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Commercial Debt Collection – How Do I Collect When A Company Owes Me Money?

On April 10, 2014 Author By Seth Smiley

 businessman with financial symbols coming from hand

In today’s business culture we call businesses working with other businesses B2B. It has always been a popular practice to the alternative, business to consumer. The rules are different governing B2B as opposed to B2C. The legal and business world assume that the B2B relationship and players are more sophisticated.

This post discusses what happens when the B2B relationship sours and one company must collect what it is owed from another company. The most important distinction between the rules of B2B and B2C is that consumers are much more protected by government regulation. The Fair Debt Collection Practices Act protects the consumer, not businesses.

Phases of Collection

Most business think that when an account is overdue, then they call up a debt collection agency and the debt will be collected or its deemed bad debt. Businesses write off huge percentages of accounts receivable every year based off this flawed thinking.

There are at least two phases of debt collection, each of which could arguably be broken down into subcategories. You have a pre-debt fact gathering and document filing stage, as the first phase. Then there is the actual debt collection which can consist of many different options and this occurs after the debt is due. So more of a pre/post mindset.

Pre-Collection Phase – Getting Your Ducks In A Row

The pre-collection phase is often over looked and much more important than the post-collection phase. It is the foundation for the collection. This is the fact gathering and organizational portion.

This phase includes the initial fact gathering on the business. Your business should have an in-take sheet whereby it gathers all important information from the other business. Some of my clients even go as far as running credit checks on the business or getting personal guarantees from its senior members.

For contractors, suppliers and equipment lessors that I represent, this pre-collection phase is essential to keeping the accounts receivable low. This phase also includes sending out notices and filing liens, in a timely manner and properly. All of these essential elements make the post-collection process much easier, more efficient and most importantly successful. The old adage that I preach, is an ounce of prevention equals a pound of cure.

Finally another important aspect of the pre-collection phase is a well written contract between you company and your business client. This contract should have specific default and attorney fee provisions.

Collection Phase – It’s Time To Get Paid

Now your company has all of its intake information, gathered credit reports, personal guarantees, sent your notices, filed your liens, and have a well written contract, but your business client refuses to pay on its obligation to your company, what do you do?

There are a few options here and  only one good solution. Your business could write off the debt, it could try to collect internally, hire a debt collection agency or contact an attorney to collect. Obviously I’m biased here, but I do see this often. Writing off the debt is never good. Collecting internally can be okay but its slightly less successful than a debt collector. Attorneys can do all of the following steps which make the percentage chance of collection go up.

Your commercial debt collection attorney has a number of weapons at his disposal to collect on the outstanding debt. Many of them have time delays built in by law, which slows the process. First is to send a demand letter which includes the Louisiana Open Account Statue language. This is another avenue to get attorney fees and costs associated with the debt collection.

After the demand letter is sent out and thirty (30) days elapse, then its time to file suit against the debtor. Many businesses balk at this option because litigation can be costly and risky. Depending on the size of your debt, you attorney will likely take it on contingency which will minimize the litigation costs. From there your attorney will get a judgment, either by default or after trial.

Once the judgment is obtained, there are a number of possible means of collection. The attorney can examine the assets of the debtor, in a judgment debtor rule hearing whereby the debtor will be sworn-in and give testimony as to what the business owns. Further, the attorney can garnish banking and physical assets of the business. The judgment will be good for ten years and can thereafter be reinscribed. Once a judgment is granted collection chances go up.

Conclusion

In the end, some debts are simply bad and cannot be collected. Others, however may just be tricky or require persistence. Having a good commercial debt collection attorney at your side will greatly increase your collection rates and keep your accounts receivables low.

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Landlords Have Rights! Use of Lessors Privilege

On February 21, 2014 Author By Seth Smiley

Lessors Privilege

Here in Louisiana, just as in many jurisdictions, there are certain rights or privileges which are bestowed on certain types of individuals or entities. These privileges are not effective until the person or entity decides to exercise those rights. A common example that we blog about here is the, Statement of Claim and Privilege, a Louisiana lien. The subject matter of this post refers to another privilege, the Lessors Privilege.

Lessors Privilege

The Lessors Privilege is found in the Louisiana Code of Civil Procedure under the “special proceedings” book and the “provisional remedies” code, La C.C.P. 3571. It is also found in the Louisiana Civil Code under the section Lessors Security Rights, La C.C. 2707.

I in layman terms the Civil Code lays out the laws and rights allowed to persons. Whereby the Code of Civil Procedure is the method of steps that a person needs to accomplish in order to properly exercise those code rights.

The Lessors Privilege is defined as:

“To secure the payment of rent and other obligations arising from the lease of an immovable, the lessor has a privilege on the lessee’s movables that are found in or upon the leased property.” La C.C. 2707.

This means that if a lessee (tenant) has not paid rent or any other obligation under the lease, the lessor (landlord) has the power under the law to seize the tenants property, by using the Sheriff or Constable, and hold it until the landlord can get a judgment against the tenant.

