As the effects of the credit crunch continue to be felt in the West Midlands, businesses should prepare for increased claims against them.

That’s the warning from lawyers at Hammonds who say that as cash flow is becoming more of an issue, creditors and suppliers are now more likely to issue claims in court. This could catch some businesses out if they don’t have systems in place to respond to these claims quickly.

Amanda Beaton, an associate at Hammonds in Birmingham who specialises in advising companies on resolving disputes, said: “With the credit crunch reverberating around the region, companies and individuals are more inclined to pursue claims to recover debts, damages or losses than they would be in a better economic climate.”

Issuing a claim in court is a simple process and many businesses are unaware that a claim has been issued against them until court documents have been served. With only 14 days from the date of issue to respond, some businesses are inadvertently falling victim to “default judgment” which means that a decision has been made on the claim in their absence.

Where a claim can be served against a business varies on the type of company, but in general terms it could apply to any place within the jurisdiction where the business operates or any of its business premises within that area.

“Using the example of a company that has retail operations, this could mean that the claim form may be served at any retail outlet or branch office within England and Wales,” said Ms Beaton.

“If there’s no policy in place at these type of premises to deal with formal documents it’s a real possibility that the documents could be overlooked, lost, or passed through various departments before it reaches someone who is able to deal with the matter. Unfortunately for many businesses this means that the 14-day time limit to acknowledge service of the claim form can easily elapse meaning that a default judgment could automatically be awarded – in effect finalising the dispute.

“In many cases the first time a business becomes aware of a claim against them is when bailiffs turn up at one of their premises. This can easily give staff or customers the wrong impression about a business’ financial health.”

To ensure that they aren’t caught out by unexpected court action, businesses are advised to put a policy in place so that all staff members understand that formal documents must be passed to a named individual as a matter of priority.

“When it comes to court action, often the quicker you act the simpler and cheaper the process will be,” said Ms Beaton. “Ensuring that documents served to any part of your business reach you quickly means that you can complete the acknowledgement documents within the 14-day deadline and buy yourself time to deal with the matter.

“In the current climate, where suppliers, creditors and customers are nervous about recouping losses – whether perceived or actual – and are quick to pursue claims in court, it may also be worthwhile to perform regular credit checks on your company.

“That way any judgments registered against your company that have not come to your attention can be identified and resolved before the bailiffs come knocking.”