23 September 2015

Attention all debt recovery and credit control teams!

Attention all debt recovery and credit control teams! You only have until the end of the month to make use of the statutory demand process to recover debts of £750 or more from individual debtors. 

From 1 October 2015, this threshold is to increase significantly to £5,000 (although the lower threshold will still apply for the recovery of debts against companies).  The increase will come as a blow to many landlords who frequently use the statutory demand process to recover debts quickly (and more cheaply) than via the court process. It involves service of a statutory demand seeking payment of a liquidated (undisputed sum) within 21 days, failing which the debtor risks being served with a bankruptcy petition (or, in the case of a company, a winding up petition).  This is usually enough of a scare tactic to result in payment being made but, even if it doesn't, there is no obligation upon a landlord to then serve a bankruptcy (or winding up) petition.  However, by increasing the threshold, the government has made it clear that it considers the threat of bankruptcy to recover small debts to be disproportionate and an abuse of process. What with the recent replacement of distress with the more restrictive CRAR, landlords will be disappointed by this latest curb on the action they can take.  So, our advice would be to ensure that statutory demands are served before the increase. Going forward, on new lettings, landlords may want to think about obtaining rent deposits of £5,000 so as to be able to draw down on small debts. Otherwise, there is likely to be an increase in the level of bad debt write offs as savvy tenants can walk away from premises leaving 'small' debts with the knowledge that they are unlikely to be pursued for them.  On a large scale, such write offs could add up significantly.

 

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