The Power of Sequestration

Saying that the landlord has a privilege over the tenants things is one thing, but carrying this out in the real world is difficult. Therefore the law uses a tool called Sequestration. If the landlord thinks its within the power of the tenant to get rid of the property he can file a writ of sequestration with the court and have the sheriff seize the property of the tenant who owes back rent.

La. C.C.P. 3571 reads:

“When one claims the ownership or right to possession of property, or a mortgage, security interest, lien, or privilege thereon, he may have the property seized under a writ of sequestration, if it is within the power of the defendant to conceal, dispose of, or waste the property or the revenues therefrom, or remove the property from the parish, during the pendency of the action.”

La C.C.P. 3572 goes a step further and allows for Sequestration based on the lessors privilege before the rent is due! This is extremely powerful and a good way to get that tenant to pay up before vacating the premises. Most writs of sequestration require some type of security deposit, but the lessor’s privilege is exempt from this requirement.

Of course the tenant has rights too but these must be enforced after the property has been sequestered. Tenant can get its property back by posting a security deposit in lieu of its property under seizure.

How Is All This Accomplished?

All of these rights and privileges are great but unless you know how to put them into action, they are meaningless. A good landlord / tenant attorney will be able to walk you through these steps. This procedure is complicated and landlords should always consult an attorney when making such bold moves.

Nevertheless, the Cliff Notes version of how to do this goes like this… First, the landlord need to file an eviction proceeding. This is a summary proceeding under Louisiana law and can be accomplished fairly quickly, in a few weeks. An eviction proceeding is the subject of another blog post. Once the eviction order or judgment has been granted and back rent is owed, then the landlord need to file an ordinary law suit to claim its lessors privilege.

Second, the lawsuit is an ordinary proceeding whereby it will not be expedited. The lawsuit needs to contain a sworn statement from the landlord that rent is due and how much. From there it needs to assert the Lessor’s privilege and use a Writ of Sequestration to seize the property of the tenant.

Third, once suit is filed and it contains a Writ of Sequestration with the clerk of court, the sheriff or constable will get the Writ and set up a time with the landlord to go to the property and take inventory of the tenants property. Here in New Orleans, the landlord can be named “keeper” and “mover” of the property therefore it can pay to have the property moved and stored to save costs. If not then the sheriff or constable will do this, many times a high price.

Finally, the landlord and tenant proceed with the lawsuit all the way until a trial can be had. Once a judgment is rendered in favor of the landlord, the property will then be sold at an auction. The proceeds from the auction will go to pay the costs and then to the judgment of the landlord. Any extra proceeds after these parties are paid, will go back to the tenant.

All of these steps can take a while. This process can take weeks, months or even years depending on how much is at dispute and how much the tenants fights the suit.

Conclusion

Overall, this is a very powerful process and savvy landlords will use this process to their advantage to claim the lessors privilege. This can also be a costly process, but a properly written lease can provide for the repayment of attorney fees and costs from the proceeds of any collection attempts. At the end of the day, the law needs to have teeth. The use of sequestration and eviction are ways that the law has teeth.

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Convenient Store Truth – A Regulated Industry

On February 17, 2014 Author By Seth Smiley

convenient store

As a construction lawyer there are many industries that I get involved with that are spin-offs of the construction industry. Typically, these are commercial collections, such as when contractors and suppliers are owed money on projects, they hire counsel to collect. Landlord/tenant is another spin-off, due to the fact that many landlords perform construction work on what the own or they build it new and lease it out. In both instances its natural to help clients with the collection or leasing aspects of the construction projects.  There are complicated contractual documents that are associated with these spin-offs, therefore clients need to look out for their best interests.

A not-so-common, spin-off I come across with regularity is the convenient store industry. I have had the fortune of representing owners, developers, suppliers and purveyors in this industry here in the New Orleans area. Most people use the services of these places whether it be a Shell, Velero or an independent without ever knowing what goes on behind the scenes. This is a very heavily regulated industry, with complex deals and transactions happening daily. Savvy business owners are the ones who are prepared.

Construction and Development

There are two ways to begin this type of enterprise and its no surprise that an owner/developer can either build a new store from scratch or they can renovate an existing location. The problem with building new is that the property needs to be zoned properly for the desired business type. You can’t just go around throwing gasoline into the ground, without getting approval from the Louisiana Department of Environmental Quality (DEQ). The property needs to be zoned properly or owners need to seek a variance through the New Orleans City Council.

Even if a development is a renovation of an existing location, there needs to be soil samples and testing done to make sure that the ground is not contaminated. This can be a nightmare for developers, and nearly the kiss of death if the ground is contaminated. Contracts between developers, owners and the installers of the underground tanks is essential. There is an element of passing along the risk that should be addressed in any document between these parties.

Running A Convenient Store Business

The actual business of running a convenient store can be done in the standard ways by either a corporation (Inc) or a limited liability company (LLC). The structure of the business is the same as any other business, and to be successful you have to see what products maximize return on investment.

