Debt Recovery Under Covid-19

Tuesday, January 19th, 2021

In this time of unprecedented financial uncertainty many businesses and individuals are struggling to survive. With non-essential retail outlets shut and restaurants and venues closed for service, individuals and businesses are having to adapt and find new ways to survive in the current climate.  In many cases, this has included struggling to pay invoices or debts, with thousands of businesses and individuals falling into arrears all over the UK. This article looks at the issue of debt recovery under Covid-19.

I’m owed money – what can I do?

In the first instance, keep the lines of communication open.  This can assist in avoiding long drawn out disputes. You may be able to come to an agreement which suits both you and the debtor that would negate the need for extensive (and sometimes expensive) legal action. Regular communication will also enable you to assess which debtors are genuinely facing financial distress and those who may simply be refusing to pay or playing the ‘Covid card’, despite their business remaining unaffected by the pandemic.

Act quickly.

As a rule of thumb, most reasonable debtors want to work constructively with you to reach a solution and avoid being taken to court. It should come to you as a real red flag if a debtor shuts down any settlement negotiations and you should seek legal assistance quickly. A lawyer will advise you on how to start the process of debt recovery, including drafting a letter before action. It is important that you keep clear records of how much is due to you and copies of the correspondence you have had with the debtor to date with regards to the indebtedness. This could prove vital in future proceedings.

How has Covid affected my ability to recover the money owed to me?

The Corporate Insolvency and Governance Act 2020 (CIGA) introduced new procedures and measures to seek to rescue companies in financial distress as a result of the COVID-19 pandemic. The measures significantly restrict debt recovery options and enforcement rights by disallowing winding up petitions and statutory demands save for very limited circumstances. From 27 April 2020 to 31 March 2021, a creditor cannot present a winding-up petition, unless it has reasonable grounds to believe that either coronavirus has not had a financial effect on the debtor company or that the company was unable to pay its debts regardless of the financial effect of coronavirus.

Similarly, there is a ban on statutory demands served between 1 March 2020 and 31 March 2021 being used for presenting a winding-up petition on or after 27 April 2020.

If a company owes you money, you can issue court proceedings and obtain a court judgment against the company, but you need to think pragmatically about whether the cost of debt recovery is worth the enforcement. Solicitors can advise you of pre-litigation checks that can be done prior to the commencement of proceedings that can help you with this. It stands to reason that you should not expend funds pursuing someone with no means of repaying you in the short or long term.

If you are successful, you can enforce your judgment by virtue of the following:

Option 1 – Apply for a Third Party Debt Order against company money held by a third party;
Option 2 – Take control of the debtor’s goods;
Option 3 – Apply for a charging order;
Option 4 – Attachment of earnings.

The right option will depend on what you know about the person or company that owes you money. A solicitor will be able to advise you of the best route of enforcement on this basis.

Whilst these times are uncertain, rest assured that with a clear and pragmatic approach, you can seek to manage those who owe you money successfully.

 

If someone or a company owes you money, contact a member of our Dispute Resolution team who will be able to assist you. They can be reached at 020 7228 0017 .

 

Debt Recovery and Covid-19 - Hanne & Co's Kate Kenneally looks at the options

Kate Kenneally is a Solicitor in Hanne & Co’s Property Litigation & Dispute Resolution Team.