THE ONUS IS ON THE JUDGEMENT CREDITOR TO ENFORCE THE JUDGEMENT. THE COURTS WILL ONLY 'ASSIST'.
In 2022, approximately 757'000 UK companies were in debt compared to 305'000 prior to the Covid-19 Pandemic. Worryingly, 33% of SMEs had debt levels more than 10x their case balance and 18% of SMEs had monthly debt repayments more than 15% of their income. For the individual, as of November 2022 the average credit card debt per household stood at £2'290, the average UK household debt rose to £65'914 and the total unsecured debt per UK adult in December 2022 stood at £3'914. In view of the rising levels of debt and increasing insolvencies, this article aims to provide guidance as to the enforcement options available to creditors owed a £100'000 Judgement Debt.
INTRODUCTION
It is a common misconception that court orders including judgement debts are automatically enforced. They are not.
In civil litigation, should you have been successful then unless you sought an alternative remedy such as specific performance you will have received a Judgement or Order for payment of money by a specified date. Regretfully, while there is a starting presumption that the courts should assist 'the Judgement Creditor' to recover the debts due, in the event the ‘Judgement Debtor’ fails to make payment the onus is on the Judgement Creditor to take enforcement steps.
There are various methods of enforcement listed in CPR Part 70 (and there are some that are not) which a Judgement Creditor may use individually or simultaneously. However, the most suitable method will depend on the value of the debt, the assets of the debtor and their general willingness to comply with court orders.
ENFORCEMENT METHODS
For a debt of approximately £100'000, the following enforcement actions should be considered:
A Charging Order over the Judgement Debtor's assets.
An Order for Sale of the Judgement Debtor's assets following a Final Charging Order.
A High Court Writ of Control to take control of the debtor's assets and/or goods.
An Attachment of Earnings Order whereby a portion of the debtor's salary is used to pay the judgement debt.
Third Party Debt Orders when there are sums owed that are in the hands of a 3rd Party (i.e. a Bank).
An Order to Obtain Information whereby the debtor is summoned to attend court and account for their assets.
Appointment of a Receiver by Way of Equitable Execution.
Insolvency Procedures such as bankruptcy or IVAs are not strictly a method of enforcement. Rather, they are a collective means of gathering in all the assets of the insolvent estate and distributing them equitably amongst all the creditors. However, it is a commercial reality that some debtors will not recognise the obligation to pay their debts unless taken to the brink of insolvency and beyond.
CHARGING ORDERS
A Charging Order is a court order that places a charge over the assets of the judgement debtor such as land or securities (‘the asset’). This means that should the asset be sold, the proceeds of the sale will go towards satisfying the Judgement Debt including costs and all accrued interest. However, a Charging Order does not by itself force the sale of the asset which requires a separate Order for Sale.
ADVANTAGES OF CHARGING ORDERS | DISADVANTAGES OF CHARGING ORDERS |
|---|---|
A charging order can be obtained over any property in which the debtor has an interest. | Should a debtor be paying by instalments and is not in default, you cannot apply for an order for sale (section 3(4c) of the Charging Orders Act 1979). |
A Charging Order can be obtained against a debtor even where the debtor is paying by instalments and has not defaulted in those instalment repayments | You will not receive your money without the sale of the asset. |
The debt is secured and so not vulnerable if the debtor is adjudged bankrupt. i.e. in the event the debtor is made bankrupt the sale of these assets by the Trustee in Bankruptcy will release the funds to you. | Secured Creditors may decide to take action upon receipt of the Interim Charging Order. For example, a bank may decide to proceed with the sale of the Debtors Property before the Charging Order is registered at the H.M. Land Registry. |
Interest continues to accrue on an unpaid judgement debt secured by a Charing Order. E.G. This means that should there be a 1 year delay between the Charging Order and the Sale of the Asset, that accrued interest will be added to the Charging Order. | Should there be negative equity then you are not secured. |
Certain costs incurred are added to the judgment debt. | |
May result in a realistic repayment arrangement. | |
Can apply for an order for sale. | |
A Charging Order is essentially a 2 stage process whereby the court makes an Interim-Charging Order that is then served on the debtor. Thereafter, the Interim Charing Order is converted to a Final Charging Order which exists until the debt together with accrued interest is discharged/paid in full. There is no obligation to provide the debtor notice you have applied for an Interim Charging Order (indeed, that would be very unwise) and the time in between the Interim and Final Charging Order is to allow other parties to raise objections.
