Don’t Get Locked Down By Debt!

The Dispute Resolution Clause

The lockdown due to the ongoing coronavirus pandemic, is beginning to have a serious impact on the cash flow of many businesses. The impact has been such that 23% of businesses in the UK have temporarily ceased trading, with 58% of all businesses reporting a decrease in turnover.

The more lockdown continues, the more this will impact on businesses and with no end in sight in the foreseeable future, now is the time to take a look at your cash flow and make sure you are in an excellent position to be able to ride the wave until lockdown is over. Although the Government is politely asking that businesses have a degree of leniency with one another during the current climate, this does not mean that you should forget about recovering any debt that is rightfully owed.

We have written some guidance that may be of use during this time.

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7 Things You Can Do Internally

  1. Which debts should you prioritise? Consider this carefully

  2. Unless the debt owed is directly related to the coronavirus, there is no need to delay in collecting it

  3. You have a responsibility to act reasonably, but your customers also have the same responsibility

  4. The sooner you get in touch with your debtors, the more likely you are to be successful

  5. Bear in mind the relationship between you and your debtor (if any) and how important it is to preserve it

  1. Develop a plan to recover each debt
  2. Talk to the people who owe you money and find out what their financial situation is
  1. Keep records of any conversations you have with your debtors
  2. Identify (possibly with the assistance of your lawyer) if there will be any legal issues, e.g. have your debtors accepted your terms of business?
  3. Take into account (again, perhaps with your lawyer) how long it may take to begin any court proceedings, including any “pre-action protocol” letters

If, after doing all of the above, you have exhausted your efforts in trying to recover the debt, we will assist you with the next stages and have a vast amount of experience in recovering debts on behalf of businesses, no matter what their size.

Not every debtor is going to simply give you the money they owe and some will dig their heels in until faced with the reality of impending legal action. This is often preceded by having received a strong, pre-action protocol letter before action (LBA), which we will happily draft for you.

Any contract terms should be considered carefully and, if applicable, fully complied with as part of the recovery process. At the same time, consideration early on of whether the debt is likely to be disputed is recommended. This will help you to determine which of the many recovery options are available to you, including the possibility of using an insolvency procedure.

It will come as no surprise that coronavirus has had a significant impact on how the courts are operating at this moment in time. This will subsequently impact how you are able to recover your debt. For example:

  • Courts are operating at reduced capacity, which is having a real impact on the time it is taking to issue claims and when hearings will be listed
  • Non-urgent work is not being carried out or processed and many scheduled hearings have been postponed

Despite all of this, the courts are very much still operating and we encourage you not to be complacent about recovering your debts. The process of claiming and enforcing any judgments can and should still be pursued.

he courts are continuing to process most types of enforcement and we encourage you to act early in order to avoid any post-lockdown “jam” that is likely to occur. This is most likely to occur in the case of High Court Enforcement Officer (HCEO) instructions, due to the fact that visits to debtors in person are not currently happening.

Various measures have been announced by the Government, including changes to the way insolvency is carried out. This is to avoid businesses being forced into insolvency during the current coronavirus crisis. Although new legislation is yet to be drafted, is is important to keep in mind the following:

  • There are now restrictions in place that prevent commercial tenants from being pursued for rent arrears, including a “ban” on the use of statutory demands and on the issuing of winding-up petitions, which is expected to be in place until 30th June
  • Where a debtor’s inability to pay is directly linked to to the impact of coronavirus, similar restrictions are expected to apply

It is still important to note, however, that creditors would be strongly advised to not assume that their debts are not fully recoverable. The measures set out by the Government are not there to allow debtors to get away with not paying what is due to their creditors and instead are intended to only apply in situations where coronavirus is the genuine cause of a debtor’s difficulty in paying their debt.

It is vital to assess from the outset how this may apply to you and your debtors. You should get ready to act swiftly to ensure that the discretion now afforded to the courts is applied only in legitimate circumstances. As the current situation continues to develop, we will be happy to assist you should all other action you have taken have failed.

  1. Which country’s laws will govern the contract and any possible disputes arising from it
  2. Which forum(s) will deal with any disputes and which ones will be binding upon the parties
  3. What steps must be taken by the parties before a dispute is referred to a binding authority

A contract may provide for the following:

  1. From the outset, the directors of the parties will attempt to resolve any issues through negotiating directly with one another
  2. Following lengthy negotiations which ultimately result in failure, the parties will attempt to resolve the dispute via mediation
  3. If the mediation is unsuccessful, any of the parties will be entitled to seek recourse in the courts

The two most important points to clarify in this sort of clause are which country’s courts will deal with the matter and which forum will ultimately decide the outcome of any dispute, usually in the form of litigation or arbitration. It is quite key to decide which forum is to be used with care, because one particular route can lead to high costs and a lengthy timetable. Not only that, but each party may be subject to certain obligations as part of the process, such as having to fully search for and disclose relevant documents to the other party. Therefore, some serious consideration should be given to which type of Dispute Resolution Clause is used in your contracts, based upon the type of business you conduct and the parties involved.

Finally, the parties to a contract may also wish to give consideration to such factors as flexibility, speed, privacy and cost when choosing which route to take in relation to resolution. It is important to remember that each of the methods available have their own merits as well as advantages and disadvantages.

Interested? Or have a question we did not answer? Feel free to give us a call on 0161 917 5071 or write your questions in the form below and we will get back to you as soon as possible. 

This publication is a general guide and summary of the law and should not be construed as legal advice. It should not be acted upon or relied upon in any way and should not replace legal advice which is bespoke to your particular circumstances.

GWA Law 2020©

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