that the debtor is about to receive monies from a third party (e.g. a claim, proceeds of house sale etc) and therefore issues the above order so that the Office receives monies due for the purpose of satisfying the debt.

vi) Attachment of Debt Order

This orders gives the Office the power to ‘freeze’ a debtors’ bank account. It is served personally on the Third party (Garnishee) i.e. a bank and is conditional which gives the garnishee an opportunity to appear before the master to give reasons why the money should not or cannot be paid.

vii) The Certificate of Unenforceability

If it appears to the Office that the judgment cannot be enforced within a reasonable timescale, or has no assets, it will issue this Certificate. This will appear on the Public Register and will, in effect, impact upon the credit rating of a debtor.

b) Non Money Judgements

i) Order for Delivery of Possession of Land

This type of Order is issued by the Office and personally served on the respondent by an Enforcement Officer who will seek to negotiate and arrangement that does not mean eviction although this is sometimes inevitable.

ii) Order for Delivery of Possession of Goods

This order is issued when a person is entitled under a court judgment to the delivery of ascertained or specified goods. If the respondent fails to deliver up the goods, the Office may seize and deliver them to the person entitled to them under the order.

6. Republic of Ireland

Follows largely similar methods of procedures . As in Northern Ireland there are applications that can be made for a summary judgment wherein it can be set out to the Court that the Debtor has no reasonable defence to the claim and that oral evidence is not required.

Unlike NI you may not bring an action on the Small Claims Court for debt.

  • The District Court has a remit of up to €6348
  • The Circuit Court has a remit up to €38092
  • The High Court will deal with anything thereafter.

7. Conclusion

Keeping a close reign on credit control and acting quickly can ensure your debt is made a priority. Do not allow yourself to be used as an overdraft facility. Take legal advice early and initiate legal proceedings to recover payment after considering the debtors ability to repay.