Concerning a Judgement Debt of £100,000 or more, once a Charging Order has been made final the next logical step is to proceed with enforcement by an Order for Sale rather than accept instalment repayments. Should there be an Instalment Order, then a Charging Order does not allow for enforcement by sale unless there has been a default in the Instalment Order. This means that should the Judgement Creditor’s financial position change drastically they would not be able to realise a significant and secured debt.
But note, negative equity in an asset would make a charging order redundant and to avoid this, before making any application a judgement creditor should undertake searches at the H.M. Land Registry to confirm how many prior charges or restrictions are registered together with when the property was purchased together with its price. This can then be compared with online house price comparison sites to give an approximate estimate of the Property’s worth.
ORDERS FOR SALE
Providing the Charging Order has been made Final, the Judgement Creditor can proceed to enforce with an Order for Sale. This is a Court Order for Vacant Possession and Sale of the Property whereby the proceeds of the sale are used to satisfy creditors in an order of priority.
The prospect of the Property which is often the family home being sold, is usually enough to prompt the serious repayment proposals from all but the most contemptible Judgement Debtors where otherwise they would just continue to ignore the judgement debts. Further, should there be a wife or former spouse living in the Property then their beneficial interest should be severed.
ADVANTAGES OF AN ORDER FOR SALE | DISADVANTAGES OF AN ORDER FOR SALE |
|---|---|
Satisfies the Judgement Debt in full together with interest accrued since the Charging Order. | You need information regarding other secured creditors and the amount of their charges |
The sale of a person’s house under an order for sale is not a breach of human rights. | You need to be able to estimate the amount the property would fetch if sold. |
If the property is not the debtor’s residential home then a sale is normally granted quickly. | The debtor may argue that there is negative equity in the property. |
Once you have obtained the required information then the application is actually quite straightforward. | In rare cases, the Order for Sale is suspended |
The Judgement Creditor will be required to write to any other secured creditors immediately once the Interim Charging Order has been obtained to ascertain how much they are owed and consequently, what will be left for the debtor should the court order the sale (which it will want to know). However, the other secured creditors are under no obligation to respond (but they usually do).
Property websites such as Zoopla, Rightmove and OnTheMarket provide estimated property valuations using a combination of market trends and recent local sales. That should give you an indication of whether an order for sale is viable. For the purposes of an application for sale however, a local estate agent will normally be able to advise you of the approximate value of the property informally, especially if they undertake an inspection of the Property. Note, while the Judgement Debtor is under no obligation to allow access, the courts take a dim view of this lack of co-operation and will likely err, towards the higher valuation of an estimate based on just viewing the Property from the outside. It is simply in both parties interest to cooperate.
Frustratingly, difficulties with an Order for Sale usually arise after it is granted as the debtors whom are now squatting in the Property are often reluctant to leave. This requires the an order for possession of land to be enforced in the High Court through a Writ of Possession, having the locks changed and the Property boarded up by paid professionals. Unrepentant debtors usually and quite often succeed in breaking into the Property to cause further problems to their judgement creditors. This requires a further Writ of Restitute to remove the debtors once again.
Finally, in the event that possession is obtained prior to sale, judgement creditors should check with the local authority to avoid complications with respect to council tax and business rates.
TAKING CONTROL OF GOODS
Providing that the Judgement Debtor has assets e.g. is self-employed, then taking control of the debtor’s goods using a High Court Writ is a good option. Under this method of enforcement, the judgement creditor should issue a High Court Writ which commands a High Court Enforcement Officer (HCEO) to seize and sell the debtor’s goods to satisfy the judgement.
Note, as the debt is >£5000 a Judgement Creditor must use High Court Enforcement Officers and not, the County Court Bailiffs.
ADVANTAGES OF A HIGH COURT WRIT | DISADVANTAGES OF A HIGH COURT WRIT |
|---|---|
Tools of Trade are only exempt up to a maximum aggregate value of £1,350. This prevents the exemption of luxury tools of the trade. | Generally, cannot seize tools of the trade. |
Relatively cheap with fixed costs | Costs of removal and sale of assets seized need to be considered. |
Costs added to the Judgment. | Only successful if goods available or debtor has ability to pay by instalments. |
Officer has face to face meeting with debtor usually resulting in a greater likelihood of an instalment offer being made. | Abortive fee charged. |
Can be extended if necessary after a year. | If unsuccessful, the Judgement Creditor has essentially thrown good money after bad and must then proceed with alternative methods of enforcement e.g. Charging Order. |
There is no expiry day if paying by instalments. | |
Information from neighbors about your debtor and the area relayed to you. | |
You have a choice of HCEO as these are private companies that operate under a license. | |
HCEOs are not directly employed by the state and so, the more onerous provisions of the Human Rights Act do not apply. | |
In all circumstances it will depend on the facts of the case as to whether reasonable force can be used when entering premises to take control of goods.
