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Archive for the ‘Debt’ Category

Recovering Business Debts -The Use Of Charging Orders

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Paul Trincas

Paul Trincas

In a previous article in the Newbury Business News, Paul Trincas, a corporate lawyer with Charles Lucas & Marshall wrote about how businesses could secure payment of debts and the types of enforcement mechanisms available. Here, he turns his attention to what is probably the most effective and secure method of ensuring debts are paid – charging orders.

What is a ‘Charging Order’?

A Charging Order is an Order of the Court charging a person’s interest in a property or properties, for the amount of the debt owed. It is therefore a type of security, like a mortgage, for the sum owed.

Voluntary Charge

If a debtor ‘agrees’ to a charge over their interest in any property or properties they own, in respect of debts owed, then this can be achieved by lodging the relevant form with the Land Registry. However, this procedure is dependent upon the debtor agreeing to this being undertaken and in almost 99 per cent of cases, such agreement will not be forthcoming. In which event, a Charging Order will need to be applied for through the courts.

Who can apply for a Charging Order?

Anyone owed money can apply to the court for a Charging Order. However, a Charging Order cannot be applied for unless a judgment for the sum owed is first obtained against the debtor. Further the debt owed must be £1,000 or more.

Therefore, the person owed money must first go through the court system and obtain a judgment, and then, on the back of the judgment being obtained, a Charging Order can be applied for.

What is charged?

Only the debtor’s ‘interest’ in the property or properties can be charged. So, for example, if a husband and wife jointly own property in equal shares, then it is only the debtor’s 50 per cent interest in the property that can be charged.

When is payment made under a Charging Order?

Although a Charging Order on a property secures the amount owed, this does not mean that the monies owed will be paid immediately.

Generally, there are three trigger points when the sum secured by way of Charging Order, will be paid. They are:

  • If the debtor dies, provided he/she is the sole owner.
  • When the property is sold.
  • If the person who has the benefit of a Charging Order applies to the court for an Order for Sale of the property.

Under the first two, it may be years before these trigger points are reached. However, the person owed money will be entitled to interest on the initial sum charged, currently, at 8 per cent per annum, from the date the Charging Order is made.

Under the final trigger point, the courts will generally only order a sale of the property if the amount of the debt is large.

For more information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk.

Written by Paul Trincas

February 17th, 2016 at 12:12 pm

New ‘Pre-Action Protocol for Debt Claims’

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For a number of years now, parties have been expected to comply with Pre-Action Protocols before they resort to litigation. There are different Pre-Action Protocols for a range of disputes, and then finally the Practice Direction – Pre-Action Conduct for those not subject to a specific Pre-Action Protocol.

Paul Trincas

Paul Trincas

The Protocols explain how the court expects the parties to behave at the pre-action stage and encourage them to consider other methods by which they might resolve their disputes. Failure to comply might result in the court imposing cost sanctions on the offending party. In practice the court is unlikely to do so unless one party makes an issue of the other’s non-observance.

The Civil Procedure Rule Committee is now consulting a new Pre-Action Protocol for Debt Claims. It will apply in circumstances where a business (including sole trader) is claiming payment of a debt from an individual, or where both parties are sole traders. The draft Protocol requires the Claimant to include certain ‘initial information’ within its letter of claim whilst enclosing copies of specified documents (including a copy of the Protocol itself). The Claimant’s letter of claim ‘must’ contain a prescribed statement, essentially outlining the requirements of the Protocol and encouraging the debtor to take independent advice.

As the draft currently reads, the defendant will then have at least 28 days to obtain advice. The Protocol encourages the defendant to respond using a form attached to the Protocol at Annex 1. This will explain whether or not the debt is admitted or disputed.

The Committee has received objections to certain parts of the draft Protocol. It is hoped that everything will be finalised and the new Pre-Action Protocol for Debt Claims implemented by April 2015.

Businesses will be used to issuing proceedings themselves, or instructing their solicitors to do so, in order to pursue debts. Currently, it is necessary to comply with the Practice Directions – Pre-Action Conduct before issuing, but once a specific Pre-Action Protocol for Debt Claims has been adopted clearly a new set of requirements will need to be adhered to. If businesses are uncertain as to what sort of steps they should take in the run-up to issuing proceedings for a debt claim they should take advice from their legal advisor.

