Carter Jonas
Carter Jonas

Change makes debt control vital

Landowners who commercially let their property to tenants, and farmers who supply goods to other businesses on credit invoices, should be aware of an important change that comes into effect from October 1, 2015, and which blunts a previously very effective tool for recovering small debts.

From that date, a creditor will need to be owed at least £5,000, rather than £750 as at present, before being able to petition for an individual’s bankruptcy. This change to the Insolvency Act 1986, coming very shortly after the abolition of the remedy of distress from April last year, will inevitably serve to further limit landlords' armouries when attempting to recover arrears from tenants or other commercial debts.

Until now, service of a statutory demand has been a very useful method for recovery of arrears totalling £750 or more, particularly where there is no dispute as to the debt claimed and the debtor has assets available.

A statutory demand provides a debtor with a period of 21 days in which to settle the debt before a creditor can bring insolvency proceedings. This is a significant threat to a debtor and frequently very effective in achieving settlement of debts relatively swiftly and at very little expense compared to other remedies, such as issuing court proceedings.

Raising the minimum debt to £5,000 prevents insolvency for minor debts or using statutory demands as a scare tactic. However, following the proposed change, where arrears do not exceed the limit of £5,000, landlords will likely suffer as a result of this often effective remedy no longer being available.

The remedy of distress was replaced by the Commercial Rent Arrears Recovery procedure (CRAR) for commercial tenancies. Distress was not only a quick and low-cost method of recovering arrears, but also a very useful for a landlord as it had potentially serious adverse consequences for a tenant. The CRAR procedure is much more drawn out and expensive for landlords.

Following the changes, where there are arrears which total less than the proposed statutory limit of £5,000, there will still be methods of recovery available to a landlord, including forfeiture, a small money claim through the County Court, CRAR, and in some instances recovery from the guarantor or using some of the rent deposit although some of these methods may lead to other complications so need careful consideration.

The change to the limit for statutory demands is of equal concern where small debts are owed for supplies made to other businesses. It will be essential to keep a closer watch on debt levels and prevent them rising. If customers are in difficulty, it will be easier to stop supply than it will to recover an increasing debt until it has reached a financially painful point for your business.

Christopher D'OlleyMRICS

Partner

Christopher D'Olley is a Rural Partner in the Winchester office. He is a Chartered Surveyor and Fellow of the Central Association of Agricultural Valuers, with over 30 years experience. Work undertake...

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