Arrangements with debtor

Contents
1. Acknowledgement of debt 2. Part payment of debt 3. Promissory notes

This is a short document signed by the person who owes money to another. It records the existence and amount of the debt and why it arose. It serves two very important purposes:

• It serves as a written and signed memorandum of the debt which will make it easier to prove the debt if it is disputed later. However, it must be emphasised that this is not a guarantee that a claim against a debtor will succeed.
• It serves to interrupt or suspend the effect of the Limitation Act 1980 or the Limitation (Northern Ireland) Order 1989 whereby a debt may become unenforceable after six years. The acknowledgement has the effect of restarting the clock and making the period of six years start afresh from the time the acknowledgement is signed.

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 promissory note is an unconditional promise in writing made by one person to another and signed by the person who makes the promise, the 'maker'. The person to whom the promise is made is called the 'payee'.

The maker promises to pay a specific amount of money on demand or at a fixed or determinable future time to:

• The bearer, being any person who is in possession of the promissory note
• A specified person

A promissory note is negotiable. This means that the note itself has a value and can be bought and sold. The payee, who receives the promissory note and is entitled to payment, may either claim payment or transfer their right to payment to someone else, the 'transferee'. If the promissory note is payable to the bearer, it is negotiated merely by delivery. If payable to a specific person or order, the promissory note is negotiated by endorsing the document in favour of some other person.

The promissory note is usually presented to the maker for payment. It is also presented to the person who has endorsed the promissory note. If the note specifies a place for the note to be presented for payment, the person who requires payment must present the promissory note at that place. If the place specified is not appropriate for some reason, the note can be presented to the maker or the person who endorsed the note at an appropriate place.