As business debt recovery specialists, a common question that creditors ask is how long they have to collect outstanding debts.

Before we look at the law on time limits for collecting debts, it is important to remember that time is of the essence with debt recovery claims.

When a payment becomes overdue, it is vital to act as quickly as possible to improve your chances of recovering the debt. If you are a creditor struggling to get business debts paid, instructing a specialist debt recovery solicitor can result in debts being paid quickly and allow you to concentrate on what is important, running your business.

 What is limitation and why is it important?

One of the first questions to resolve when considering whether a creditor can bring a debt recovery action is whether the claim is time-barred. If the relevant limitation period has expired, then the debtor will have a complete defence to the claim meaning the debt cannot be recovered.

It would be for the debtor to plead a defence of limitation. Once the debtor has raised the defence of limitation, the burden is on the creditor to prove that the time for bringing a claim has not expired.

 Time limits on recovering debts

There is a time limit on recovering debts. The law on limitation periods is set out in the Limitation Act 1980, which makes provisions in respect of different causes of action.

For debts that are due pursuant to a contract, Court proceedings must be issued within six years of the accrual of the cause of action. To give an example of this, if an invoice was raised on 1st September 2021, Court proceedings must normally be issued by 31st August 2027. There is an exception to this in that if the contract is a deed, the relevant limitation period is 12 years instead of 6 years.

For a debt that is owed pursuant to an informal loan contract (i.e. loan agreements which do not provide a fixed date for repayment and which do not provide for repayment on demand), the limitation period to issue Court proceedings would be six years from the date of a written demand for repayment.

Court proceedings to recover money secured by a mortgage or charge must normally be issued within 12 years of the accrual of the cause of action, i.e. the date on which the right to receive the money accrued. Conversely, Court proceedings to recover any interest due in respect of any monies secured by a mortgage or charge must be issued within six years of the accrual of the cause of action, i.e. the date the interest became due.

It is important to note that the clock only stops ticking in terms of limitation when the Court proceedings are received by the Court and not when the Court proceedings are posted to the Court.

For old debts that may appear to be over six years old, it is worth checking with a specialist debt recovery solicitor whether a claim can be brought because the limitation clock can restart if the debtor has made a part-payment of the debt or the debtor has acknowledged that the debt is owing.

Extending limitation periods

It is open to the parties to vary limitation periods by entering into a standstill agreement. Standstill agreements are designed to suspend time for the purposes of limitation.

Standstill agreements are enforceable and are typically used by parties to delay the time limit for issuing Court proceedings if the parties are trying to resolve the dispute prior to the issuing of Court proceedings.

If you would like more information on business debt recovery, you can contact the Commercial Litigation team at Myerson Solicitors.

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