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Anthony Reeves

Small but important changes in debt recovery

Important changes occurred during the year which which are significant to small businesses faced with recovering unpaid debts.

On April 1, the small claims limit in the county court increased to £10,000 from £5,000. This is important to small firms chasing debts, because claims that proceed in the small claims track are normally subject to the rule that legal costs are not recoverable.

A debt of £9,000, for example, is to many small businesses hardly ‘small’, but in legal terms claims of this size take on a different significance in that less formal rules of court apply to the small claims track.

However, if you are chasing a commercial debt that arose after 16 March 2013, there is the chance of recovering reasonable collection costs in addition to late payment interest and compensation.

On 16 March, the Late Payment of Commercial Debt Regulations 2013 implemented the European Directive 2011/7/EU and made amendments to the Late Payment of Commercial Debt (Interest) Act 1998.  

The significant amendment is that from 16 March 2013, there a right to compensation for the reasonable costs to the supplier of recovering a debt incurred if that amount exceeds the fixed charge sum.

So for example, if your costs involved in collecting a debt of £9,000 is greater than the £70 fixed compensation, then the creditor can claim reasonable collection costs.

It is argued that these “reasonable collection costs” can include the costs of instructing a lawyer because the EU Directive 2011/7/EU states at Article 6, “The creditor shall, in additional to the fixed sums…be entitled to obtain reasonable compensation from the debtor for any recovery costs exceeding that fixed sum and incurred due to the debtor’s late payment. This could include expenses incurred inter alia, instructing a lawyer or employing a debt collection agency”.

So there is the prospect of recovering some legal costs when pursuing a commercial debt that is within the small claims limit. This is potentially in conflict with the civil procedure rules which state that in small claims, legal costs are usually only awarded if there has been unreasonable conduct by the parties.

It will be interesting to see how the county courts deal with this issue. Many businesses that are put off instructing a lawyer to act in a small debt claim, may want to consider the above.

The county courts are clogged up with small claims, many of them badly prepared and so waste valuable court time.

To assist small businesses I, at The Merriman Partnership, will take on small claims for a fixed fee.

  • Anthony Reeves is a Fellow of the Chartered Institute of Legal Executives and an author of law books. His main areas of interest include debt recovery (both claimant and defendant), contractual disputes, employment law (unfair dismissal cases), claims against large institutions (such as banks/utility companies) for harassment of debtors, professional negligence claims, judicial review, and consumer law. He is a consultant at The Merriman Partnership in Marlborough.