Sadly, however well run your business, and however good your products or services, it is almost certain that at some stage you will need to take court action to recover money owed to you by a customer.
The Small Claims Court (SCC) – actually a procedure within the County Court – was set up in 1973 in to make it easier for people to secure legal backing in debt recovery.
There has always been a limit to the size of debt which can be enforced through the SCC procedure. In April 2013 that limit was doubled, from £5,000 to £10,000.
A key feature of the SCC system is that each party generally bears their own costs. As a result, many business owners opt to represent their own companies in the SCC rather than incurring legal costs which cannot be recovered.
With the increase of the SCC limit to £10,000, any debt claim up to this value will automatically be allocated to the SCC, regardless of its complexity. Where a claim hasn’t been quantified by the claimant exactly, and could therefore fall on either side of the £10,000 line, it’s likely that the court will also allocate it to the SCC in the first instance.
So does the change mean that it will be more costly for businesses to use a solicitor to help recover debts of between £5,000 and £10,000? On the face of it, the answer to that question is yes.
However, where a claim involves an undisputed debt (i.e. the other side hasn’t made any complaints or allegations against your company – they’ve simply just not paid up) this rise in the limit is almost certainly helpful. Not only can you now access the user-friendly SCC (which is designed to help the non-legally-trained to present their side of the case) to recover larger debts, but the process is also much quicker as the court has its own time targets to meet.
Even where disputed debts are involved, putting claims of up to £10,000 in the SCC still isn’t necessarily a bad thing. Analysis indicates that most small-scale debts don’t involve disputes over complex legal issues which require specialist knowledge. Rather, they simply come down to a disagreement over the facts, e.g. as to what was agreed between the parties, and what did or didn’t happen. In these circumstances, a director may well be the best person to represent the company in the SCC over a disputed debt, because they will have first-hand knowledge of all the facts.