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Arrangements with debtor

Arrangements with debtor

Contents

Acknowledgement of debt

This document records the existence and amount of the debt and why it arose. In the acknowledgement of debt, which the debtor must sign, the debtor must acknowledge their indebtedness and legal liability to pay the debt to the creditor. This document serves 2 very important purposes:

  • It is a written and signed memorandum of the debt which will make it easier to prove the debt if it is ever disputed. An acknowledgement of debt is however not a guarantee that a claim against a debtor will succeed.
  • It interrupts or suspends the effect of the Limitation Act 1980 whereby a debt may become unenforceable after 6 years from the date that the creditor had the right to recover payment form the debtor. The acknowledgement, if signed before expiry of the limitation period, has the effect of restarting the clock and making the period of 6 years run afresh from the date the acknowledgement of debt is signed.

Part payment of debt

It is up to you, the creditor, to accept such payments. If you do then you should be careful to accept such payments 'without prejudice'.

This means that you accept the part payment while reserving the right to commence court proceedings for recovery of the remainder of the debt if the debtor company neglects to pay in full.

A part payment interrupts or suspends the effect of the Limitation Act 1980 whereby a debt may become unenforceable after 6 years from the date that the creditor had the right to recover payment form the debtor. The part payment, if made before expiry of current limitation period, has the effect of restarting the clock and making the period of 6 years run afresh from the date the part payment was made.

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