Debt Recovery Law

As a business, successfully recovering unpaid debts can be absolutely vital to your cashflow and the smooth running of your organisation. A debt recovery letter before action will inform the business that owes you money of your intention to pursue the debt through legal action, and is usually the first stage of a debt recovery process.

When it comes to debt recovery, a lawyer’s letter before action is a highly effective way of communicating how seriously you are taking the situation and, more often than not, can be the only type of action needed in order for the debt to be repaid.

You can send a debt collection letter before action from your business directly, but they tend to have more gravitas and a better outcome when a debt recovery lawyer sends the letter on behalf of your business.

If payment is not made in full after a letter before action or a letter of claim is issued, on your instruction our debt recovery specialists will issue a claim at court on your behalf, for a fixed fee. Our charges vary depending on the size of the debt involved.

The claim form will detail the debt due and will include a claim for interest and/or compensation, as well as lawyers fixed costs and the court fee paid.

Once judgment has been obtained, enforcement action may be needed to recover the sums awarded by the court.

We will write to the debtor demanding payment of the judgment debt and where appropriate inform the debtor of the enforcement action to be taken if payment is not made.

On your instruction, a request for default judgment is lodged at court where a debtor has failed to respond to the claim issued against them at court. Judgment is entered by the court for the total amount payable including all interest, compensation, lawyers fixed costs and court fee paid.

You should note that the court will not help you to enforce your judgment so if your judgment is not paid you will need to take steps to enforce the judgment if you want to be paid.

If you require legal assistance with commercial debt recovery our specialist lawyers have the experience you need to provide an efficient and cost effective recovery service for your business. We have developed our commercial debt recovery service to operate on a fixed fee basis for undisputed debt and can provide expert legal advice on unpaid invoices.

Businesses can also claim interest on any invoices that were not paid within the agreed period, but have since been paid. For example, if an invoice was not paid on the agreed date of 1st January and takes two months before it is paid on the 1st March, interest can be claimed on the two months the invoice was overdue for payment.

For advice and assistance in relation to bankruptcy and winding up a company speak to our debt recovery lawyers.

The first step towards obtaining a bankruptcy order against a debtor is usually to serve a statutory demand on the debtor although service of a statutory demand is not necessary if execution of a judgment debt is returned unsatisfied.

Bankruptcy should not normally be considered where there is any hint of a dispute. If there is a dispute, it is advisable to obtain a judgment first (please see the issue a claim and judgment sections).

In order to answer this question, you should ensure that you have a reasonable chance of recovering the debt owed to you. You should also ensure that the expenses spent in recovering the debt is justifiable.

If you are contemplating writing off small debts, you will have to be extremely cautious and consider whether writing off the small debts would set a bad precedent and encourage other small debtors to not pay. For larger debts, initially you will need to ascertain and understand why the debtor has not paid the outstanding debt. If for example the reason why the debtor has not paid the debt owing is because they have an issue with the goods you have supplied, then this issue may first need to be resolved before looking at recovering the debt. If you are aware that the debtor is in cash flow difficulties, a more viable solution would be to make attempts to negotiate a reduced lump sum payment. Alternatively arrange a payment plan.

Debt recovery lawyers specialises in debt collection. We charge an hourly rate or a percentage of the value of the debt to be retained from the debtor. This is usually between 20% to 40%, dependent upon the age, size and complexity of the debt. Depending upon the volume of work, we can offer more tailored costs to suit your needs. For this, you will be required to contact and discuss your options.

One-off recoveries are likely to be more expensive than if you regularly use our services to pursue/ recover all unpaid debts.

We have invested heavily in IT systems which are needed to reduce the costs of handling a large volume of debts.

Step 1 is to send the debtor a Letter Before Action (LBA). Approximately 75% of cases end in settlement by way of payment at this step. If the matter is not settled and payment is not received, we then move to step 2.

Step 2 consists of issuing court proceedings.

Step 3 involves obtaining a Judgment.

Step 4 is commencing enforcement action. Alternatively, in step 4, insolvency and or bankruptcy action can be taken against a debtor.

The best scenario would be for you to have a written and signed contract with the debtor. However, you may have other documentary evidence such as bank statements, purchase orders, contemporaneous notes, e-mails, text messages or witnesses to oral contracts. This evidence should show that you have fulfilled your side of the contract. The best thing in these sorts of circumstances is for you to have evidence that the debtor was aware of your terms and conditions before any contract was entered.

It is vital that copies of all correspondences are kept as well as your attempts to chase the debt or any attempts to negotiate a settlement. Although not the best scenario, but even without direct evidence, it may be possible to infer the agreement from other evidence, hence why it is crucial to keep copies of everything.

Discuss the evidence and the quality of your evidence with our specialist lawyers at Hassan Luk LLP before taking court action, especially if there is a dispute over the debt.

