How to collect what you’re owed?

The importance of paying hire on time | BDM Blog | BDM Law

At BDM we deal with a lot of legal disputes that aren’t in fact legal disputes at all. Many involve debtors playing for time and/or seeking to knock something off what they owe based on a spurious legal argument or a threat of insolvency. This is no doubt due to the financial climate in the shipping and maritime sectors.   Companies operating in this sector are still struggling. If they can delay, reduce and/or reschedule an obligation then this can often make a difference in terms of their survival.

In 2017 we collected millions of dollars of unpaid debts for our clients. Each case is different but, in general terms, our approach is “he who shouts loudest generally gets paid first”. Below are the steps that we usually advise our clients to follow:

  1. Consider sending a letter before action – a letter from a firm of solicitors authorised to pursue the claim often results in payment or at least a proposal for a compromise. This is simply because the letter itself indicates that the claimant is serious about recovering the sum owed.
  2. Consider a Statutory Demand –  this works where the debt is undisputed or the “defences” being put forward are clearly hopeless. If the debtor is a UK registered company then the procedure is governed by the Insolvency Act 1986. However, many other countries have similar procedures. Recently we have used the Statutory Demand route in Hong Kong,  Singapore, Switzerland, Greece, Cyprus, Norway and the United States. In the UK, the debtor company has 21 days to make payment after receiving a valid Statutory Demand and can only restrain a winding up order by taking out an injunction. This is an onerous step to take and debtors must think carefully about going to Court with a spurious defence. If there’s a genuine dispute as to the merits of the claim then the Courts will usually refrain from making a winding up order against the debtor company.
  3. Start legal proceedings – this forces the debtor to file a properly particularised defence, if there is one. If the defence is spurious or lacks obvious detail then the claimant may be able to obtain summary judgment or the equivalent in arbitration proceedings. That application of itself may force the debtor to pay up or seek some form of compromise.
  4. Get security for the claim – this is not always possible but, fortunately, in the maritime world there are options open to claimants. If the debtor owns or operates ships then it may be possible to arrest one or more of those vessels when they call in a particular jurisdiction. If the debtor charters vessels then it may be possible to attach the fuel (bunkers) that they own on those ships in certain jurisdictions. There may be contractual options open to the claimants e.g. a lien on the cargo on the ship or a right to intercept sub freights due to the debtor. It may also be possible to attach assets (including bank accounts) in the jurisdiction where the debtor company is based via local Court proceedings. We are often asked about the possibility of obtaining a freezing order against the assets of debtor companies based here or overseas. In some cases, it is possible to obtain such orders even where the debtor company is based overseas provided that the underlying dispute is subject to English law and there is a way to persuade the English Court to exercise its jurisdiction to make the order. However, claimants need to think carefully about freezing orders as the cost of obtaining the order can be substantial and there are various undertakings required which can, if the order is subsequently discharged, lead to the claimant being liable in damages. As a rule of thumb, if a claimant can obtain security for the claim then there’s a good chance of an early resolution in their favour.
  5. Consider enforcement – if security is in place then there may be no need to consider enforcement options. However, if the claimant has no security for the claim then enforcement options are critical. The most obvious form of enforcement against a company is to apply to wind up the company and enforce against its assets, if any. This can be done once a final judgment or arbitration award is in hand. Bear in mind however that the respondent may be playing for time and it is often not possible to know exactly what is going on within their corporate structure. In some cases, claimants make a recovery only to find that the debtor then files for insolvency protection. It is important to continuously monitor the financial condition of the respondent debtor and, if there is any suspicious activity – for example an inference that assets are being moved out of the company – then the claimant should consider applying for a freezing order or other similar relief to restrain such activity (see 4 above). Under English law and many other legal systems, corporate entities are regarded as separate from their directors and shareholders. However, there are sometimes options to initiate proceedings against a company director if they have defrauded the company and/or company creditors. The liquidator of the company can also take steps to pursue directors for sums taken out of the business prior to its insolvency and/or to recover sums paid to certain preferred creditors. Steps may also be taken to have the director struck off which may cause serious problems for them in relation to other companies that they may be involved with. In short, there is a lot that can be done to cause maximum inconvenience to those behind the company to the point where they can be persuaded to pay the debt and/or seek a compromise.
BDM is a specialist shipping law firm offering high quality legal advice and representation at a reasonable price. Please follow us on social media by clicking below.

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