Wednesday, 27 February 2013 16:38

Making not-so-small claims for late payment

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When late payment goes beyond the limits of amicable pursuit, and it becomes apparent that the funds will never be willingly forthcoming, the remaining option is to go to court, in order to force the debtor to pay.

Depending on how much you are owed, you may be able to do this in small claims court, or you might have to launch more formal legal proceedings, which are likely to prove more expensive.

At the moment, there are two changes being introduced that could affect this decision - and it's not yet 100% clear exactly what their impact might be.

Small claims limit increases in April

From April 1st 2013, the upper limit on the amounts that may be reclaimed through the small claims track is due to increase - in fact, it is set to double.

That takes it from its current position at £5,000 (excluding claims for housing disrepair and personal injury) to £10,000, a threshold that should apply to most ordinary instances of late payment.

In the future, if the higher threshold is found to be effective and does not cause any major problems, it may rise further, to £15,000.

This is clearly good news for creditors, as the small claims track offers a first means of recourse to the law, without lengthy legal proceedings and solicitors' fees.

'Additional reasonable costs' introduced on March 16th

court

Before the small claims limit increases, there is another piece of legislation due to come into effect, as regular readers will be aware.

On March 16th 2013, Directive 2011/7/EU on Combating Late Payment in Commercial Transactions comes into force in the UK, and one of the outlined regulations is for the UK's existing three-tiered fixed-fee structure for late payment claims to be retained, with the inclusion of "additional reasonable costs" in what may be recovered from the debtor.

'Reasonable costs' arguably includes any essential expenditure incurred in chasing the debt - which we think should include solicitors' fees.

Putting it together

What this all means is more protection for creditors, whichever way you interpret the incoming Late Payments Directive.

If the legislation means what we hope it means, we should soon see creditors taking court action and retrieving not only the full amount owed plus statutory interest, but also any fees they have incurred in pursuit of payment.

This would finally give creditors peace of mind that, in chasing a debtor for payment, they could expect to get back 100% of what they are owed.

Even if the legislation does not include solicitors' fees, however, the rising small claims limit means more cases should be able to be handled without complex legal proceedings.

In turn, this should cut the total cost and time taken to recover owed amounts of anywhere up to £10,000, with statutory interest and the appropriate three-tier fee included in the balance as well.

We will be watching with interest to see how this plays out - and whether it inspires creditors to spring into action once April arrives.

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http://www.parliament.uk/briefing-papers/sn04141

Image "My Trusty Gavel" by flickr user Brian Turner is licensed under CC BY 2.0