Recovering a Debt - The Options for Enforcement
- AuthorEmily Summer
Due to the Covid-19 pandemic businesses have, quite rightly, been very cautious about chasing outstanding debts. However, if a large sum of money is owed and it is having an impact on the cash flow of your business, you may be in a position where you need to take action. If you have already obtained judgment against the debtor (e.g. a CCJ), you now need to look at the options available to get your debtor to pay you.
While it may well be the case that the threat of enforcement action will prompt the debtor to pay the judgment debt, it will fairly quickly become apparent if enforcement is required.
It falls to the creditor (i.e. you) to pursue enforcement of the judgment as it is not something that the court will do of its own volition.
Enforcement can be one of the trickier and more frustrating parts of the litigation process as debtors rarely cooperate and may well have hidden assets. It is, therefore, of paramount importance to consider your options in view of the specific circumstances of the debtor; well targeted enforcement measures are far more likely to be successful.
Methods of enforcing a money judgment
There are various methods in the arsenal that can be deployed by a judgment creditor. The below list is not exhaustive and each method is not necessarily exclusive; where permitted, certain actions can be pursued simultaneously.
1. Taking control of goods (a Writ of Control)
This is a very popular method of enforcing a judgment debt as it can be done quite speedily, is relatively inexpensive and is “high impact”. For debts over £600, the judgment can be transferred to the High Court to obtain a Writ of Control which gives a nominated High Court Enforcement Officer (the agents you see on ‘Can’t Pay? We’ll take it away’ and similar TV programmes) the power to take control of and sell a judgment debtor’s goods to raise funds to satisfy the debt.
This method does depend on the debtor having goods of sufficient value e.g. a car not on finance but, if they do, the costs of taking and selling the goods are added to the debt due to you and recovered by the HCEO.
2. Third Party Debt Order
This type of order would allow you to obtain sums owed to a judgment debtor that are in the hands of a third party (for example, a bank account). By serving the order on the person that owes your debtor money, you essentially cut out the middleman and the payment is made to you direct; even though the money hasn’t been paid to your debtor by the third party, they’re considered to have satisfied their debt to them.
This method is very effective but it does depend on you having fairly detailed knowledge of your debtor’s circumstances e.g. who they bank with etc. In the right cases, it can be an excellent tool.
3. Charging Orders
A charging order is not, strictly speaking, a method of enforcement but a way of securing a debt against a property asset owned by the judgment debtor or in which they have a beneficial interest; most usually this would be land but it can be used in relation to shares in a company.
By securing the debt over the debtor’s interest in a property (in a similar way to a mortgage), the debtor will be unable to sell or refinance the property without dealing with the charging order and the debt owed to you. To the extent that you’re then classed as a secured creditor, the judgment debt would also not be included in the debtor’s bankruptcy estate if they were to be made bankrupt after the order had been made.
If there’s enough equity in the property and the circumstances justify it, a charging order can be enforced by an Order for Sale. An Order for Sale would require the debtor to give up possession of the property to you so that you could sell it to satisfy the debt owed to you; it is a very serious order and so the court will take a number of factors into account before agreeing to make one.
Insolvency proceedings are not considered to be a debt recovery ‘tool’ as they represent a very serious undertaking which will significantly affect the debtor, be they an individual or a company. On being made bankrupt (individual) or wound up (company), the debtor’s assets are no longer their own; they fall under the control of a trustee (either the Official Receiver or an Insolvency Practitioner) to be sold for the benefit of all their creditors.
The trustee in bankruptcy or liquidator will also review the debtor’s past conduct to determine whether any transactions have been entered into by them which can be over-turned in order to bring assets or money back for the benefit of creditors. Those claims can, and do frequently, include claims against directors of insolvent companies in their personal capacity.
Given the serious effect of insolvency proceedings on both individuals and company debtors, the mere threat can be sufficient to prompt settlement discussions. However, they are not appropriate in every circumstance (there is no guarantee you will receive anything at the end of the insolvency process) and it is often the specific circumstances of the debtor that will dictate when these proceedings are best used.
What is the position in relation to enforcement of judgments and orders as a result of Covid-19?
At the beginning of the pandemic, the government imposed a stay on certain enforcement action e.g. possession or forfeiture proceedings for missed rent or mortgage payments. The effect of the lockdown on the courts and all related businesses also meant that there were significant practical difficulties in carrying out enforcement, and now a sizeable backlog for the courts to deal with.
The position differs between England and Wales in some respects and depending on the type of enforcement method that is being considered. It is, therefore, a further factor that has to be taken into account when reviewing the specific circumstances of a case to determine what enforcement action is most appropriate.
Rather than simply waiting for everything to settle down, which may still take some time, it’s important to review your position regularly and formulate a strategy of how and when you intend to enforce payment.