Collecting debts owed by businesses can be challenging and time-consuming for a number of reasons. In some cases, it can be a minor issue, such as the debt not communicated to the right department or person, or a more serious one, such as subpar payment discipline, temporary cash flow issues, or major financial problems.
Whatever the reason behind non-payment, corporate debt recovery in Singapore can take serious effort and be complicated. There are a number of out-of-court and in-court options to choose from, depending on the amount owed, the type of debtor, the business relationship, and the contract. Meanwhile, taking pre-emptive steps such as the strategic use of a Letter of Demand and other legal tools can help avoid a lengthy litigation process and speed up debt recovery.
Key Takeaways
- Corporate debt recovery in Singapore requires a structured approach and starts with legal consultation and due diligence on the debtor.
- A Letter of Demand is a powerful legal instrument that can help recover the debt without costly legal proceedings.
- The creditor and their lawyers can choose different methods for debt recovery depending on the amount of debt owed and the debtor’s ability to pay.
Importance of Letter of Demand
A letter of demand is written communication in which you inform the other party of their non-fulfilled obligation, such as a breach of contract or an unpaid debt. Although it is not a formal court document, a letter of demand can be an effective tool for debt recovery without resorting to court, as it demonstrates to the debtor the seriousness of the situation and can prompt them to repay the debt.
In the general case, a letter of demand for corporate debt recovery in Singapore should include the following information:
- the name of the creditor company and their contact details,
- the name of their law firm acting on behalf of the creditor and their contacts,
- name of the debtor’s legal entity,
- amount of debt owed to the creditor,
- grounds for seeking debt recovery, such as a contract, invoices, and other communications,
- the deadline for repaying the debt after which the creditor plans to take legal action.
In Singapore, the civil procedure explicitly requires disputing parties to take steps for amicable resolution of their dispute before taking court action. Thus, even in cases when a letter of demand does not result in immediate debt recovery, it serves as evidence of the attempt to settle the debt outside the courtroom and is viewed favourably by the court.
How to Recover Business Debt in Singapore
While there are several avenues for debt recovery, it’s always advisable to take a structured approach to avoid wasting time and resources and to choose the most effective option for moving forward. Below is an outline of the key steps a creditor can take for the most effective debt recovery process.
Initial Consultation
Since most commercial disputes, including corporate debt recovery in Singapore, are handled by lawyers on both sides, it’s essential to involve debt recovery lawyers as early as possible in the process. By engaging an experienced legal team, creditors can quickly assess the situation and explore the most efficient ways to proceed.
Due Diligence on a Debtor
The due diligence on a debtor includes assessing their legal and financial situation and their ability to repay the debt. Based on the assessment, the amount of debt owed, and the prospects for debt recovery, the legal team can choose out-of-court or in-court options for debt recovery, or both.
In seeking debt repayment, the creditor needs to assess the prospects of each option and the amount of effort required to pursue it. Court proceedings can be costly and time-consuming, and do not guarantee debt repayment. In turn, in bankruptcy proceedings, the creditor can typically recover only a fraction of the debt because the debtor’s property will be distributed among all their creditors.
Letter of Demand
Based on the debtor’s due diligence and evaluation, the legal team can draft a Letter of Demand. In addition to setting out the legal framework for debt recovery, a letter of demand encourages the debtor to respond to the claim and helps initiate the negotiation process.
When a legal team writes a letter of demand, they inform the debtor that the issue of outstanding debt is elevated to the legal realm, and legal proceedings may follow. In many cases, this step alone can be effective in prompting the debtor to take the matter seriously and either repay the debt in full or start the discussion on a possible timeframe and payment options.
Negotiations
If the debtor responds to the letter of demand, the parties can start negotiating debt recovery and available options. Depending on the debtor’s financial status, the amount of debt, and other details, these options can include payment of debt in full by a certain date, a payment plan with or without calculating the interest rate, or a reduced payment for the purpose of avoiding legal proceedings.
Ensuring Compliance with Pre-Action Protocol
If negotiations fail and the debtor does not commence payment of the debt, the creditor can proceed with further legal action. Starting from 1 October 2019, businesses seeking to pursue a commercial claim in State Courts are required to issue a Letter of Claim, which is part of the pre-action protocol intended to narrow the disputed issues and encourage communication leading to settlement. Importantly, the Court has the right to impose sanctions on any party to the dispute, including the creditor, for non-compliance with the requirement for pre-action protocol, for example, by obliging them to pay the cost of court proceedings.
The exact requirements for the Letter of Claim are defined in Practice Direction 144 (PD144) of the State Courts. Similar to the Letter of Demand, the Letter of Claim should include the information about the amount of debt, the legal grounds for claiming the debt, details about how the debt can be paid, and the timeframe.
