The purpose of bringing a money claim is to recover a debt, but judgment alone does not guarantee payment. After all, a judgment is merely a piece of paper ordering someone to make payment. Sometimes, further action is required to enforce the judgment and collect the sums due ie to convert that piece of paper into actual cash. These sums are known as a ‘judgment debt’, and a defendant generally has 14 days within which to pay it. If they fail to do so, the Court will not enforce the judgment; you must do so yourself.
If a debtor is genuinely unable to pay the debt, suing them can be fruitless – it can be good money after bad. Similarly, it can be counterproductive to incur the further costs of pursuing a debt following judgment. Our expert dispute resolution solicitors will advise on the merits of claiming against your proposed defendant, both before you issue a claim, and on judgment being entered.
Often, a debtor’s failure to satisfy the judgment debt indicates an unwillingness, rather than an inability, to pay. In such cases, there are numerous means through which you can enforce your judgment. Here, we explain the available options and set out the advantages and disadvantages of each.
This article applies to enforcing Judgments in England and Wales. If you need to enforce your judgment internationally, see our International Enforcement Guide. Amber link to cross border enforcement article on the website
Contents:
- Enforcement options available to business owners
- Bailiffs/High Court Enforcement Officers
- Charging Orders
- Third-Party Debt Order
- Liquidation or bankruptcy
- Attachment of Earnings Order
- Can you charge interest on the debt?
- How long does a County Court Judgment last?
- What can you do if the debtor closes the business to avoid paying the debt?
- What if the business claims they are insolvent?
- Summary
Enforcement options available to business owners
Some enforcement methods can be used simultaneously to collect a judgment debt. Special rules apply in some circumstances however, and you should take legal advice to avoid inadvertently jeopardising enforcement efforts.
Bailiffs/High Court Enforcement Officers
Using bailiffs or high court enforcement officers is probably the most well-known enforcement method. County Court bailiffs enforce County Court judgments, whereas high court enforcement officers enforce higher-value judgments of the High Court. Whilst their titles may differ, their purpose is the same; to take control of a debtor’s belongings, sell them at auction, and satisfy the judgment debt.
Advantages
This is a popular enforcement method thanks to its speed and simplicity. The enforcement officer must contact the debtor before visiting, which is sometimes enough to elicit payment of the debt.
Disadvantages
The method is only helpful if the debtor owns goods of sufficient value to satisfy the debt. A debtor’s high-value goods may be subject to hire purchase or lease agreements, and so cannot be seized. Numerous goods are exempt from seizure, including equipment the debtor requires for their employment.
Charging Orders
If the debtor owns property, you can secure your judgment by taking a ‘charge’ over that property. If the property is jointly owned, you can take a charge over the debtor’s share of it.
A charge over property compels the debtor to pay the money owed to you from the sale proceeds when it is sold, and you may be able to force a sale of that property to recover the judgment debt.
To impose a charge, you must apply to Court. The Court makes an ‘Interim Charging Order’ without a hearing, which you can register against the property to prevent the debtor from disposing of it before the ‘Final Charging Order’ is made.
A Final Charging Order is usually made following a hearing at which both sides’ cases are heard. If the debtor does not object to the Application, the Court will usually grant the Order.
A Charging Order does not realise the funds required to fulfil a judgment debt; a sale of the property is required. You may be content to wait for payment until the debtor voluntarily sells the property. Ordinarily, however, creditors are keen to recover their money, and so seek to enforce the Charging Order through an Order for Sale of the property. If you obtain an Order for Sale, you will take possession of the property, which you can then sell and retrieve the judgment debt from the proceeds. If there is a surplus of funds after payment of the judgment debt, this would have to be returned to the debtor.
Advantages
Since the impact of a Charging Order is severe, it can be a highly effective method of enforcement. Aside from the obvious burden of a potential forced sale, a charge renders a debtor unable to deal with their property freely, and so causes significant issues with matters such as remortgaging. The registration of a charge, or the threat of one, therefore, often focuses a debtor’s mind and results in payment.