The debtors motor vehicle is generally the HCEOs preferred asset to seize and sell when dealing with an individual. Accordingly, should the Judgement Creditor know the make, model, registration number it would be wise to inform the enforcement officer.
Do Not Fall Into the Trap of Negotiating with the Debtor after the instruction of the HCEO. Firstly, what they owe you has already been decided by the courts so the time for negotiation is over. Secondly, should you agree a full and final settlement with the debtor then you may find yourself liable for the HCEO costs.
ATTACHMENT OF EARNING ORDERS
An Attachment of Earnings Order (an AEO) provides that a proportion of Judgement Debtor’s earnings are deducted by their employer and paid directly to the Judgement Creditor until the Judgement Debt is paid in full. The basis of the deduction is guided by set rates applied to the Judgement Debtor’s resources and for obvious reasons, is only available against employed individuals.
For small to medium sized debts, an AEO is a popular method of enforcement. However, for a debt of £100’00, the time taken to for repayment usually makes it an impractical method of enforcement. But, should you be dealing with a relatively high-earner then it may be recommended and is relatively easy application to do.
ADVANTAGES OF AN AEO | DISADVANTAGES OF AN AEO |
|---|---|
An AEO is a relative easy application to complete. | Cannot be used if the debtor is unemployed or self-employed or in the armed forces. |
The stigma of being in debt and the risk of their employer knowing that they are in debt persuades many debtors to pay voluntarily. | Only applies to individuals, not corporate debtors. |
A committal order can be made if the debtor fails to file a statement of means. | A duplicitous debtor may leave employment just to spite its creditors resulting in wasted costs. |
Should the debtor have other judgment debts the court may order a consolidated attachment of earnings. | An AEO will not be payable where debtor’s protected earnings rate has not been achieved. |
| You would need leave of the court to levy execution whilst an attachment of earnings order is in force i.e. instruct bailiffs to seize property. |
| Impractical for large debts unless the debtor is a high-earner which is almost never the case. |
A judgement creditor can request the court issue a notice to the debtor’s employer at any stage during the proceedings requiring them to provide a statement of earnings. This way, should the debtor fails to satisfy the judgement debt, an Attachment of Earnings Order can be made on the information provided by the employer.
THIRD PARTY DEBT ORDERS
A Judgement Creditor my utilise Third Party Debt Orders (TPDOs) when there are sums owed to a Judgement Debtor that are in the hands of a 3rd Party (i.e. A Bank).
This is a 2-Stage process whereby, an interim third party debt order is made and then paid directly to the Judgement Creditor upon the making of a final third party debt order. It can be used against, say, a third party who has had work done for them by the debtor and owes for that work such as a garden being landscaped or an extension being built. However, it is primarily used against banks or building societies who hold an account for the debtor. It is primarily used against banks or building societies who hold an account for the Judgement Debtor.
ADVANTAGES OF A TPDO | DISADVANTAGES OF A TPDO |
|---|---|
The interim order is made without notice to the debtor and becomes binding on the third party when it is served on them. | It cannot be made against a joint account unless both account holders are the debtors in the matter |
When successful, payment is received quickly. | Timing of service is crucial to prevent the debtor from closing and shifting accounts. |
Even if unsuccessful payment is often made as a result of the account being frozen. | Details of the reason you believe the third party is indebted must be given. A copy of the court order would be sufficient. |
When the third party is a bank they are required to search their data base for any other account in the debtor’s name | |
The Interim Order should be drawn up by the creditor and served on the third party. If the third party is a bank or building society then the order should be served at the head office. Provided you know when there are likely to be monies in the account then it is probably sensible to personally serve on that day to ensure the account is frozen when moneys are in it.
This can be a relatively quick and effective method of enforcement against a commercial debtor. The TPDO should be served on the company’s business account just before the normal monthly bills are paid which regardless, would result in the account being frozen and the business unable to function until resolved.
AN INFORMATION ORDER
When you have no details about the debtors assets, property or bank accounts, an application for an order to obtain information may be your best option.