Commencing Legal Proceedings
If the parties do not reach an agreement, the creditor can start court proceedings for debt recovery. If granted an order for debt recovery, the creditor can further proceed with collecting the debt through enforcement.
Depending on the amount of the debt, the creditor can file a claim through:
- Small Claims Tribunal: For smaller amounts below $20,000, which can be extended to $30,000, a creditor can file a claim through the Small Claims Tribunal (SCT). Filing a claim through SCT can be done online through the Community Justice Tribunal System and is less expensive than a full-fledged court action in the State Courts. The list of claims for commercial debt recovery in Singapore, which can be filed through SCT is outlined in the Small Claims Tribunal Act.
- State Courts: For claims not covered by the Small Claims Tribunal Act, the creditor needs to file a lawsuit in civil court. This path can be recommended for larger debts where the creditor is certain of the debtor’s ability to pay and can prove the debt.
Enforcement of Court Decisions
When the court passes judgment in favour of the creditor, the debtor is obliged by the court to repay the debt. However, if the debtor still refuses to pay, the court decision can be enforced through a Writ of Seizure and Sale or a garnishee order:
- Writ of Seizure and Sale (WSS): The creditor can request the court to issue a WSS to authorize the Bailiff to seize and sell the debtor’s property to recover the debt. Once the Bailiff seizes the debtor’s property, the debtor has 7 days to repay the debt, after which the property is sold at an auction.
- Garnishee Order: In case a third party owes funds to a debtor, the creditor can seek repayment from such a third party, known as the garnishee. When granted a garnishee order, the creditor can claim the amount owed by the debtor directly from the garnishee.
Making a Debtor a Bankrupt
Finally, the creditor may also choose to file a bankruptcy application against a debtor to collect the debt. However, this approach can be recommended only after exhausting all other debt recovery options.
Making a debtor a bankrupt is typically viewed as the last resort for several reasons. First of all, a debtor’s bankruptcy usually means that only a part of the debt can be repaid. Secondly, after the debtor is made bankrupt, it closes the possibility of pursuing further legal proceedings. Finally, if the court declines the creditor’s bankruptcy application against the debtor, the creditor may be ordered to pay the legal costs.
How IRB Law Can Help with Commercial Debt Recovery
Hiring experienced debt recovery lawyers for unpaid invoice legal action in Singapore helps to ensure that debt collection follows legal standards. When you engage a law firm, subject to the oversight of the Law Society of Singapore, you can rest assured that the debt collection process follows the legal requirements and is on the side of the law.
When clients turn to IRB Law for corporate debt recovery in Singapore, our lawyers:
- carry out full due diligence on the debtor company and their ability to repay the debt,
- consult clients on the most effective methods for debt recovery in their situation,
- draft effective letters of demand to initiate negotiations and facilitate debt recovery without costly court proceedings,
- employ a full range of relevant legal methods for debt recovery depending on the circumstances,
- represent our clients in court proceedings and enforcement actions for debt collection.
Summary
Commercial debt collection requires a careful strategy and the assistance of experienced debt recovery lawyers to ensure effective and compliant implementation. IRB Law legal team helps businesses of all sizes in debt recovery every step of the way, starting with evaluation and debtor due diligence and employing the most effective legal tools, including filing Letters of Demand and representing clients in court proceedings. Please don’t hesitate to contact our debt recovery lawyers in Singapore for additional information and a free consultation on how we can help with your case.
FAQs
How long is the limitation period for debt collection in Singapore?
According to the Singapore Limitation Act, the debt recovery claim can be brought within 6 years from the date when it accrued. Since defining the exact moment when the debt has accrued depends on the terms of the agreement between the parties, it’s advisable to consult debt recovery lawyers to determine the limitation period in your individual circumstances.
Should I send a Letter of Demand?
Sending a letter of demand is an essential step in the debt recovery process, which aims to achieve two important goals. First, it serves as communication to the debtor about the debt and the creditor’s intention to pursue debt recovery. Second, the courts in Singapore expect the parties to consider amicable means of dispute resolution, which include issuing a Letter of Demand.
Do I need a lawyer for sending a Letter of Demand?
While it’s possible to draft a letter of demand without involving a law firm, engaging an experienced lawyer for written communication with the debtor can be much more effective.
When the legal team drafts a letter of demand, they write it on their official letterhead and sign it in their name. By having a law firm write a letter of demand, the creditor signals to the debtor that they have made an investment in debt collection and are ready to employ a full range of further legal actions. In many cases, having a well-established law firm send a letter of demand can be enough to initiate negotiations on debt recovery and repayment.
