Many business owners are unaware of the different limitation periods for reclaiming debts in Scotland and England. Failure to observe these strict time limits could make all the difference to the success of your business or have severe repercussions for cash flow and even solvency. Many business owners believe that the limitation periods for debt is the same in the two jurisdictions, but in Scotland, the limitation is five years, whereas in England it is six years. Business owners and teams managing the debts and cash flow of the business need to be aware of these time limits and the laws which govern their contracts with clients.
There are several issues you should be aware of when it comes to prescription and limitation and failing to observe these points of law could mean that certain debts are irrecoverable. The law can be found in the Prescription and Limitation and Limitation (Scotland) Act 1973, which states that debts will, in general, prescribe five years after the date they are due for payment.
The date when the five-year period runs from, i.e. the date on which the debt is due will depend on a variety of factors, particularly how the agreement is worded. Where the contract stipulates an agreement for monthly payments, for example, a 24-month loan with 24 separate payments, each payment falls due separately. This means that each payment will prescribe five years after the individual payment due date.
Interest payments will also have their own due date and in turn, their own period of limitation. Where the wording of the agreement requires that an ‘all sums demand’ is issued before payment, the total debt will crystallise on the date the demand is due, with the five-year prescription period running from the date the demand is due. However, the agreement may also stipulate that the entirety of the debt is due before the payment period expires, in which case the prescription period would run from that date.
There are certain circumstances which may interrupt and ‘restart’ the five-year period. This includes where the debtor provides a relevant acknowledgement of the debt, which makes it clear they accept the debt, and is made in writing. Issuing court proceedings in Scotland is not enough to interrupt the five-year prescription period, service of the proceedings on the debtor is needed.
Pitfalls to look out for:
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