Contractors' Questions: How to get my invoices paid by two warring directors?

Contractor’s Question: How should I approach unpaid invoices if the non-paying business is a director in a dispute with his 50-50 co-director?

One director is an old friend and he supports my position (director ‘A’). The other refuses to pay eight outstanding invoices. This hostile director (‘B’) wants emails between me, ‘A’ and the client. He hopes to prove that A was looking to create a new venture and take clients with him, but tells me he wants the emails just to check client satisfaction and that all costs were approved.

The good news is that I have emails from both A and B confirming the work and estimates, and emails from the client confirming they are happy with my work. I also have an email from the client "confirming" that I would be paid for work I’ve completed, and that work relates to six of the eight outstanding invoices. This email was sent to reassure me amid B accusing the client of increasing the project’s scope and trying to halt works.

I’ve sent a seven-day letter before action, and have followed this up with a 21-day statutory demand letter. But A and B now seem to be taking each other to court, and I’m unpaid. Any ideas to get both myself and my money out of this absolute mess?

Expert’s Answer: The positives here are that you appear to have taken a number of steps to protect your position that may well prove to be crucial in this case. The written confirmation of payment will be very useful evidence in any pursuit of the funds owed, but may prove to be absolutely critical evidence in any county court claim.

The negatives, however, are numerous. In our experience, resolving the type of dispute which holds up invoice payment can be very, very tricky for a creditor, as you are caught up in someone else's conflict that you have very little means to resolve directly and you may ultimately find payment intrinsically linked with the successful resolution (or not), of the dispute between the business owners.

In regard to your further options, the fact that you have issued both a seven-day letter before action and subsequently a 21-day statutory demand warning of insolvency proceedings without success would seem to suggest that the directors are at loggerheads, and the opportunity to resolve the issue amicably no longer exists.

For most businesses, the mere threat of insolvency proceedings would usually be enough to bring even the most reluctant debtor to the table, and the fact that in this case it has been ignored likely does not bode well.

Given this, we would say that there are only three real options left open to you:

1. Wait and See

You could potentially hold further collection activity in this case while you await the outcome of the dispute between the two directors. The hope would be that the ‘winner’ in the dispute is ‘A,’ who settles the invoices in question.

However, it must be noted that this is a high risk strategy as in the event that ‘B’ wins, he may still refuse to sanction payment, or you may find that the company itself has suffered financially during this period and now no longer has the means to pay the invoices irrespective of who ‘wins’.

2. County Court Claim

Probably the lowest cost option open to you would be to issue a claim in County Court for the balance owed plus any associated costs and interest under UK late payment law.

This action in itself may make the two directors sit up and take notice and if it doesn't, you have at least started the clock on reaching a resolution, as the court will now direct the parties as to when they must respond at every step of the claim.

If no defence is raised, you will be able to apply for judgment in default in 28 days and can then take steps to enforce it, either with the High Court Enforcement Officers, or against any assets owned by the company.

Generally-speaking, for amounts under the £10k small claims limit, a solicitor isn’t required. But for Fast and MultiTrack court claims (those over £10k or for complex defended matters), we would highly recommend you engage an experienced commercial litigator to act on your behalf. While courts are generally quite lenient with litigants in person the process can be complex, especially in disputed matters that may require expert witnesses and the like.

We must also state that delays for County Court hearings can be lengthy, depending on the court and the track your claim is allocated to you could face a delay of six months or more between issuing your claim and getting your ‘day in court.’ Needless to say, in this instance any delays at all could prove to be fatal for your claim.

3. Petition the courts to ‘wind up’ the company

As you have already issued a 21-day statutory demand you have already started down the road to forcing this company into insolvency, but you need to be aware that this is not a ‘magic bullet’ to secure payment and proceeding with this action carries a number of risks.

Firstly, you would need to be relatively certain that the business has the physical or financial assets to pay what it owes to you and any other potential creditors who may subsequently decide to support your petition. In addition, you would need to seek independent legal advice as to if this claim is likely to succeed.

Generally-speaking, judges who hear these cases do not appreciate their courts being used as a debt collection ‘tactic’ and any claim brought must be 100% ‘clean’ and free of any query. If it is not, you could find your claim struck out and, in some cases, you could be held liable for the debtors costs in opposing the petition. These costs can be considerable.

The costs to issue the petition itself are also quite high, as you will need to pay the official receivers deposit along with court and legal fees, service fees and other disbursements – these fees are usually in the region of £2,500-£3,000 in total, but could be more dependent on the case specifics.

Lastly with this third option, bear in mind that petitioning the court to wind up the debtor company will almost certainly spell the end of any meaningful business relationship you have with your client, or friendship with ‘B’, and could conceivably mean the previous dispute is never successfully resolved.

Given these narrow options are possibly far from what you’d like to pursue, we would say that engaging with a debt collection agency would not be of benefit to you, and may in fact be a retrograde step as you have already indicated twice that legal action would follow.

Before considering spending further funds on possible legal action, we highly recommend that you source a credit report on the debtor company. If they are already high risk, or worse; already have other CCJs registered against the company, you may want to consider carefully whether it is worth pursuing further action and incurring additional costs as you may ultimately just be increasing your existing losses.

The expert was Adam Home of Safe Collections Ltd, which specialises in recovering monies for unpaid freelancers, self-employed consultants and professional contractors.

Tuesday 5th Feb 2019
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Written by Adam Home

Adam Home is Managing Director of UK & International Debt Recovery Specialists Safe Collections. The company, founded in 1984, has more than three decades of experience in recovering unpaid invoices and contractual arrears anywhere in the world.
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