The more tricky part comes in when you want to sell gas, food, liquor, tobacco and/or have video poker (allowed in Orleans and other surrounding Parishes). All of these aspects are heavily regulated by both local and state government. There is a mountain of paper work that any owner needs to be familiar with when seeking to increase revenue from any of theses sources.

Both the City and State have arms for the the board of health that regulates food. Liquor and tobacco are regulated by the City and the State’s Alcohol and Tobacco Control (ATC). Video Poker (if you have alcohol permit and sell enough food) is regulated by the Louisiana State Police. All of these agencies have different rules and standards that convenient store owners need to be familiar with. Application processes are time consuming and tedious.

Gas Related Regulation

As mentioned above the petroleum industry is one of the most heavily regulated industries in the country. There is regulation with regards from the installation of the pumps and storage tanks. Regulation on the pricing and distribution. Even a mere understanding of the Louisiana Superfund and remediation process if there is ever a site contamination is helpful.

The Louisiana Department of Environmental Quality has extensive resources and regulation on the way petroleum or gas is used in Louisiana. This is done so that we preserve the environment for later generations. Nevertheless, there is a huge price tag associated with this process and understanding it can pay dividends for convenient store owners.

A Business Like No Other

There are few businesses that encompass such complex local and state regulation like the convenient store industry. There are few businesses that take on such risk and become involved in complicated contractual schemes that shift risk to other parties and insurers.

So the next time you look at an Exxon, Race Trac or independent convenient store / gas station, know that there are many moving parts, starting back before the first shovel broke ground. Even as each truckload of gasoline is dropped off and each Big Gulp is poured, the government is weighing heavily on an owner’s metaphorical back. There are very complex contractual regimes which exist and countless hours of manpower that have been put in to that establishment and the services it provides.

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Contractors And Property Owners Prepare For The Freeze

On January 7, 2014 Author By Seth Smiley

By Cha già José from Vienna, Austria (Frozen Pipes Uploaded by darkweasel94) [CC-BY-SA-2.0 (http://creativecommons.org/licenses/by-sa/2.0)], via Wikimedia Commons

As a resident of the city of New Orleans, Louisiana, I do not see temperatures fall below freezing very often. When this does happen it is usually for a brief time and residents usually do not have much worry. Last night and tonight put the South Louisiana region in rare air.

When temperatures fall below freezing for durations of such as these its considered a hard freeze. I have clients, plumbers and HVAC companies who are working over time right now. It is very important for contractors and property owners to know what is happening and how to prevent a possible disaster.

The most common and most harmful result of a freeze such as this is for a water pipe to freeze and burst. I have had clients who have had water leaks for days without realizing and others for just a few hours and the damage was serious. Not only will the plumber bill be high to repair the broken pipe, but the water leak will cause significant damage as well.

If you own property that suffers damage from a frozen pipe breach, you will need to follow a few steps to make sure that you prevent harmful damage and then get made whole for any resulting damage.

Freeze Damage Prevention

Here, in South Louisiana we know how to protect property from Hurricanes and flooding but do not often experience sub-freezing temperatures. The two best ways to prevent pipes from freezing are to keep water running by dripping a faucet or to wrap your pipes in insulation.

Freeze Repair

Contacting a licensed plumber or handyman to aid in the quick response is pivotal to mitigating damages. Any insurance claim will be reviewed with the insureds duty to mitigate its damages in mind. The best course of action here is to get the damage repaired and stop further damage from any water leaks. This can be costly and any insurance funds my not be available for months.

Preserving Evidence and Reporting Claim After The Freeze

Once you repair the pipe and remediate the water damage, a claim needs to be processed with your property damage insurance provider. You should obtain this information from your insurance agent or from your policy.

Proper and prompt notice of the damage are essential to any claim. The damage is significant and an insurance claim may be made, then you will want to take pictures as the damages is revealed and through the construction process.

Next you will want to properly notify the insurance company by initiating the claim process. This will be a formal claim made in writing. Many policies need a “sworn proof of loss” to accompany the claim stating exactly how much damage happened. This can be ascertained from the contract you had with the plumber and contractor to repair all the damage.

The insurance company will want to send out its own adjuster to review the damage. Many savvy owners will hire their owner adjuster to provide an alternative report to the insurance adjuster report.

Many times its helpful to retain counsel in more complex situations to make sure you maximize your recovery and make sure that the insurance company is not getting the better of you.

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Happy Holidays from Wolfe Law Group!

On December 26, 2013 Author By Sarah Smith
Happy Holidays from Wolfe Law Group!

2013 has come and gone in a flash. We’ve had a great year at Wolfe Law Group and are excited to see what the new year brings.

We hope all of our clients, readers, friends, and colleagues are having a safe, wonderful holiday season and end of the year celebration!

Cheers to 2014, and Happy Holidays!

 

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