There are very few people or businesses that don't need to borrow money at some point.
Traditionally banks, building societies and credit unions would be the source of funds and the products they offered would require the borrower to agree to various terms and charges. However, this tradition is changing with borrowers frequently now looking towards family, friends and business partners as a loan source.
In fact Aviva's Family Finances Report found that loans from family members or friends had overtaken overdrafts as a source of debt held by 18 to 35 year olds.
Loaning money to someone in need can often be of great help to them. Especially if they are unable to gain credit elsewhere and it avoids them incurring high charges that are associated with payday or doorstep loans.
While you may trust the borrower, be able to afford to lend the money, and have every confidence that you'll be paid back, you should still formalise the arrangement with a written loan agreement.
Agreeing and creating a loan agreement
Most loans between family, friends and even business acquaintances are made informally and without anything in writing. While this is less than ideal from a legal standpoint, it doesn't necessarily mean that you have no legal options should a debtor decide not to pay you back (see our blog about being owed money without a contract or agreement).
But having something in writing is almost always better than having nothing, so drawing up a loan agreement is the way to go.
A loan agreement doesn't have to be a lengthy or overly complex document but having down on paper what the lender and borrower have agreed will provide protection should the worst happen and the borrower defaults (doesn’t pay back) on the loan.
A starting point in creating a loan contract is to first have an open and frank discussion with the borrower about how and when you want to be paid back. There’s little point in dictating a payment schedule that's unachievable from the outset and both parties need to be comfortable with any arrangement. For example, you may consider:
When you've agreed the amount, how repayments are to be made and the length of the loan, you then need to discuss what happens if things go wrong. Can the borrower accept the potential legal consequences and costs if they can't make the payments?
If at any point you are struggling to find common ground on what the contract should contain, you may need to reconsider lending the money at all. As differing positions at the outset could be an early sign of a potential dispute.
However, if all terms and conditions have been agreed it is time to get them down on paper, ensuring some key legal clauses are included.
At this junction it's also worth considering if you should seek legal advice from a solicitor who can take your agreed instructions and professionally draft the document for you.
Important clauses in a loan agreement
At the very start of the agreement you should record the full name, address and contact details of the lender and the borrower. If there are multiple lenders and borrowers, all these should be detailed.
Amount to be Loaned
Clearly specify the amount that is being loaned, and to avoid any doubt or potential for error also record the amount in words as you would on a cheque. I.e.
£9,980.50 (nine thousand, nine hundred and eighty pounds and fifty pence)
Term of Loan
Define a period that the amount is being loaned over and when it needs to be paid back by. Even if you don't have a specific date or timeframe in mind, you should always specify a term (48 months) or a date (by 1 January 2022) when the loan should be fully paid back by.
Ideally this term needs to be no more than five and a half years from the date the loan is made to ensure that the debt doesn't become statute barred if you ever need to take legal action to recover your loan.
The agreement should specify what law and jurisdiction it comes under (e.g. English Law, England and Wales). This will be important should legal proceedings ever be required.
The agreement must be signed by both parties and ideally witnessed by an independent person.
Drafting a personal loan agreement
Once the agreement is drafted you should print two copies, sign them and each party keep one. Only when the agreement is signed should you then actually make the loan which ideally should be via cheque or bank transfer so that you have a record.
All this may seem a little daunting, especially if your loan involves a significant amount or you are unfamiliar with the best way to execute the transaction. So, if you are in any doubt consider instructing a solicitor to draft your loan agreement to protect your position and provide piece of mind.
Receiving a letter from solicitors informing that someone is making an injury claim against you can certainly have a negative impact on your day.
Depending on the circumstances of the accident, you may be confronted with a Letter of Claim or a Claim Notification Form which set out full details of the alleged incident and injuries. But no matter what correspondence you receive there will be strict response timeframes set that you will be told you need to abide by.
Often the first reaction to this letter is one of worry, as you may not know how you are going to respond to the claimant solicitors, defend the claim or even pay the compensation.
However, the good news is that the vast majority of claims are usually covered by some kind of insurance policy and we're going to explain the scenarios where insurance may cover the claim well as your options when no insurance is available.
Defending Road Traffic Accidents.
As it's a legal requirement that you must have at least third-party motor insurance to drive on UK roads, the claim is likely to be fully covered by your vehicle insurance. While it is likely your insurer has already been notified of the accident and subsequent claim, your first action should be to advise them of the solicitor documentation you have received.
One important item to remember is that not having the optional 'Legal Expenses Cover' on your policy will not stop your insurance company acting to defend a claim made against you. Comprehensive, fire and theft and third party insurance should all provide sufficient cover to defend the claim against you.
When you report the claim, you will almost certainly be asked about the accident circumstances, vehicle damage and any evidence you have. This will be used to establish liability (fault) for the accident which will determine how your insurance company handles the claim.
Your insurer should then deal with the matter from this point forward including complying with the various deadlines and disclosure requirements. If the case gets to the stage of court proceedings, then your insurer will also appoint a solicitor to defend the case who may also want to discuss the incident with you.
There can be instances where your insurance company refuses to cover you or when you don't have suitable insurance in place for a road collision (i.e. a cyclist injures a pedestrian). In these cases, the claim may be dealt with by the Motor Insurance Bureau who handles uninsured driver claims or you may need to seek your own representation.
