When times were good, credit was given to whoever would sign on the dotted line. Often people failed to establish exactly “who is the customer…….a sole trader, business, partnership, limited company”? Now the economy is not so vibrant and creditors are rightfully anxious to recover all outstanding debts. Not knowing the true identity of your debtor can prove a significant obstacle to commencing legal proceedings.
If a business name is used to open an account for credit, one should establish if the business name is registered with the Companies Registration Office (CRO). Such registration is obligatory if any individual, partnership or body corporate carries on business under a name other than their own true names. The purpose of registration is to ensure that the registered owner of the business is clearly identifiable. If an account becomes outstanding and the business name is not registered, difficulties can arise if the owner cannot be identified.
In the past years, it became a common occurrence for sole traders to metamorphose into limited companies. The debts could be transferred to the company – a separate legal entity to the individual. The creditor/supplier was not always advised of such a transition and may have continued to supply goods on credit believing the individual to be the proper customer. Such uncertainty can often lead to disputes in terms of the appropriate defendant in legal proceedings. Similar concerns arise when the application for credit is completed by a company. Is the company actually registered in the CRO? If the company is dissolved, quite simply it cannot be legally pursued. A company must act through an individual to execute an agreement but did the person signing on behalf of the company have the authority to do so? This question and many more must be answered before you can begin to pursue a commercial entity for the recovery of a debt. It is of crucial importance that all essential information is obtained about your customer when an application for credit is received.
Leading on from above, a creditor will often look for a guarantee from the owners or operators of the business which will require them to accept personal liability for the debt. A guarantee provides additional security for a creditor in the event that the company/business becomes insolvent and cannot pay its debts. The guarantee must be in writing, should be dated and should clearly state who is giving the guarantee and in what capacity. An interesting point to note is that a guarantor can sometimes be pursued for a debt in circumstances where a principal debtor cannot. A principal debtor cannot be sued more than six years from the date of default (unless there has been an acknowledgement of the debt in the interim, for example part payment). With respect to a guarantor, the six year time limit only begins to run from the date when a demand is made of the guarantor.
Also of importance is the contract (whether oral or written) on which the claim is based. When debts become due, an argument often made by the debtor is that there is no enforceable contract in place. It is recommended that when one enters an agreement for the supply of goods or services, one should, at a minimum ensure that the following terms are clearly established – the parties to the contract, the price to be charged and the property involved. A copy of the standard terms and conditions of the business should also be included. Taking time to clarify these essential details at the beginning of the business relationship should avoid uncertainty when seeking to rely on the contract.
At all times in business, one should know who or what type of customer they are dealing with, otherwise the result of faceless trading could be a bad debt.