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Preparing Statutory Demands: Validating Debts

The Creditor will have to make sure that the debt is one that is suitable for the Statutory Demand process. There are a number of factors to consider, not least the value in dispute. Many creditors, particularly lenders regulated by the FCA, will want to apply systematic rigour to the decision whether or not to proceed in this way. Most Creditors will usually consider a number of points, in order to validate the debt and mitigate the possibility of the debt being disputed. 

Once validated, the Creditor can then proceed towards drafting the Demand itself.

 

Is the Debtor a good customer?

In the context of a strong commercial relationship, is it worth upsetting a customer for a debt of a few thousand pounds, if, over a trading year they output a significant higher volume of business?

Certainly, the recent change of the debt threshold to £5,000.00 has gone some way to ensure that only big spending Debtors even qualify for the process. 

When one factors in the inherent expense of onboarding a new customer. Often a business will be able to tell how much it costs to acquire a new customer and will drive their sales team to reduce it. For organisations that don’t track the cost of acquisitions- it will always be higher than you realise! 

Creditors should consider whether the debt is worth effectively accepting that they will have to incur this cost again to replace the Debtor on the ledger.

 

Is the Debtor aggrieved in some way?

If there is a grievance, the Creditor will usually try and investigate it thoroughly. An understanding of the Debtors’ accounts payable process is often of real benefit here. We’ve observed previously that a Debtor may be simply withholding payment of a few thousand pounds because they are waiting for a £25 credit note. Owing to the right people being on holiday at the wrong times, this was never communicated until the Creditor instructed solicitors to commence insolvency proceedings.

If there is a legitimate grievance, it will almost certainly be raised as a reason to set aside the Statutory Demand. Creditors should therefore make every effort to investigate and resolve any grievance before adopting the process.

 

Is there a counterclaim?

Again, the Creditor will need to investigate these thoroughly before choosing to do anything. It may be the case that the counterclaim exceeds the Creditors exposure. 

A legitimate counterclaim will almost certainly be raised as a reason to set aside the Statutory Demand and, in our experience, it will almost certainly result in the Demand being set aside by the Judge, even if just for further directions for management of the case.

 

Are all documents in order?

For manufactured goods, most Creditors will be able to produce evidence of an Order, a delivery and an invoice. Depending on the Creditors’ process, the Debtor may have had to input their acceptance at each stage. The Creditor will, ideally, want to see evidence that they have supplied exactly the goods that have been requested and that they have been delivered to the Debtor.

The service industry can work a little different, often an order or request will result in an invoice. There may need to be some consideration of the specification, particularly relating to project related work.

Whilst lapses in documentary management are not generally fatal to the process it is virtually guaranteed that the invoice that has a problem payer will always be the one without any supporting documents!

In practice, goods or services that were not in accordance with specification are likely to give rise to a counterclaim. Similarly, it is extremely easy for Debtors’ to demonstrate that goods ordered were never delivered, as the burden of proof is always on the Creditor to show that they were. This makes the practice of obtaining and filing delivery notes absolutely crucial.

 

Validating Consumer Credit Debts

Debt recovery activity in relation to Consumer Credit Debt is subject to the FCA regime under the CONC (Consumer Credit sourcebook). Whilst this largely remains silent to the use of the Statutory Demands in relation to debt, it does, at CONC 7.3.15, provide that where Statutory Demands are used, their use should not be undue, excessive or otherwise unfair.

 

Has the Debtor previously made a complaint?

Lenders should look to resolve complaints as quickly as possible anyway. It is likely, however, that regardless of whether any previous complaint was upheld or not, that a Debtor who has sampled the firms’ complaints process, will have little hesitation in doing so again. Indeed, they will also be well aware (from various consumer action forums) that he could present a complaint to a regulatory body.

Insolvency action should be avoided where the Debtor has previously made a complaint, as Lending firms will often find that not only will the Demand not elicit a payment proposal, but that they will instead exacerbate any losses by spending an inordinate amount of time dealing with a further complaint.

Are you happy with the regulatory documents?

Lenders should make sure that they have been ‘whiter than white’ with respect to the submission of the regulatory documents. Particular attention should be paid to the confirmation of receipt of the SECCI and Credit Agreement at the outset, as well as the transactional statutory notices. We have seen particular issues regarding the Notices of Default Sums (sent when a late payment fee is charged).

The safest strategy for regulated lenders would always be the base the Demand on an unpaid judgment, as issues surrounding documentation ought not to be raised by the Debtor.

 

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We’re not lawyers. We’re process servers. We are not in the business of giving legal advice. These articles are really to put across our own opinion (why else would we write them?) and should not be relied on as legal advice. If you want legal advice, you should always get a good, expensive lawyer.