A Guide to Corporate Debt Recovery
When a business is owed money, the legal process of recovery can appear technical, and intimidating. In practice, corporate debt recovery follows a structured path, and understanding that path allows businesses to make better decisions, avoid wasted legal costs, and improve their chances of being paid.
At its core, debt recovery is about turning an unpaid invoice into real money in your account; efficiently, lawfully, and proportionately.
Secured and Unsecured Debts: Why It Matters From the Start
Not all debts are equal. The first distinction any solicitor will assess is whether a debt is secured or unsecured.
A secured debt is backed by an asset. This may include a legal charge over property, a debenture over company assets, or a personal guarantee supported by security. If payment is not made, the creditor has a defined route to enforce against that asset. Secured creditors are usually paid first if a company becomes insolvent.
An unsecured debt, which is the most common scenario for unpaid invoices, has no asset directly tied to it. Recovery is still possible, but it relies on enforcement mechanisms rather than automatic access to property or funds. This distinction has a direct impact on strategy, cost, and likelihood of recovery, and it is why early legal advice is critical.
The Initial Step: A Solicitor’s Letter of Demand
The first step, after reviewing relevant documents and assessing the legal position, is to request payment from the debtor to advise them of the possible liabilities and consequences of non-payment. This also sets out the legal basis for your right to the debt which will act as an important clarification to the Courts when proceedings are issued.
Commonly, debts are paid when debtor’s receive a solicitor’s letter. The possibility of facing legal action for an unpaid sum facilitates the debtor into dealing with the matter to ensure it does not escalate to court proceedings.
The Next Step: A Pre-Action Letter
Most corporate debts are resolved before court proceedings begin. A professionally drafted letter before action clarifies the amount owed, the legal basis of the debt, and the consequences of non-payment.
This stage is often where costs can be contained most effectively. When handled correctly, it applies commercial pressure without escalating matters prematurely. Many debtors pay at this point once they understand that enforcement is no longer theoretical.
Importantly, a poorly drafted or legally inaccurate demand can weaken later enforcement. Precision at this stage protects the creditor’s position and avoids unnecessary procedural disputes.
Court Proceedings: Turning a Debt Into a Judgment
If payment is not made, the next step is to issue court proceedings. This converts the unpaid debt into a County Court Judgment or High Court Judgment.
Obtaining judgment does not automatically produce payment, but it unlocks enforcement powers that are otherwise unavailable. The judgment confirms that the debt is legally owed and allows the creditor to compel payment through statutory mechanisms.
At this stage, experienced solicitors assess whether proceeding is commercially justified. Issuing proceedings against a company with no assets or trading activity may secure a legal win but no financial recovery. Cost-benefit analysis is therefore essential.
Enforcement: How Businesses Actually Recover Money
Once judgment is obtained, enforcement becomes the focus. One common misconception is that court involvement alone forces payment. In reality, enforcement is what produces results.
Where a debtor owns property, a charging order may be available. This secures the judgment debt against the property, effectively turning an unsecured debt into a secured one. While it does not usually result in immediate payment, it places the creditor in a stronger long-term position and can lead to recovery upon sale or refinancing.
Other enforcement routes may target bank accounts, stock, or trading income. The correct option depends entirely on the debtor’s asset profile. Pursuing the wrong method wastes time and legal fees, which is why targeted enforcement strategy is critical.
Insolvency and Winding Up: A Powerful but Strategic Tool
For corporate debtors, insolvency proceedings can be an effective pressure mechanism, but they must be used carefully.
A statutory demand or winding up petition signals serious intent and can prompt rapid payment, particularly where directors wish to avoid reputational damage or loss of control. However, insolvency is not a debt recovery tool in the traditional sense. If a company is genuinely insolvent, liquidation may result in little or no return, especially for unsecured creditors.
Used correctly, insolvency proceedings are a strategic lever. Used incorrectly, they can increase costs without improving recovery prospects. A solicitor’s role is to advise when insolvency pressure is appropriate and when it is not.
Avoiding Unnecessary Legal Costs
Effective debt recovery is not about taking every available step. It is about taking the right steps in the right order.
Early assessment of the debtor’s financial position, realistic advice on recoverability, and disciplined decision-making prevent clients from spending more on legal fees than the debt itself is worth. A proportionate approach often leads to faster payment and better outcomes.
From a commercial perspective, the goal is not to litigate aggressively, but to recover efficiently.
A Clear, Commercial Approach to Recovery
Corporate debt recovery is most successful when it is structured, informed, and commercially grounded. Understanding whether a debt is secured, how judgments are enforced, and when insolvency action is appropriate allows businesses to make confident decisions.
At Lyon Croft Law, we focus on recovery strategies that prioritise payment over process. Where matters can be resolved without court involvement, we pursue that route. Where enforcement is required, we act decisively and with purpose, always keeping proportionality and cost control at the forefront.
If your business is owed money, early advice can often determine whether recovery is swift.
Speak to a Solicitor today
If you require any assistance or would like to find out your options in relation to Debt Recovery, please contact us by sending an email to info@lyoncroft.co.uk, calling us on 020 3576 7170, or complete a contact-us form. Our offices are in Park Royal, London and you can find our address at the bottom of the page.
This article has been authored by Abdullah Suker, Managing Director of Lyon Croft Law.
