Part II: Are you owed money?

Last week, we looked at two options available to recover money owed to you: court proceedings and statutory demands. This week, we look at alternative dispute resolution options and analyze the court options in more detail.

Alternative Dispute Resolution (commonly referred to as ADR)

As solicitors, we do not recommend you immediately rush to start court proceedings because they can sometimes be complicated and expensive. Instead, you first need to consider if any type of ADR might work better (or at least cost less) than court action. The main type of ADR is negotiation or mediation. The courts encourage this.

Where an individual owes money to a business, the Court rules encourage negotiation and compromise before court proceedings begin. Certain information must be given to an individual person who owes money (called the debtor) by a business before the business can bring a court action. The debtor has 30 days to reply. If the debtor agrees to pay but asks for staggered payments, the business must try to reach an agreement for reasonable repayment by installments. What is reasonable is based on the debtor’s financial circumstances. If a business does not want to accept staggered payments, it must explain why in writing.

Generally speaking, even when a debtor is not a person (as opposed to a business), Court rules try to encourage settlement by negotiation or mediation before court proceedings are started.

Mediation is a process where an impartial independent party trained to deal with difficult disputes, listens to both sides and tries to find a resolution both can live with.

With business debts where there is an underlying dispute or long-standing relationship that should be preserved, mediation can be commercially beneficial because it is often cheaper than court proceedings. Mediations are only legally binding once the parties agree a settlement, so it can be worthwhile trying this process if the debt is likely to be disputed in court. 

Court Options

Most debt claims are for money only. The amount owed affects which court can deal with it.

If the value of a case is not more than £10,000 and it is not complex, it will generally be placed into the small claims track. This means a claim could be started online, the court fees will be lower, and the hearing will be listed usually within 6 months. The court process also includes a free of charge attempt to settle the debt through telephone mediation. Whilst you could still claim interest and late payment charges for the debt, the main disadvantage of this track is that the court does not award the successful party its costs, except court fees.

If your debt claim is worth £10,000 to £25,000, it will usually be allocated to the fast-track. Despite that name, such claims can take a year or more to reach a hearing. Claims over £25,000 are usually allocated to the multi-track and are often complex, taking around 2 years to be heard. The main advantage of these routes is that if you win, you normally recover around two-thirds of your costs.

If you are owed money or facing a debt claim, contact LF Legal for advice on 0203 146 3549 / [email protected]

Disclaimer

All our articles are intended for informational purposes only and do not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information provided.

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