This is not a great idea, as the landlady may seek a CCJ, and this will prejudice your daughter when attempting to gain credit, mortgage etc in the future.
There is definitely a tenancy agreement in place, implied by behaviour, i.e. living in property and paying rent, and probably under the original terms.
She is best advised to try and come to an amicable arrangement. i.e. As the window is broken and therefore the flat unlivable, and I now have no money, keep the deposit and call it quits? Or maybe offer a nominal additional amount.
The landlady is fully justified in going to the small claims court, who will find your daughter, so do try to reach a compromise, which the landlady will be inclined to accept to avoid the costs of court action.