Injury Claim by an Employee.
If a member of staff is making a claim for injury, usually your Employers' Liability Insurance will cover your business' legal costs to defend the claim, as well the payment of any compensation that is ultimately awarded.
Often the Claim Notification Form from the claimant will specifically request your insurer's details and instruct you to pass the documents on to them. Once this is done, your business insurer will begin investigating the incident and appoint one of their panel solicitors should it become necessary.
For most businesses that have employees, this type of insurance is compulsory under the appropriately named Employers' Liability (Compulsory Insurance) Act. However, there are some exceptions where employee insurance isn't mandatory such as:
If an injury claim is made by an employee and no appropriate business insurance covers the claim, then you will need to seek legal advice as soon as possible. There are various 'pre-action' steps and deadlines that need to be met and failing to comply with them can have a significant impact on the cost of the claim.
Injury Claim by a Customer or Member of the Public.
Unlike other types of insurance, taking out Public Liability Insurance is optional for a business. If in place, it will cover your business premises when customers visit you as well as if a member of the public is injured during the course of your work.
While Public Liability Insurance covers you for day-to-day business activities, it often doesn't cover you for injuries caused by a product you have manufactured or supplied. For this Product Liability Insurance is often required.
So you will need to consider which of your insurance policies applies to the circumstances that allegedly caused the claimants injury.
If your business has a suitable Public or Product Liability Insurance policy the claim documentation can be passed on to them. As with Employers' Liability Insurance the policy should cover legal fees to defend the case along with the payment of any compensation that is awarded by the court or agreed in settlement by your insurer.
However, as Product/Public Liability Insurance isn't mandatory and there can be various exclusions depending on the policy purchased, it is the area where we see the most claims that need to be dealt with on a private basis.
Injury Claim Against a Homeowner.
If someone has been injured whilst lawfully on your property or in your home, then your Home Insurance may cover the cost of the claim depending on the accident circumstances. The 'personal liability' or 'liability to the public' section of a Home Insurance Policy often covers the owners and occupiers if they are held responsible for an accident that occurs in or around the property.
Some Home Insurance products even provide cover for policyholders away from the property, so it is a policy always worth checking.
There can however be many exclusions to Home Insurance liability cover, so you will need to consult your policy and speak to your insurer about whether a claim is covered. Common exclusions may be:
I've a personal injury claim against me with no insurance....
After you've exhausted the potential insurance policies that may indemnify you, you may find that you're on your own in dealing with the claim.
At this point it is critical to seek a personal injury defence lawyer who can advise you on how the claim should be handled. They can review the circumstances around the injury, provide a professional opinion of the prospects of the claim and advise on the potential next steps.
Even if you don't wish to defend the claim and want to admit liability for the accident, a defence solicitor will still be able to make sure a suitable settlement is reached with your best interests in mind.
Chasing debts is rarely an enjoyable activity when running a business, and you can be forgiven for not jumping on every overdue invoice the moment your payment terms have expired.
If an approach of just tolerating late payments sounds familiar, you're not alone. Research from ABFA has found that small businesses now wait an average 72 days for payment which is 11 days longer than in the peak of the 2009 recession!
But when weeks turn into months which then turn into years, you may worry that you've missed your opportunity to take formal action. However, you may be surprised how long you have to pursue a debt before it is legally 'statute barred'.
Statute Barred Debts
Being 'statute barred' means that the defined time period you have to use certain legal avenues to pursue a debt has expired. While this doesn't mean that the money is no longer due, or the debt no longer exists, it does restrict your legal options when pursuing a debt.
The time limits that formal court action must be made by are detailed in the Limitation Act 1980 and court action is usually defined as a debt claim being issued at the county court.
There are different time limits for different areas of law, but when the relevant time limit has passed, this act is able to be used as a defence by the debtor to prevent you obtaining a county court judgment (CCJ) against them.
How long do you have to claim unpaid invoices?
Most invoices and debts fall under the definition of a ‘Simple Contract’ in the Limitation Act, meaning you have six years to commence legal action to recover the debt in England and Wales.
If money is owed in relation to a deed (i.e. a mortgage or property) then the limitation period is 12 years.
If you have already been through the court process and managed to obtain a court judgment (CCJ) against the debtor, then no limitation period applies to enforcing the judgment.
You will also need to consider any pre-action steps that have to be taken before you issue proceedings such as the Pre-action Protocol for Debt Claims that may require you giving up to 30 days' notice before starting court proceedings.
When does the limitation period start for a debt claim?
For simple contracts the Act states that the limitation period will expire six years after the 'cause of action'. A 'cause of action' can be thought of as when a breach of your agreement has occurred.
For example, this could be when:
How to claim unpaid invoices
Dealing with a debt that was incurred several years ago may seem like a complex process, but if you have documentary evidence that the amount is due it should not prevent you from pursuing the money owed to your business.
A solicitor will be able to advise you on your legal options to recover your debt, including sending a letter before action, issuing a claim and potential limitation defences. Also if the debt isn't disputed you may be able to claim late payment interest and compensation which can be significant on long overdue debts.
While six years may seem a long time, the sooner you act the more chance you have of recovering the amount owed and avoiding your debt claim being statute barred.
Catalyst Law are team of legal professionals with over 20 years' experience helping businesses and people with their legal problems.
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