This is not actually a method of enforcement but pursuant to CPR Part 71, the Judgement Creditor may apply for an Order that the debtor attend court and account for its assets, orally on oath to a court officer. Failure to comply will result in the matter being referred to a Judge whom may make a suspended order punishing a person for non-compliance.
In the event that the debtor fails to attend court as required, the court may hold the person in contempt of court and make an order punishing them by a fine, imprisonment, confiscation of assets or other punishment under the law (CPR r.71.8).
ADVANTAGES OF INFORMATION ORDER | DISADVANTAGES OF AN INFORMATION ORDER |
|---|---|
Information can be obtained about the debtor’s financial circumstances so that appropriate enforcement action may be taken. | The court order requiring attendance has to be personally served on the debtor. This often proves difficult and therefore incurs delay and extra cost. |
If you can attend the hearing you can ask the questions yourself (if the hearing is before a court officer), and if the hearing is before a judge you must conduct the questioning. This way, you will get an overall picture of the debtor, see the proof of the answers to the questions, and can get the debtor to expand on the answers and discuss resolving the matter. | The examination is held at the debtor’s home court and therefore attendance by the creditor is often not possible. |
If you can serve the debtor they will normally attend as failure to do so means that the court may hold the person in contempt of court and make an order punishing them by a fine, imprisonment, confiscation of assets or other punishment under the law. | The debtor is entitled to receive reasonable travelling expenses to enable them to attend the hearing. |
Should you be able to attend an information hearing then it is worth doing so.
If the debtor states they have no car then you can ask whose car they were driving when they arrived?
If they say they have no bank account you can ask how their wages are paid to them?
If they say they have forgotten to bring their cheque book and do not know their account details you may be able to have the hearing suspended/adjourned pending that information being provided.
These hearings can be especially useful when dealing with self-employed persons whom do not wish to have their books of accounts examined and may make payment instead. They are also useful when they are made against directors of companies as the inconvenience of having to attend court will often prompt settlement negotiations.
APPOINTMENT OF A RECIEVER
Under s.37(1) Senior Courts Act 1981, the court has the power to appoint a Receiver by way of equitable execution pursuant to CPR Part 69.
This is an extremely rare method of enforcement and is usually only available where the Judgement Debtor has done everything possible to frustrate alternative methods of enforcement. Consequently, the court must be satisfied that the Judgment Debtor is determined to do whatever is necessary to avoid paying.
A receiver is appointed to assist in the preservation or gathering in of Property. A receiver may be authorised to receive rents, profits and moneys receivable in respect of a judgement debtor’s interest in certain property and to apply that income in specified ways, including the payment of a Judgement Debt. A Judgement Creditor whom wishes to apply for the appointment of a receiver to enforce a judgement debt must follow the practice and procedure set out in CPR Part 69 and this rule also governs what the receiver does, termination of their appointment and remuneration.
PD 69.5 states regarding the appointment of a receiver to enforce a judgment:
"Where a judgment creditor applies for the appointment of a receiver as a method of enforcing a judgment, in considering whether to make the appointment the court will have regard to –
the amount claimed by the judgment creditor;
the amount likely to be obtained by the receiver; and
the probable costs of [their] appointment."
The court has the power to make broad, wide-ranging orders[1] and the Court of Appeal has held that there is no reason why they court should not exercise a power to appoint a receiver by way of equitable execution in relation to foreign debts.
HOW WE CAN HELP
Unlike most law firms, our standard retainer includes a commitment to support clients past judgement and through enforcement. Our dedication to you does not cease with judgement but until you have received your court ordered damages/compensation in full and recovered with the costs of the litigation.
Prior to commencing any litigation, we undertake a detailed search of your opponent's assets in order to ensure the cost of litigation never outweighs its benefits. Thereafter, we maintain a watchful vigil over these resources so you can be secure that you will receive the money due to you.
Gavin Renwick has successfully dealt with fraudulent debtors many of whom have supplied false information to county court bailiffs, High Court Enforcement Officers and/or made false representations in the Insolvency Courts in a bid to frustrate enforcement, hinder judgement and inflict further financial pressure on their creditors. We are intimately familiar with matters concerning the conduct of the spouse where the contemptible debtor has attempted to hide assets in faux-companies, family run companies or through sham-divorces and fake addresses.
Should you require any legal advice whether as a debtor or creditor then contact us in confidence.
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