The recovery of money from a debtor (debt recovery) is often a stressful process. In the current economic climate it presents a real possibility that the failure to recover such sums may result in severe consequences for the person or business seeking to recover those sums.
As many people are now aware, the limit for small claims was recently increased from £5,000 to £10,000 meaning that for claims less than £10,000 legal costs are not recoverable save for in exceptional circumstances. The small claims procedure is supposedly more accessible.
This gives a claimant three choices; pursue the matter themselves, instruct solicitors regardless or do nothing. Whilst the value does not necessarily indicate the degree of complexity, people do still find the prospect and the reality of litigation daunting, notwithstanding the efforts to make it more user friendly.
In addition to the change to the small claims limit it has just been announced that the level at which a person can be made bankrupt is changing from £750 to £5,000 on the 1st October 2015. Whilst the bankruptcy procedure is not, strictly speaking, a debt recovery method it does often force debtors to address their financial situation which can result in payment. This is of course preferable to bankruptcy which may result in a much lower amount being recovered, depending on the debtors financial exposure.
With the increased bankruptcy and small claims levels it may make it more likely that the ‘smaller debts’ will be actively evaded by debtors capitalising on the reluctance of creditors to pursue the matter. As a result it becomes more likely that those creditors will themselves face financial difficulties.
What can be done? Litigation is not always about the worst case scenario, i.e. issuing proceedings or presenting a bankruptcy petition, it can also be the consideration of litigation risk and identifying what can be done to minimise that risk. For example, this may be as simple as reviewing contractual documentation or refreshing credit control procedures which can serve to avoid the need to consider more severe options.
If you are concerned about a debt or wish to review debt recovery processes then please do not hesitate to contact the Litigation Department on 020 7631 4141.