For further information please contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk

Written by Paul Trincas

December 3rd, 2014 at 10:55 am

Directors’ Guarantees – A Warning

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In today’s current climate when a company is able to secure bank lending, it is common practice for the bank to ask for a personal guarantee from directors. Rupert Wright, a corporate services specialist with law firm Charles Lucas & Marshall, explains the implications of signing a personal guarantee.

A Court of Appeal decision earlier this year should act as a warning to directors who sign personal guarantees.

The Court of Appeal ruled that a director was liable for more than £330,000 almost seven years after he had resigned from the company. The lender provided the company with a significant amount of credit. After the company fell into arrears, the lender sought personal guarantees from the directors which they at first declined to give. When the lender threatened to withdraw the company’s credit, the directors signed a written guarantee giving rise to joint and several liability for all sums due to the society by the company. At the time of signing, the personal guarantee was limited to £200,000.

In 2006 when the director resigned as one of the directors of the company and sold his shareholding, the company’s debt to the lender stood at approximately £400,000. This increased so that at the time when the company ceased to trade, the debt to the lender had increased to £700,000.

The director challenged the lower court ruling on a range of issues, but the court held in favour of the lender.

The case illustrated that the courts will look at the wording of a document and if it is clearly an all monies type of guarantee, the credit limit can be varied and the director’s liability would not be limited to the credit limit at the time the guarantee was given or the limit in place when they resigned from the company. Directors when resigning from a company should ensure that they secure their release from any personal guarantee given, or at the very least, seek an indemnity from remaining directors.

Generally directors should seek legal advice when committing themselves to guarantees, particularly when guaranteeing someone else’s debt. They need to know if the person asking for the guarantee has the ability to service and repay the loan. They need to check this person’s credit history and they need to be sure that this person can meet all the borrower’s obligations.

Also, the guarantor should note that generally lenders are not obliged to notify guarantors of a borrower’s financial difficulty. In fact, the bank would be in breach of its duty of confidentiality to the borrower if it did so.

Guarantors should also note the bank does not have to pursue the borrower for the debt. Once the borrower is in default, the bank has a right to pursue the guarantor. If more than one guarantor has guaranteed the borrower’s debts the bank can choose who to pursue.

In summary, it is vital that legal advice should be sought at all times before directors enter into guarantees so that they are aware of its implications.

For further information contact Rupert Wright on 01635 521212 or rupert.wright@clmlaw.co.uk

 

 

Written by Rupert Wright

January 9th, 2014 at 8:20 pm

Posted in Banks,Debt

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Business debts: “To Sue Or Not To Sue – That Is The Question”

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Paul Trincas, a litigation specialist at law firm, Charles Lucas & Marshall weighs up how far a business should go to recover money it is owed.

Paul Trincas

Paul Trincas

Very often, the first, and perhaps most natural reaction for a business owner faced with a customer or client who has failed to pay without good reason, is to sue for the monies owed.

However, to implement that initial reaction is not as easy or straightforward as you think it might be. Several business and economic factors need to be weighed in the balance before making the decision to sue.

Is there an on-going commercial relationship to maintain ?

It may well be that the monies owed are small compared to the overall gain to be

achieved by not pursuing it through the courts and securing future business worth significantly more, in financial terms, than the current sum owed.

Is the amount worth suing for ?

If the amount is of any significance, and all other measures to secure payment have failed, then it may well be worth suing through the courts. If you succeed in your claim, you would also be entitled to seek payment of your legal costs.

However, where the sum involved is £5,000 or less, then this will constitute a ‘small claim’, where normal costs rules do not apply. Instead, in such cases, the costs rule, subject to very limited exceptions, is that each party, win or lose, will have to pay its own costs. All the successful creditor will be able to recover are the court fee and limited fixed costs. This means that for lesser value claims, the whole exercise is not economically viable.

Will you actually get paid ?

Having succeeded in the action, you will get a Judgment, effectively ordering the customer or client to pay the money. But what if the client or customer does not pay? In this scenario, there is no magical formula for securing payment of your money. The client or customer will not go to prison for defaulting on payment on the Judgment as this is a civil debt and not a criminal matter.

You as the business owner, will then have to go back to court in order to enforce the Judgment debt in the most appropriate method, given the financial circumstances of your customer or client. However, further costs will be incurred in the enforcement process, and, you will only be able to recover limited fixed costs – normally a fraction of the total costs incurred in the enforcement process.

You can contact Paul Trincas on 01635 521212 or paul.trincas@clmlaw.co.uk

Written by Paul Trincas

August 16th, 2013 at 4:09 pm