Fiona Thomson: Prepare for more litigation

Oct 30 2008 By Fiona Thomson

Finance directors all over the UK are blowing the dust from files labelled ‘Bad Debts’ as the crunch bites deeper.

Unable to get the funding they need from their banks, companies are having to look elsewhere for finance – and are realising that countless thousands of pounds are lying around in the shape of disputed invoices and unpursued claims.

In more prosperous times, it just seemed too much hassle, or too great a risk to business relationships, to go to court over a few thousand pounds. Much easier to stick the paperwork on a shelf and forget about it.

Times have changed, and so has the perceived value of all those potential claims which are increasingly being seen as lucrative income streams.

As the law stands at present, parties can have anything up to 12 years to commence legal action to mount a claim, so any company that thinks it’s got out of its obligations scot-free may well be in for a nasty surprise.

Mining the past for forgotten revenues to plug today’s ‘black hole’ in profits is entirely consistent with the hard-nosed approach many companies are taking to cash flow. In times of hardship cash is king, as the saying goes, and companies aren’t hanging around before initiating legal proceedings against late payers, and those in breach of their contractual obligations.

The gloves are off, and companies are much less worried than they were about damaging long-standing commercial relationships by pushing hard for what they are owed. There is an urgent drive to get the money in at all costs, and if that means going to court with little or no preamble, then that’s what they do.

One outcome has been that law firms are having to take a fresh look at the way they charge. A flexible approach – such as the no-win no-fee system – can help reassure companies that even if the strongest case is lost on a technicality they won’t be crippled by massive court costs.

Which is why I’m certain that litigation will start hotting up soon.

* Fiona is from Clarke Willmott’s Birmingham office