It is important to consider the best strategy for recovering any outstanding debt. There are two commonly used procedures for trying to recover outstanding debts.
The first is the conventional court debt recovery procedure. This involves drafting a letter before action, which threatens legal proceedings in the event the debt is not paid within a defined timescale. The letter must satisfy the litigation CPR pre-action protocol, and should where possible include all relevant evidence which proves that the debt is due and owing.
The evidence could include your terms and conditions, invoices and/ or any other relevant correspondence which proves that the debt is outstanding. If you do not comply with the pre-action protocol then there could be cost penalties in the event you issue formal proceedings.
An alternative strategy adopted by some companies is to threaten bankruptcy or winding-up proceedings. This can be threatened by letter in the first instance, or alternatively you could jump straight to issuing a statutory demand. You should note that issuing a statutory demand should not be used solely as a debt recovery tool, but should be used in circumstances where there is a genuine concern as the financial viability/ insolvency of the debtor.
There are two tests for insolvency, which are the balance sheet test, and also the cashflow test. The cashflow test is whether the debtor can pay his debts when they fall due. Clearly if the debtor does not pay an undisputed invoice within the agreed timescales, then this may satisfy the cashflow test.
Threatening bankruptcy or winding-up proceedings should only be used where the debt cannot be disputed. If the debt can be disputed then the debtor could issue an injunction restraining presentation of the winding up petition.
Summerfield Browne Solicitors have offices in London, Birmingham, Cambridge, Oxford, Leicester and Market Harborough
