Don't sue George when Harry owes you the money

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IN FARAWAY Debtland, there is a place where you’ll find the bones of people who have chased the wrong debtor. It is impressive to look at the bones. There is a mountain of them. Unless you’re careful, your bones will make the mountain a little higher.

Why? What’s the problem?

Thousands of people commence proceedings on someone that’s simply not involved! It may take a long time to find that out. It may cost them thousands to find out. And it’s all money lost. They can’t get back a penny.

If you’re handling the legal action yourself — and that’s what we’re talking about – then make sure you go after the right debtor. If you start on the wrong foot, even if you bring in a lawyer or debt collection agency later, they probably can’t fix things. You’ll have to start over.

Here are some of the ‘people’ you can sue:

An individual. Mary-Sue Goodheart. Or Doctor Xavier McPherson. You sold the person something, or did the person some service, for an agreed amount of money. And the scoundrel didn’t pay. Right. That is who you are chasing for monies owed.

A sole trader. A sole trader may have a trading name: Black Hole Earthmoving. Forget it. Just go after the person behind it — the individual.

A partnership. Dangerous waters. There can be two partners, or twenty — or sometimes thousands (as in the big accounting firms). You probably only dealt with one of the partners. Or even just someone who works for the partnership. But someone there owes you money. The safe thing to do is ensure you know the details of everyone associated: all the partners as a group, and each of them individually, and also the guy you actually dealt with (if he isn’t a partner and already on the list anyway). That way you’re covered. No one who might be responsible (or own something you can seize later) can wriggle out of it.

A company. If you are sure that you have really been dealing with a company as such – maybe by running a company search in the first instance.A company has a life of its own, legally. It’s like a person who can’t die, even if the directors die (they are just replaced by other dispensable mortals). It’s true that you can kill (liquidate) a company, but you don’t do it by killing the people who run it. Legally, a company is very real. It can sue. You can sue it. The company itself can owe you money, no matter how the people who work for it may come and go.

A trust. There are a lot of these around. For example, : “1234 Ltd as trustee for the James Heath Family Trust”. Trusts usually have a trading name tacked on. In a trust, its trading name is “J&E Copywriting.” If you sold something to J&E Copywriting, and you got no cheque, who should you sue? The answer is: that whole long name. You can tack on the trading name too, but it doesn’t matter. On the documents you might also use a few abbreviations: “1234 Ltd ATF James Heath Family Trust TA J&E Copywriting”.

Technically, you could just commence proceedings against 1234 Ltd, but that gets messy because 1234 Ltd might be doing something in addition to acting as a trustee. It could be acting as a trustee for several different trusts, or it could be trading in its own name — selling used 747s, for example. It might take a lot of sorting out in court to determine which of these trading entities actually owed you the money. Better to be clear, if you can. It will be cheaper.

There are other wrinkles to this as well. The trustee of a trust doesn’t have to be a company. It might be two or more people, acting as trustees. For example, if my Family Trust got fed up with 1234 Ltd as a trustee, the Family Trust could chuck out 1234 and appoint new trustees: my wife and her brother, say.

If all this doesn’t get you worried, it should. It explains why lawyers and GOOD debt collection agencies are so careful — right at the beginning — to try to pin down exactly who owes you the money. If a company is involved, or seems to be, the agency or lawyer will do a search to see what the company structure is. He will also trace through and see who is behind a business name.

Even so, it may not be clear who the debtor really is. Is it cunning Mr. Bloomhardy himself, who bought those 500 bags of cement from you? Or was it really his company, Bloomhardy & Foolhardy Ltd? Nothing was put on paper. And your recollection of what Mr. Bloomhardy told you, and what you told him, is getting hazy.

This uncertainty can seem amusing when it happens to someone else.

But beware: it’s no fun at all when it’s your money and you chase the wrong debtor. Be careful.

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