Recovering a debt

The Dispute Resolution team at Chadwick Lawrence are experts in a wide range of both private and public sector disputes and we aim to provide a friendly, cost effective and professional service to assist you with recovering your assets.

If a person or a company owes you money and refuses to pay, there are a number of ways to recover the debt. The action you take will usually depend on the size of the debt in dispute and your ability to prove that you are owed the sum.

However, as a result of the implementation of the ‘Pre-Action Protocol for Debt Claims’ (“the Protocol”) which was introduced on  1 October 2017, the Court has placed an increased focus on the early settlement of debts and now more than ever, the issuing of Court proceedings should be viewed as a last resort.

The introduction of the Protocol requires strict compliance from both the Creditor and the Debtor and failure to comply with the Protocol can result in a number of sanctions / consequences.


The Court will require compliance with the Practice Direction on Pre-Action conduct and / or the Protocol at a very early stage from both the Creditor and the Debtor. At the very least, the Court will expect a Creditor to have prepared a detailed ‘Letter of Claim’ which includes set information to the Debtor and provides the Debtor with a reasonable time frame in which to respond. If a Creditor is required to send a Protocol compliant Letter of Claim (if the Debtor is an individual or sole trader) then the Creditor must also send the relevant documents to the Debtor as required by the Protocol.

Court proceedings

There are a number of matters which both businesses and individuals must consider when Court proceedings are contemplated. A few of these are listed below:-

  • It is worth considering whether the Debtor / proposed Defendant are ‘worth anything.’ If they have little or no assets then often a Judgment will be unenforceable and the cost / time of issuing Court proceedings will not result in a successful recovery.
  • Be cautious about starting Court proceedings if you do not intend to see them through or have second thoughts about doing so. A Claimant will almost certainly be liable for the other party’s costs if it discontinues the claim.
  • If an unsecured debt has been outstanding for 6 years or more; proceedings can usually not be commenced against unsecured debts due to the Limitation Act 1980.
  • Conduct a cost/benefit analysis before initiating Court proceedings. Should payment of the debt remain unsatisfied, make sure that the cost of enforcement is factored into any calculations when determining whether the costs of issuing Court proceedings will be worthwhile.
  • Recovery of any legal costs will often depend on:
    • The financial value of the claim and consequently the track which the claim is allocated to by the Court. The general rule is that claims with a value of less than £10,000 will be allocated to the ‘small claims track’ and as a result neither party (winner or loser) will be entitled to recover their legal fees;
    • The winning or losing party;
    • A party’s conduct and compliance with Court rules and Orders (for example, a failure to comply with the Protocol can have cost consequences even for the party that wins);
    • When the matter is concluded (whether before or after proceedings have been commenced); and,
    • How the claim is concluded (whether by agreement or at trial / final Hearing).

Insolvency proceedings against a Company

The Creditor may also be able to recover a debt from a company by commencing Insolvency proceedings by either:

  • Serving a statutory demand.
  • Threatening compulsory liquidation (also known as winding-up) by the Court.

What is a statutory demand?

  • A statutory demand is a written notice in a prescribed form demanding payment of a debt owed by a company to one of its creditors. If the debtor doesn’t pay within 21 days, this may constitute grounds for presenting a petition for winding up.

What is a winding-up petition?

  • The threat of starting winding-up proceedings can put considerable pressure on a company to pay an outstanding debt promptly and the basic procedure is relatively inexpensive. However, these proceedings should generally be regarded as a last resort.
  • The Court requires a Creditor to behave reasonably before starting winding-up proceedings and, in particular, to write to the company with details of the debt and demanding payment – this can be in the form of a Statutory Demand.
  • It is an abuse of process to issue a winding-up petition if a debt is genuinely disputed and the Court will sanction those abusing this process.
  • If a winding-up order is made, a liquidator will be appointed by the Court to collect the assets of the company and distribute the value equally among the company’s creditors. The petitioning creditor does not get any priority in this process (unless they have security over any company asset or they are one of a small group of preferential creditors). They may receive only a small percentage of their claim, or perhaps nothing at all, at the end of the liquidation process and this should be factored in to any cost-benefit analysis.

Insolvency proceedings against an individual

The Creditor may also be able to recover a debt from an individual (if the debt is £5,000 or over) by commencing Insolvency proceedings by:-

  • Serving a Statutory Demand on the Debtor

What is a bankruptcy petition?

  • A bankruptcy petition is a written notice in a prescribed form demanding payment of a debt owed by a individual to one of its creditors. Bankruptcy is the process commenced by a Court Order, to realise the Debtor’s assets and distribute these to the Debtor’s Creditors.
  • A statutory demand should be prepared in the prescribed form demanding payment of a debt owed by a individual to one of its creditors. If the debtor doesn’t pay within 21 days, this may constitute grounds for presenting a petition for bankruptcy.

Reaching a settlement

Given the increasing costs of presenting Court / Insolvency proceedings against a Debtor it almost always makes sense to consider informal methods of recovering a debt (for example, using negotiation or mediation) as they can provide the quickest and simplest solutions. The Court will expect parties to have explored ways of settling the claim before they issue proceedings and may penalise a party in costs if they fail to do so.


Mediation is a flexible, voluntary and confidential form of dispute resolution in which a neutral third party (the Mediator) helps parties to work towards a negotiated settlement of their dispute. The parties retain control of the decision whether or not to settle and on what terms.


It might be possible to recover the debt, or agree an alternative future course of action by opening a negotiation with the Debtor. This can be done verbally or in writing and can be relatively inexpensive to do so.

The Without Prejudice rule

Parties usually negotiate on a without prejudice basis. The without prejudice rule generally prevents statements made in a genuine attempt to settle an existing dispute from being used as evidence of admissions against the interest of the party which made them. This rule means that, if the negotiation or mediation fails and the business then issues court proceedings, any statements that the parties made in a genuine attempt to settle the dispute (whether in writing or orally) will usually not be put before the court in the proceedings.

What next?

Our specialist lawyers in the Dispute Resolution department at Chadwick Lawrence would be delighted to discuss matters with you to allow them to gain a complete understanding of how we can assist your business.

We are happy to offer a free initial consultation for you and/or your business to discuss a strategy and a way forward in terms of improving your position or assisting your business.

If you would like to register your interest and/or receive some further information please call 0113 225 8811 or email

Please note that the purpose of this article is to create legal awareness and is not intended to replace the need to obtain expert legal advice.