For any creditor engaged in a business debt recovery claim, the ultimate aim is to recover the debt owed. However, it is important to remember that obtaining a judgment or order from the court is sometimes just the first step in getting the debt paid. A court will not automatically enforce any judgment or order, and the onus is on the creditor with the benefit of the judgment or order to take the appropriate enforcement action.
This blog aims to explain the preliminary issues which need to be considered when enforcing a judgment or order and the various enforcement options available when trying to get a business debt paid.
Before certain enforcement methods can be used, generally speaking, the debtor must have been given an opportunity to pay the debt. To commence enforcement proceedings, the debtor must have failed to pay the judgment debt when due or failed to pay an instalment due under the terms of the judgment or order. Therefore, before starting any enforcement proceedings, it needs to be checked that payment of the debt is overdue. It is also important to check that the judgment or order has been served on the debtor and whether the debtor is challenging the judgment, as this may impact on enforcement.
If a judgment or order for the payment of money does not specify a particular time for payment, the general rule is that the debtor has 14 days from the date of the judgment in which to make payment. The court does have the discretion to change the normal 14-day period; however, an extension is unlikely to be granted if there is little prospect of payment in any event, and the courts will not generally restrict a judgment creditor’s enforcement options.
The court can order that payment of the debt be made in instalments.
This applies to both individual (such as sole traders) and corporate (such as limited companies, LLPs and PLCs) debtors. As long as the debtor keeps up with any instalment payments, enforcement of the judgment should not be possible save where an application for a charging order is being made.
Following a judgment or order being made by the court, the debtor may apply for a stay of execution in the following circumstances:
As various methods are available when enforcing a judgment debt, careful consideration should be given to the size of the debt and what assets the debtor has because this is likely to determine which enforcement option is the most suitable. If you lack information about the debtor’s assets, there are ways of obtaining this.
Asking the debtor, who may respond voluntarily. Otherwise, you can apply to the court to obtain information from the debtor. This order will require the debtor to give answers orally on oath to a court officer.
As a creditor, if you have any concerns that the debtor will attempt to dissipate assets that could be used to satisfy the judgment debt, you may need to act quickly to prevent this. There are various court orders that creditors can apply for, including:
Various methods of enforcement can be used to enforce a money judgment. A judgment creditor can use any method available (and several methods can be used simultaneously or one after the other) except where the law provides otherwise. Insolvency procedures, although not strictly an enforcement method, are often used to enforce judgments.
The following paragraphs provide a summary of the various enforcement methods available.
Instructing bailiffs to seize and sell goods owned by the debtor in order to pay the debt. This is a very popular method of enforcing a judgment debt as it can be done quickly. It requires the issue of a court document (in the High Court, a writ of control and in the County Court, a warrant of control), which commands a High Court enforcement officer, County Court bailiff or another enforcement agent to take control of and sell a judgment debtor’s goods to raise funds to satisfy the judgment debt. The success of this enforcement method depends on the judgment debtor having goods of sufficient value.
Obtaining a third party debt order whereby you can seize sums owed to the debtor that are in the hands of a third party. For example, monies held in a bank account can be paid to the judgment creditor as opposed to the debtor. Third-party debt orders are not the most popular method of enforcement, as they depend on there being third-party debt. However, they can be useful where the judgment creditor knows that there is a bank account which is holding money belonging to the judgment debtor.
Obtaining a charging order. A charging order is a way of securing a judgment debt by imposing a charge over a debtor’s beneficial interest in land, securities or certain other assets. This usually prevents the judgment debtor from selling the land without paying what is owed to the judgment creditor, provided that there is enough equity after payment of prior creditors. An application for a charging order calls for the court to exercise discretion, and the court will therefore be looking to see that this enforcement method is appropriate. Therefore, the court may not choose to secure a small judgment when it could be enforced by another method. A charging order is most effective when there is substantial equity in a property, and the judgment debtor is the sole owner. The process for obtaining a charging order can be slow. A charging order itself does not realise funds to satisfy a judgment debt as that requires a sale of the property, which does not automatically flow from obtaining a charging order. The judgment creditor would have to subsequently apply for an order for sale of the property, or simply await the sale of the property by the owners, or following an order obtained by another creditor. Applying for a charging order over other assets, such as shares, is possible but is much less common.
Applying for the debtor to be made bankrupt or wound-up. If a judgment has been obtained against a sole trader, which is £5,000 or more, it is possible to apply for the sole trader to be made bankrupt. Judgment creditors can also apply for a company to be wound-up if it owes more than £750. Before issuing a bankruptcy petition, a statutory demand must be served on the debtor, giving the debtor 21 days to pay the debt or 18 days to apply to the court to set the statutory demand aside. While it is not necessary to serve a statutory demand on a company prior to issuing a winding-up petition, serving a statutory demand may make it easier to obtain a winding-up order from the court. After a bankruptcy or winding-up order is made, the debtor’s assets are then collected by a trustee in bankruptcy or liquidator and distributed amongst all creditors in accordance with insolvency law. A note of caution: bankruptcy and winding-up proceedings are expensive and time-consuming and may not ultimately lead to any recovery depending on how many assets and debts the debtor has. The threat of insolvency can sometimes lead to judgment debtors making payment, but the courts discourage using insolvency procedures as a debt collection exercise. The courts can dismiss bankruptcy or winding-up petitions and also penalise judgment creditors in costs if the debt is genuinely disputed or if the debtor has a genuine cross-claim or right of set-off.
Appointing a receiver. This is a relatively unusual method for the enforcement of a judgment. The court has the power to appoint a receiver in all cases in which it appears to the court to be just and convenient to do so. Equitable execution is usually only available where other methods of enforcement are unavailable. A receiver is usually appointed to assist in the preservation or gathering of property. A receiver may be authorised to receive rents, profits and other amounts of money due to the debtor and to apply that income in specified ways, including the payment of a judgment debt.