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Dealing with an unpaid Promissory note in 2024

Dealing with an unpaid Promissory note in 2024 Federal Management

Dealing with an unpaid promissory note UK

An unpaid promissory note is a fairly uncommon situation in the UK. However, some Business owners will encounter a promissory note in some types of agreements. They usually arise in connection with certain types of loan agreements.

Promissory notes can also be used for personal loans and are enable businesses and individuals to obtain monies from a non-bank source. The promissory note will details specific terms on which the money is to be repaid but if they are not adhered to, then action can be taken.

Promissory note – What is it?

Normally, a promissory note is an unequivocal promise to pay a specified individual or business a stated amount of money. The agreement is bound by the terms laid out in the promissory note. It can be likened to a Directors personal guarantee in that it guarantees payment will be made in any event.

Promissory notes are an unusual way of enabling a loan however they are legally binding. Promissory notes were around before official bank notes so still play a role in modern day commerce all be it a very small one.

Essentially, a promissory note is a legal document written between a borrower and a lender. This acts as a  formal IOU (I owe you) and states conditions and terms.

There are a few types of promissory notes. Normally they will state information relating to the parties involved, the sums involved and the dates for repayment.

The Bills of Exchange Act 1882 (BEA1882) clearly sets out the essentials for a effective promissory note.

When are promissory notes used?

Promissory notes are not super common in todays modern financial world although they can still have a role to play. Some familiar situations in which a promissory note maybe used are:

  • Business loans
  • Personal loans between family members or friends for large sums of money
  • Student loans
  • repayment terms of a loan supplied
  • to charge interest on a loan, often a personal loan obtained

What does a promissory note include?

A common promissory note in the UK will likely state the following details

  • A valid promissory note will identify full details of both the lender and borrower. It may also include details of a guarantor who agrees to pay if the note if the borrower defaults and the lender is left with an unpaid promissory note.

  • Principal amount loaned: The principal amount specifies the amount of money the lender will lend the borrower.

  • Interest rate applicable: A promissory note will normally include any agreed rates of interest and late payment penalties.

  • The promissory note should have the terms and conditions of any agreed repayment laid out. payment plan should be included in the note. The principal amount will be clearly stated and the date payments are due.

  • Consequences of non payment. If the it becomes an overdue promissory note, the potential consequences of such may be included also such as debt recovery action etc

Does the signing of a promissory note need to be witnessed?

There is no standard requirement for a witness or notary to witness both parties signing a promissory note. Sometimes however, depending on the nature of the note and the amount, it could be in the interests of both parties to have a signing witness. Signing a promissory note before a notary public or solicitor can be priceless in terms of proving the fact that the borrower did sign the document.

It is worth noting that this element of a promissory note is subject to the exclusive jurisdiction in which the promissory note is formed.

Is a promissory note governed by the Consumer Credit Act?

In certain unusual circumstances, an unpaid promissory note may be governed by the Consumer Credit Act 1974 (as amended by the 2006 Act.) The Consumer Credit Act will not affect your promissory note if:

  • The promissory note is a non-commercial agreement
  • The promissory note was created for a commercial purposes and is greater than £25,000.00
  • The promissory note is under £30.00

What is a non-commercial agreement?

Section 189 of the Consumer Credit Act 1974 defines a non-commercial agreement as “a consumer credit agreement or a consumer hire agreement not made by the creditor or owner in the course of a business carried on by him.”

This basically means that if the Lender provides loans or promissory notes as part of the Lender’s normal business activities, the Lender’s loan/promissory note will likely be considered a commercial agreement and the Consumer Credit Act will apply.

Non payment of promissory note

The non payment of a promissory note is quite common in the UK. Very often this can come in the form of failing to make payments on the stipulated dates. The benefactor of the promissory note will be well aware of their obligation. Non payment of a promissory note should be challenged and actioned accordingly.

Deliberate non payment of promissory note could be construed as a criminal act under the Theft Act s75. Dependant on the circumstances, it could be viewed as a deliberate attempt to mislead the lender into waiting for a payment that was never to be made.

Recovery action for an unpaid promissory note

If the terms of the promissory note are not met then the lender is entitled to take debt recovery action. Normally a letter before action is issued upon the terms being broke.

If there is no response to the letter before action, then it is the ideal time to seek professional help or the lender risks not getting paid at all. These 3 sime steps can help:

  1. Send a letter before action, clearly stating that further action will be taken to recover owed monies
  2. If no response, speak to third party debt recovery experts
  3. Begin Professional Debt Recovery action to recover the overdue promissory note monies

At Federal Management, we have helped businesses and individuals recover outstanding and unpaid promissory notes. If you have an outstanding promissory note owed to you, speak to your friendly team of Debt Recovery experts today for immediate help and advice.


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