Recovery of Commercial DebtsSale and Supply of Goods and Services

Luke Tucker HarrisonSolicitor

The collections process

Supply of goods or services

Pre-contract

Invoicing

Credit control

Legal

Late Payment of Commercial Debts (Interest) Act 1998

• Statutory Interest• Applies to all business to business contracts (see Section 2(1))

“(1) This Act applies to a contract for the supply of goods or services where the purchaser and the supplier are each acting in the course of a business, other than an excepted contract.”

• Implied term of the contract pursuant to Section 1(1) and (2) that interest will become payable on late payment.“(1) It is an implied term in a contract to which this Act applies that any qualifying debt created by the contract carries simple interest subject to and in accordance with this Part. (2) Interest carried under that implied term (in this Act referred to as “statutory interest”) shall be treated, for the purposes of any rule of law or enactment (other than this Act) relating to interest on debts, in the same way as interest carried under an express contract term.”

Late Payment of Commercial Debts (Interest) Act 1998

• Statutory Compensation • Implied term of the contract pursuant to Section 5A that statutory

compensation is payable.“5A. - (1) Once statutory interest begins to run in relation to a qualifying debt, the supplier shall be entitled to a fixed sum (in addition to the statutory interest on the debt). (2) That sum shall be -

(a) for a debt less than £1,000, the sum of £40;(b) for a debt of £1,000 or more, but less than £10,000, the sum of £70;

(c) for a debt of £10,000 or more, the sum of £100.(3) The obligation to pay an additional fixed sum under this section in respect of a qualifying debt shall be treated as

part of the term implied by section 1(1) in the contract creating the debt."

Late Payment of Commercial Debts (Interest) Act 1998

• Qualifying Debt• Is a qualifying debt the whole debt or an invoice. Section 3(1) states:-

“(1) A debt created by virtue of an obligation under a contract to which this Act applies to pay the whole or any part of the contract price is a “qualifying debt” for the purposes of this Act, unless (when created) the whole of the debt is prevented from carrying statutory interest by this section.”

• Contracts that exclude statutory interest (including purchase Orders) maybe unenforceable unless there is a substantial contractual remedy (Section 8(1))

• The Act does not apply where there is a contractual remedy within the contract to pay interest for late payment. (Section 8(2))

Legal proceedings (non insolvency)

• Pre-Action Protocols and Practice Direction• Letter of Claim/Letter before Action (“LBA”)• Claim Form and Particulars of Claim (CPR 16)• Allocation or Summary Judgment• Directions• Final Hearing

Pre-Action Protocols and Practice Direction

• Practice Direction to Pre-Action Protocols“1.4 The objectives of pre-action protocols are:(1) to encourage the exchange of early and full information about the prospective legal claim,(2) to enable parties to avoid litigation by agreeing a settlement of the claim before the commencement of proceedings,(3) to support the efficient management of proceedings where litigation cannot be avoided.”

• If there is no Protocol apply overriding objective principles.“4.1 In cases not covered by any approved protocol, the court will expect the parties, in accordance with the overriding objective and the matters referred to in CPR 1.1(2)(a) [equal footing], (b) [saving expenses] and (c) [proportionality], to act reasonably in exchanging information and documents relevant to the claim and generally in trying to avoid the necessity for the start of proceedings.”

Letter of Claim/Letter before Action (“LBA”)

• State name of client• State amount owing plus any interest and

compensation (including explaining how interest has been calculated)

• State why invoices have been raised by reference to contractual provisions

• Enclose copy invoices, contract and supporting documents

Claim Form and Particulars of Claim

• Claims need to be pleaded in accordance with CPR Part 16“16.2 The claim form must –(a) contain a concise statement of the nature of the claim;(b) specify the remedy which the claimant seeks;(c) where the claimant is making a claim for money, contain a statement of value in accordance with rule 16.3;

(cc) where the claimant's only claim is for a specified sum, contain a statement of the interest accrued on that sum; and(d) contain such other matters as may be set out in a practice direction.”

Claim Form and Particulars of Claim• The Particulars of Claim must comply with CPR Part 16.4

“16.4 (1) Particulars of claim must include –(a) a concise statement of the facts on which the claimant relies;(b) if the claimant is seeking interest, a statement to that effect and the details set out in paragraph (2);(c) if the claimant is seeking aggravated damages or exemplary damages , a statement to that effect and his grounds for claiming them;(d) if the claimant is seeking provisional damages, a statement to that effect and his grounds for claiming them; and(e) such other matters as may be set out in a practice direction.”

• It is not sufficient to simply plead invoice numbers – the Defendant (and the Court need to know why invoices are due for payment).

Pleading Interest• Interest and statutory compensation will not generally be recoverable unless

properly pleaded. “(2) If the claimant is seeking interest he must –

(a) state whether he is doing so –(i) under the terms of a contract;(ii) under an enactment and if so which; or(iii) on some other basis and if so what that basis is; and

(b) if the claim is for a specified amount of money, state –(i) the percentage rate at which interest is claimed;(ii) the date from which it is claimed;(iii) the date to which it is calculated, which must not be later than the date

on which the claim form is issued;(iv) the total amount of interest claimed to the date of calculation; and(v) the daily rate at which interest accrues after that date.”

Reviewing a Defence• Does the Defence comply with CPR Part 16.5?

“16.5 (1) In his defence, the defendant must state –– (a) which of the allegations in the particulars of claim he denies;– (b) which allegations he is unable to admit or deny, but which he requires the claimant

to prove; and– (c) which allegations he admits.

• (2) Where the defendant denies an allegation –– (a) he must state his reasons for doing so; and

• (b) if he intends to put forward a different version of events from that given by the claimant, he must state his own version.

• (3) A defendant who –• (a) fails to deal with an allegation; but• (b) has set out in his defence the nature of his case in relation to the issue to

which that allegation is relevant, • shall be taken to require that allegation to be proved.

Legal proceedings (insolvency)

• LBA• Statutory Demand (if individual(s))• Statutory Demand? (if company)• Application to set aside Statutory Demand• Injunction to restrain presentation of Petition• Bankruptcy Petition• Winding up Petition

Enforcement

• Enquiry Agent -v- No Trace No Fee• Order for debtor/debtor’s officers to attend

Court for questioning• Bailiff or High Court Enforcement Officer• Third Party Debt Order• Charging Order• Insolvency