There appears to be an increase in dubious claims by debtors since the start of the recession and many businesses are struggling to recover their debts.
More and more debtors are alleging that the debts they owe are not due. There can be two possible reasons for this:
- That the debt is disputed; or
- That they have a claim (counterclaim) which will set off against the debt.
Debtors often use this tactic to buy themselves time to pay or even to get a discount on the debt.
It can be costly and time consuming for creditors to pursue their debts in such situations. However, creditors are reminded to bear in mind that debtors dispute the debts as they believe that the dispute or counterclaim will stop the creditor from pursuing a winding up petition from the court (whereby the debtor has to pay up or face liquidation). This is not entirely correct.
Case law confirms that where a dispute is relied upon by the debtor, it must be based on substantial grounds. Where the debtor makes a counterclaim, then three points must be borne in mind:
- the court has discretion as to whether it will accept the counterclaim and allow it to set off the claim by the creditor; and
- the court is only empowered to decide in favour of the debtor where it is satisfied that it is a serious and legitimate counterclaim that exceeds the debt owed to the claimant; and
- the onus is on the debtor to prove it has a valid case of dispute or counterclaim.
If you have any debts that you would like to consider for litigation proceedings, then contact our specialists in our Commercial or Litigation departments, who will be happy to advise and guide you on the most cost effective and time-saving options available to you.