Help, I'm Being Sued! What To Do Next

Help, I'm Being Sued! What To Do When You Get A County Court Letter (Hint: Don't Panic!)
There's an old saying in show-business "Where there's a hit, there's a writ."

Successful businesses attract litigation. So do dodgy ones. And so does a mom 'n' pop website; people are irrational and some are serial litigants. Or just crooks; they want money back for something they've already received.

Likewise, some businessmen are simply bad at business. They don't watch their expenses and end up in the red. They sell a bad product and expect to keep the money people paid them.

The most common form of litigation is someone making a claim against you. They claim you owe them money.

They must first send you a warning letter, which should say that unless you repay what you owe, legal action will follow within a certain amount of time. If you don't get this letter or if it doesn't contain the correct details, the court action may not be able to go ahead; the creditor cannot just initiate it without warning.

You then receive a County Court claim form and a response pack in the post.

The claim form gives details of how much your creditor claims you owe them. The response pack contains forms for you to say whether you accept you owe the money, or just some of it, or not. You send the appropriate form(s) back to the court.

The response pack contains the Defence Form (you reject the claim), Admission Form (you accept the claim) and Acknowledgment of Service form (this one is used if you need extra time to complete or defend the claim. This will give you 28 days rather than 14.)

You must respond within 14 days of receiving the form. If you don’t reply, or miss the deadline, you may end up paying more, and you could get a County Court Judgment (CCJ) against you.

Not replying will not delay the court case; it will go ahead without you and a court order will be made against you. This is called 'entering a judgement by default'.

Costs may also be awarded to your creditor. A CCJ will likely affect your credit rating. This can have serious consequences if you apply for a loan or just any contract and they do a credit search on you.

If your creditor gets a court order against you, you have to pay up when the order tells you to. If you don’t pay up the creditor can get another court order to take an enforcement action.

An enforcement action can be sending in the bailiffs or attachment or earnings, a third-party debt order (taking money from your bank account) or a charging order (securing the debt against your property).

Sounds pretty bad, eh? Well, it's not something to be ignored but neither is it the end of the world.

Some businesses get claims against them all the time. The cost is factored into their business model. The boss toughens up and just hands the latest paperwork to his solicitor.

Sole traders starting out can sometimes freak out when they get a claim form. This is unnecessary. Even if you can't afford a lawyer, you can still research on the internet what to do in your case and drill down to what your proper response should be. This will give you peace of mind. Most solicitors will offer a free 30 minute consultation, so talk to a local specialist.

Claims would normally be made against your company, not you. As a director, you are not personally liable for a company's debts. Debt collectors may still 'try one on' and say you are. Sometimes people are fooled into paying up. You may get official-looking, but illicit documents in the mail. Make sure you check these are genuine first, before going any further.

A common scenario is a claim made against a  company which is winding down or in the process of being struck off. Successful claims (in the sense of extracting money) can only be made if a company is still on the Companies House register and has assets.

You have to weigh the benefits of fighting a claim versus settling it. Each case is different. You can dispute the amount of the claim or its entirety. You can offer to pay in installments. A CCJ can also be 'set aside', if you have a genuine reason. Then the claim process starts again.

It is not a smart idea, however, to waste the court's time or perjure yourself if things get to this stage. It's possible to go to prison if you try to get too clever.

The great thing about having a limited company is that it limits your personal liability. A director or shareholder is not personally liable if the company gets into trouble, unless he does something actionable in law.

So count to 10, take a deep breath, and research your next move.