Legal Framework for Creditors UK

UK Legal Framework for Creditors #

If you’re a creditor in the UK, several laws protect your right to recover debts. Understanding these laws can help you get paid faster, enforce claims, and address unfair treatment.


Key Laws Protecting Creditors #

1. Late Payment of Commercial Debts (Interest) Act 1998 #

  • Gives creditors the right to charge interest on overdue invoices.
  • Statutory interest rate: 8% above the Bank of England base rate.
  • Creditors can also claim compensation (from £40 to £100 per invoice).

Action: If a customer fails to pay, add statutory interest and compensation to your invoices.

Full Act


2. Companies Act 2006 #

  • Governs how companies must operate and how directors must act.
  • Directors must act in creditors’ interests if a company is insolvent.
  • If a director knowingly continues trading while insolvent, they can be held personally liable.

Action: If a company owes you money and is insolvent, check for wrongful trading. You may be able to hold directors personally liable.

Full Act


3. Insolvency Act 1986 #

  • Covers liquidation, administration, and CVAs (Company Voluntary Arrangements).
  • Sets the rules for how creditors get paid in insolvency cases.
  • Defines transactions that can be reversed (e.g., if a director unfairly paid themselves or others before insolvency).

Action: If a company that owes you money goes into liquidation, submit a proof of debt claim ASAP.

Full Act


4. Enterprise Act 2002 #

  • Gives unsecured creditors a better chance of recovering money in insolvencies.
  • Introduced the prescribed part fund, setting aside money for unsecured creditors.
  • Streamlined administration procedures, making them quicker and cheaper.

Action: If a company enters administration, check if you’re entitled to a share of the prescribed part fund.

Full Act


5. Limitation Act 1980 #

  • Sets time limits for taking legal action to recover debts:
    • 6 years for most debts (contracts, invoices, loans).
    • 12 years for mortgage debts.
  • After this time, debts become “statute-barred” (unenforceable in court).

Action: Don’t delay! If a debt is nearing the 6-year limit, act quickly to recover it.

Full Act


If a debtor refuses to pay, the UK legal system provides several options:

1. County Court Claims #

  • You can sue for unpaid debts using the Money Claim Online (MCOL) service.
  • If successful, you get a County Court Judgment (CCJ) against the debtor.
  • A CCJ can damage their credit rating and force payment.

Action: If an invoice is long overdue, consider filing a County Court claim.

Start a claim


2. High Court Enforcement #

  • For debts over £600, you can transfer a CCJ to the High Court.
  • High Court Enforcement Officers (HCEOs) have more power than bailiffs to seize assets.

Action: If a debtor ignores a CCJ, escalate enforcement to the High Court.


3. Statutory Demands #

  • A formal demand for payment giving the debtor 21 days to settle.
  • If unpaid, you can apply for their liquidation (company) or bankruptcy (individual).

Action: If a business owes you over £750, or an individual over £5,000, issue a statutory demand.

How to issue one


4. Insolvency Proceedings #

  • If unpaid, you can petition the court to wind up the company.
  • Forces a company into compulsory liquidation if they cannot pay.

Action: Use this option only if the company has assets, or it may not be worth the cost.

More on liquidation


Additional Creditor Protections #

Prompt Payment Code (PPC) #

  • A voluntary code for businesses to pay suppliers within 30 days.
  • Non-compliance can lead to removal from government contracts.

Action: If a business regularly pays late, check if they are a PPC signatory and report them.


Financial Conduct Authority (FCA) Regulations #

  • Protects creditors dealing with regulated financial firms.
  • Covers debt collection practices and ensures fair treatment.

Action: If a regulated firm (e.g., a bank, lender, or finance company) owes you money, the FCA can help enforce fair treatment.


Small Business Commissioner (SBC) #

  • Offers support and mediation for small businesses facing late payment issues.
  • Can name and shame large firms that fail to pay suppliers fairly.

Action: If a large company refuses to pay, report them to the Small Business Commissioner.


Key Takeaways for Creditors #

  • Use Late Payment Act – Add statutory interest and compensation to overdue invoices.
  • Enforce payment early – Don’t wait for debts to become statute-barred (6-year limit).
  • Leverage insolvency rules – If a company is insolvent, check for wrongful trading.
  • Use statutory demands – A strong tool for forcing payment before legal action.
  • Escalate if necessary – CCJs, High Court enforcement, or liquidation petitions can pressure debtors to pay.

Next Steps: Take proactive steps using the laws above to recover your money faster.