Debt recovery during the Coronavirus (COVID-19) pandemic

The COVID-19 pandemic and resulting lockdown since 23 March 2020 has raised unprecedented challenges to businesses across the UK. Some companies continue to operate with employees working from home, but others may have ceased to operate all together.

One common issue for all companies during this challenging time is the management of cash flow.

Collecting unpaid invoices is therefore likely to be top priority for many businesses, but what impact does the pandemic and the resulting measures have on your ability to collect debt through legal means? We provide some guidance on your options below.

Debt recovery: letters before action

Once a creditor decides to engage debt recovery solicitors, the first action will usually be to issue a letter before action (“LBA”).

The Practice Direction: Pre-Action Conduct and Protocols (“PDPAC”) requires a creditor to send a letter [our emphasis] of claim to the debtor explaining how the debt arises and warning that legal action will ensue if payment is not made. Debtors are usually given 14 days to take action (save for debts owed by individuals who get 30 days). The Pre-Action Protocol for Debt Claims (“PAP”), which applies to debts owed by individuals, does go further in expressly requiring the LBA to be sent by post, unless a creditor has an express instruction from the debtor not to correspond by post.

With so many companies working from home, the ability to print and post letters has been hindered. An alternative could be to send the LBA by email, but given the express requirement in the PAP that LBAs to individuals must be posted, some argue that this should be the case for LBAs to corporate debtors too.

This is a grey area with little legal authority to provide guidance, but it should be noted that the PDPAC and PAP are codes of best practice and provided creditors are doing all they can to bring the potential claim to the debtor’s attention during these difficult times, it is unlikely that a creditor would be criticised for not complying with the requirements. Indeed, the PAP allows creditors to send a copy of the LBA by email to individuals, so arguably a creditor would be furthering the spirit of the PAP and PDPAC.

Creditors should therefore not be put off from instructing their debt recovery solicitors from sending LBAs simply because of the lockdown, especially where they can provide an up-to-date email address for the debtor.

Debt recovery claims

If the debtor fails to act following the LBA, the next step would usually be to issue court proceedings.

The Ministry of Justice (“MoJ”) and Her Majesty’s Court and Tribunal Service (“HMCTS”) have been consolidating the court portfolio in an attempt to follow Government guidance. As a result a number of courts have been temporarily closed.

Most claims for unpaid invoices, however, are issued through either the County Court Money Claims Centre (CCMCC) or County Court Bulk Centre (CCBC) and at present both remain operational.

Naturally, there will be a reduction in the number of court staff physically working from the building, which in turn has resulted in an increase in the processing times for all new actions. As of 06 April 2020 HMCTS advises that new paper based claims are taking 11 days to be processed through the CCMCC.

Creditors are therefore still able to take formal legal action, but they should be aware that it is taking the court slightly longer than usual to process the paperwork. As such, to avoid unnecessary delay, creditors should consider issuing claims as normal rather than waiting for the lockdown to end.

Debt recovery enforcement

The Ministry of Justice has advised all bailiffs must follow the Government’s guidance during the pandemic. As a result they have advised that bailiffs suspend all in-person visits.

The High Court Enforcement Officers Association states that all High Court Enforcement Officers (“HCEO”) members are following this guidance. The HCEOs that we have spoken to have advised that they can still accept new instructions, but for now they will only be sending out notices of enforcement and attempting collection via correspondence.

Creditors should keep in mind that any Writs of Control will be actioned in the order that they were issued. They are also valid for a period of 12 months from the date of issue, so it may be worth obtaining a Writ now rather than waiting for the end of the lockdown, to ensure priority at the front of the queue when normal business resumes.

Other methods of enforcement are still available, such as third party debt orders and charging orders. On 27 February 2020, the Deputy Head of Civil Justice the Rt. Hon Lord Justice Coulson, published guidance on the listing priorities for the civil courts. That list advised that enforcement work that does not involve bailiffs is work that should continue to be actioned.

As with the issuing of new claims, however, creditors need to be prepared that there may be longer processing times than usual, but action now may avoid even further delay by the potential bottleneck once restrictions are lifted.

Practical tips for creditors

  • Consider sending LBAs sooner in the credit control process;
  • Ensure contact details for customers are up-to-date, obtaining an email address where possible;
  • If an agreement cannot be reached creditors should still consider taking legal action to avoid any delays caused by a post-lockdown bottleneck;
  • HCEOs can still be instructed and it is worth considering doing so now so that your Writ is towards the top of the list post-lockdown;
  • Creditors should consider alternative enforcement options, such as third party debt orders or charging orders.

The Debt Recovery team is able to assist clients with all their debt recovery queries and provide commercially focused, practical advice on the options available. For further advice on debt recovery please call us on 01483 543210.