This document summarizes strategies for robust debt collection, including the use of statutory demands, insolvency procedures, litigation, and enforcement options. It notes that the number of "zombie businesses" with liabilities exceeding assets has increased significantly in recent years. When traditional debt collection fails, options like statutory demands, litigation to obtain judgments, and enforcement of judgments through means like High Court enforcement officers seizing business assets can help creditors prioritize recovery. The key is pursuing these strategies before other creditors to get repaid first.

1. Adam Wonnacott
Burlington Group
ICM Managing Change Masterclass, 10th October 2013
www.burlingtongroup.co.uk
AdoptingLitigationandEnforcementasaDebtRecoveryTool

2. Scope of this seminar
Economic context and the need for robust debt
collection methods
Use of statutory demands and insolvency
procedures
Obtaining and enforcing judgment & comparison
Putting judgment and enforcement processes in
place

3. ‘Zombie businesses’: Businesses that generate just enough cash to
service their bank and supplier debts and have liabilities far in excess of
their assets
‘Growth’ in so-called ‘zombie businesses’ has soared by 108% in the last
five years, to 227,000 (approximately 1 in 10 of all UK businesses)*
Total negative net worth of about £70 billion *
* Source: Company Watch

4. Having to negotiate payment
terms with creditors
Unable to repay debts if small
increases in interest rates
Struggling to pay debts when
they fall due
Just paying interest on debts
R3 Business Tracker Survey Results, May 2013
Source: R3 Business Tracker; ONS

5. 0
5,000
10,000
15,000
20,000
25,000
30,000
UK Company liquidations in England and Wales,
1960 to present
Source: BIS; Insolvency Service

6. What are the risks?
DEFAULT
Effect of
sustained lack
of investment
Interest rate
rises
Economic
recovery sorting
the ‘wheat’
from the ‘chaff’

7. Who else isn't
getting paid?
Am I a critical
supplier?
Is there a risk of
insolvency?
How do I get to
the front?

8. Debt Collection v Enforcement
Debt Collection
• Internal ‘Soft Collection’ techniques: Letters/Calls
• Instructing DCA
Enforcement
• Insolvency Proceedings: Statutory demands/Winding up petitions
• Litigation

9. Statutory Demands and Corporate Insolvency Procedures
Statutory Demands are a demand to the debtor to make payment/satisfy the
demand within a given timeframe (21 days from date of service)
If the demand is not met and is not challenged, the creditor can proceed to
issue a petition at court to obtain a winding up order
If the parties agree payment terms the creditor can set aside service of the
demand

10. Advantages
• Inexpensive: A statutory demand is not ‘court issued’ and, as such there is
no fee (besides process server fee)
• Leverage: As the first stage in insolvency, a Statutory Demand can be an
effective way of prioritising a debt
Statutory Demands

11. Disadvantages
• If the debt is disputed in good faith and on substantial grounds, the creditor
may obtain an injunction against winding up – and ask you to pay the cost!
• The next step (Winding up Petition) can be costly and ultimately
unrewarding – which can leave the debtor to conclude that a Statutory
Demand is an ‘idle threat’
Statutory Demands

12. Issuing a claim at County Court can be an effective method of engaging with the
debtor
Costs of issuing a claim between £500 and £5000 range from just £60-£100 and
can take as little as 4-5 weeks if the claim is undefended or admitted (85% of
judgments issued are ‘judgment in default’ or ‘on admission’)
Proceedings can be issued using Court Service portal (moneyclaimonline.co.uk)
or using a specialist debt recovery solicitor either on a fixed fee basis or under a
contingency arrangement (Damage-Based Agreement)
Litigation

16. Advantages
• Issuing a claim form may prompt the defendant to pay
• If it doesn’t the ‘next steps’ (enforcement) are much less costly than under
the insolvency process
• A prompt attitude towards enforcing a CCJ can place you in a priority
position if the debtor business is facing liquidation/administration
Litigation

17. Disadvantages
• If a claim is defended, it may take time to obtain judgment (although note
summary judgment procedure)
• If issuing the claim/obtaining judgment doesn’t work, you will need to think
about a suitable enforcement method
Litigation

18. Enforcement methods as against commercial entities:
• Enforcement against goods (High Court Enforcement, where Debt > £600)
• Charging orders against property
• Third Party Debt Orders
NB: You can also use a judgment as ‘belt and braces’ for serving a statutory
demand an ‘unsuccessful return’ from a High Court Enforcement Officer can
also allow you to proceed straight to a winding up petition
What happens if getting judgment doesn’t work?

19. High Court Enforcement Officers enforce judgments awarded in the High Court
and County Courts by seizing the goods of the defendant/debtor
If payment isn’t made, goods can be removed and sold to pay the amount
owing under the writ
If the defendant opts to make payment, it will be liable to pay costs awarded
under the judgment (including court fees) and the High Court Enforcement
Officers costs in addition
High Court Enforcement

20. Under a High Court writ, an HCEO can:
• Force entry to commercial premises (if necessary)
• Seize stock, infrastructure (telecoms, IT equipment, etc.)
• Charge costs directly on to the Defendant rather than charging a
commission to the creditor
High Court Enforcement is particularly effective in recovering
commercial debt
No Commission

21. The most appropriate method will depend on circumstances:
• What is the debt amount?
• What is the provenance of the debt? Goods or services?
• Is the debt disputed or is it likely to be? If so, is there a substantive defence?
• Does the debtor have assets that could be seized?
• Does the debtor business have any less tangible assets; debt book etc?
Also consider what you can develop as a scalable process
Insolvency v Litigation

22. In summary:
Economic recovery is likely to bring an ‘insolvency lag’ that will
almost certainly affect your customer base to some degree
If it affects you, it will affect others: The ‘domino’ effect
If you haven’t already, put in place some more robust debt
recovery methods and be prepared to use them before
everyone else

23. Email: adam.wonnacott@burlingtongroup.com
Call: 07788 871250 / 0845 520 2000
Get your copy of Getting to the front of the queue: A
commercial creditor’s guide to High Court Enforcement
@BurlGroup
www.burlingtongroup.co.uk