Recovering debt through third parties

Recovering debt through third parties

Contents

Guarantees

Debtors may also transfer their debt and can do so by entering into a 'guarantee' agreement with another party. 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 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 an enduring 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.