Considering all debtors to be the same is risky as every debtor is different. Every different kind of debtor raises their own difficulties and issues. Some of the issues that should be considered are as follows: (you should note, that although this list is inclusive, it is not exhaustive)

- Larger organisations will have significantly strong financial positions. With that they may attempt to bully smaller companies by threatening to take away their business or protracting court disputes.
- Public sector organisations may be concerned about the possibility of adverse publicity and this could make them settle their debts.
- Sole traders are personally liable for any debts incurred. It may be worth pursuing the individual if they have significant assets. This is regardless of whether the business of the sole trader is doing financial well or not. Alternatively, dishonourable company directors can take advantage of the protection offered to them by limited liability to evade paying their debts.
- Individual and smaller businesses are at a higher risk of suffering from cash flow problems and as a result making them unable to pay even if the case is won at court. Conversely, the debts of most public sector organisations are almost always guaranteed by the government.

Irrespective of the size and legal position of the debtor, we would follow the same basic principles:

- investigating the debtor’s ability to pay
- ensuring that you have a clear case
- ensuring that you have good evidence
- negotiating a settlement between yourself and the debtor whenever possible rather than issuing proceedings

Small to medium size debts will be pursued and recovered via the Small Claims Courts. Larger debts will be pursued and recovered via the Magistrates' Courts and High Court. Therefore, the court which you use and the procedure that you follow depends on the value of the debt.

Small Claims Court
Small claims track – This is for disputed debts of up to KES. 1,000,000. The cases heard in the small claims track are relatively straight forward with none to very few witnesses. These cases are informal and inexpensive.
Fast track – This track is used for debts between KES. 1,000,001 and KES. 20,000,000. These are also dealt with in the Magistrates' Courts and these cases may have a number of witnesses and/ or experts giving evidence. These cases can be more lengthy, complex and expensive.

High Court
Multi track – This track is used in claims for more than KES. 20,000,001 and these cases can be issued in the High Court. These cases are more formal and involve more complex procedures including various experts and witnesses giving evidence. These cases are significantly more expensive.
Alternatively, if you have an undisputed debt of more than KES. 100,000 there are other options that you can pursue such as winding up a company or making an individual bankrupt. The threat of being wound up or being made bankrupt can itself prompt the debtor to clear the debt. If you wish to discuss these options with us, please call one of our specialist lawyers.

If you have a contract with your debtor, this may provide a credit and confirm how interest will charged. Moreover, the contract which you may have with your debtor could set out your right to recover costs of collecting debts.

The best way to prepare for any debt recovery court case is to try and obtain as much written evidence as possible. This should include evidence of attempts to try and resolves the dispute out of court. This will aid us to understand the dispute in hand as well as allowing us to view your attempts at settlement, thereby strengthening your negotiation position and improve your chances if the case goes to trial.

The short answer is, no. Winning a debt recovery court case does not guarantee payment.

When winning a debt recovery court case (whether it was undefended or whether a dispute has been reached in your favour) you are awarded a ‘Judgement’. If the defendant still refuses to pay the debt or falls behind on any payment, you will need to attempt to ‘enforce Judgement’ via the court. There are many ways in which this could be done all which require paying an additional fee (which is added to your claim). Unless the defendant has money or assets to sell or income, the debt will not be recoverable. If the defendant is forced into insolvency, you may receive a small percentage of the money owed to you. For such reasons, it is vital to investigate the debtor’s ability to pay before initiating court proceedings.

In order to establish the best method of enforcement, you will have to ascertain whether the debtor is an individual or a company and their financial situation.

Our Debt Recovery lawyers will be able to advise you on the most practical and cost-effective way of dealing with your enforcement of your Judgement.

• If the debtor has goods or asset which can be sold, we may pursue them via a Warrant of Execution (or Writ). If we pursue this course of action, bailiffs or sheriffs will be sent to collect the money you are owed or to seize goods to the value of the money you are owed to sell at auction.
• If the debtor is owed money by someone else (a third party) we can ask the court to order that the third party is to pay the money direct to you as opposed to paying the debtor. This is known as a Third Party Debt Order.
• If the debtor has money in a building society account, we may again use a Third Party Debt Order. The bank or building society will be ordered to freeze the amount of your claim and the debtor is offered a court hearing before the money is paid to you.
• If the debtor is employed, we can obtain a court order ensuring that the debtors employer deducts a regular sum from the debtor’s earnings and pay it to you to clear your Judgement. This is known as an Attachment of Earnings Order.
• This is where a charge is registered on the debtor land or property (although this can be registered on other assets such as shares). This will prevent the debtor from selling or mortgaging the asset without first clearing your debt. This is known as a Charging Order.
• Enforcing a Charging Order. This may allow you to forcefully sell the debtors asset in order to recover the balance owed to you. This is a separate procedure with its own set of court hearings.