Recovering debt through third parties
Debt recovery agencies
Some companies specialise in debt recovery and will recover a debt on your behalf. They may charge a fee, take a percentage of the money they recover or request assignment of the debt. In legal terms, assignment amounts to the sale of the debt by you to the debt recovery company. This is normally for a nominal fee relative to the actual value of the debt and a condition of the sale would be that the company pays you an agreed proportion of the debt, if recovered.
If a debt is assigned, the debtor must be told of the assignment and to whom they should now pay the money. If they are not told about the assignment and pay the full amount to you, the debt will be discharged by the debtor, but you will be responsible for paying the debt recovery company in terms of your agreement. Typically, an agency does not take assignment of the debt. The agency will charge a fee or commission for amounts recovered; non-recovered debts will be returned to the creditor as un-collectable. Non-collected debts may subsequently be passed by the creditor to other agencies. This is referred to as secondary or tertiary placement. Again, a fee or commission will be charged; non-collected debts will again be returned to the creditor.
If the arrangement with the debt collection agency is one of assignment, other than telling the debtor that the debt has been assigned, there are no other formalities required. However, it is prudent to record the assignment in writing and give the notice by letter. It is also advisable to have the signature of the assignor witnessed by an independent witness who should add their name, address and occupation.
The rule is that the assignee must find the debtor and tell them of the assignment or risk the debtor discharging the debt by paying the assignor. The letter telling the debtor of the assignment must be sent to their current address. The letter should be sent in duplicate with one copy containing a receipt for the debtor to sign and return. To assist the debtor, a stamped, addressed envelope ought to be enclosed. If the debtor does not acknowledge receipt of the letter telling them of the assignment, it may be that they have not received the letter. A useful precaution to ensure that the debtor has received the letter is to send it by recorded delivery post and request a receipt.
A guarantee is a contract whereby one person ('the guarantor') agrees to be responsible for the debts, or a particular debt, of someone else. This responsibility will always be specific to the original creditor and is a contractual relationship, i.e. the guarantor has a contractual duty to stand in the shoes of the debtor. So, if there is a guarantee agreement, the creditor can recover the debt from the guarantor.
The guarantor will usually have a personal liability to the creditor if the debtor doesn't pay the debts that the guarantor guaranteed. The liability of the guarantor is in addition to, not in substitution for, that of the debtor. This does not mean that the creditor can ask for double their money, only that they are entitled to seek the entire sum, or any portion of it from either the debtor or Guarantor.
By section 4 of the Statute of Frauds 1677 a guarantee is unenforceable unless it is made in writing (or there is a written memorandum or note of it) and signed by the guarantor.
Power of attorney to collect debts
A power of attorney to collect debts is used by one person, called the donor, to give another, called the attorney, the power to act on their behalf, specifically to collect money which is owed to the donor. However, it cannot be used to perform any function in respect of property or an asset where the donor is a co-owner.
The law states that the donor must execute the document creating the power of attorney as a deed. That means that the document must be signed and dated by the donor and the language must clearly indicate that the document is signed as a deed At least one witness must also sign the document.
Where a person gives a power of attorney and subsequently becomes mentally ill so that they are incapable of managing their affairs, the power of attorney will automatically end. Anything done subsequently under the power of attorney will not be valid. It's worth mentioning that there is a special power of attorney which can be drawn up to deal with this situation, known as a lasting power of attorney. To prove that a person has been given a power of attorney, they will either produce the original or else a certified copy of the original. Photocopying the original power of attorney and certifying on each page that it is a true copy of the original makes a certified copy.