If the majority of a debtor’s wealth is tied up in property, Charging Orders allow access to their assets in a way unparalleled by other enforcement methods. The charge will secure not only the amount of the judgment debt at the time of registration but also any interest which accrues until payment. Further, you will take priority over any unsecured creditors.
Disadvantages
In light of a Charging Order’s severity and, moreover, that of an Order for Sale, the procedure can be lengthy. It is only worthwhile if the property has sufficient equity to satisfy the debt. If there are prior charges registered against a property, they will take priority over yours, so you must ensure that there will be adequate funds remaining from the proceeds of sale after any prior charges have been satisfied.
In addition, while it can potentially give good security for a judgment debt, it doesn’t necessarily result in immediate payment (if for example, an order for sale wasn’t appropriate).
Third-Party Debt Order
Third-Party Debt Orders allow you to take money owed to the debtor by third parties. While they can be used in connection with sums due from any third party – a business debt, for example – they are most often used in connection with a debtor’s bank or building society account.
Obtaining a Third-Party Debt Order is a two-step process. First, you must apply for an interim Order. The debtor is not notified of this application to prevent the dissipation of the funds. The Court will usually make an interim Order provided the requisite evidence and documentation are lodged. Once that Order is in place, the relevant funds are frozen, and the debtor cannot access them.
Within the interim Order, the Court will set a hearing date. At the hearing, the Court will need to be convinced of several factors, including that the sums are immediately due to the debtor and that the Order will not prejudice third parties.
A final Third-Party Debt Order must be served on the third party and the debtor. The third party has a specified period within which to pay the relevant sums. If they fail to do so, you can take enforcement action against them.
Advantages
A major advantage of Third-Party Debt Orders is the element of surprise. Interim Orders can usually be obtained quickly, without the debtor’s knowledge. In the case of banks or building societies, the accounts are subsequently frozen. Being unexpectedly denied access to their money presents the debtor with a significant problem, and often encourages settlement of the debt.
Since the seized asset is money, no intermediate step is required to realise the funds. You do not need to sell goods or force a property sale.
Disadvantages
The main disadvantage is that this method requires knowledge of a debtor’s financial affairs. To apply against a bank or building society, you need to know where the debtor holds accounts and be confident that they are not overdrawn. Timing is everything since the accounts will be frozen on the day the third party receives the Order, and you are only entitled to funds held in the account at that point. If you apply for payment from a different third party, you will need to explain how that party owes money to the debtor, which necessitates an understanding of their relationship. You can obtain information regarding a debtor’s financial affairs by making an application for them to be questioned about their means under oath, but this may remove the element of surprise.
You cannot use a Third-Party Debt Order in respect of joint accounts unless the debt is due from all account holders.
Liquidation or bankruptcy
If the debtor is a limited company and the value of the judgment debt exceeds £750, you can petition for it to be wound up. If the debtor is an individual and the debt exceeds £5,000, you can present a bankruptcy petition.
Since the effects of liquidation and bankruptcy are extreme, it is often considered a method of last resort. Insolvency procedures are strict, and the Court will heavily scrutinise any petition before making the Order sought. Only if the Court is convinced that the debt is due and undisputed and that the debtor has no reasonable prospects of being able to satisfy it, will they grant the Order.
Advantages
The primary advantage is that the far-reaching effects of insolvency often encourage a debtor to settle the debt by any means necessary. The procedure is also relatively quick and inexpensive, although the Court is mindful of the implications of a liquidation or bankruptcy Order and will not make one lightly.
Disadvantages
The major disadvantage is that the debtor’s assets will be distributed between all creditors; you will not take precedence merely because you commenced the proceedings. Creditors are paid in a specific order, and if your debt is unsecured, you will rank behind others, such as charge holders. If the debtor has insufficient funds to fully satisfy all debts, a ‘pence in the pound’ scenario arises, whereby your debt will only be partially satisfied. If no funds remain after paying higher-ranking creditors, you will not be paid. Further, the insolvency process can take months or even years to complete.
Attachment of Earnings Order
Attachment of Earnings Ordersallow you to collect the debt directly from the debtor’s salary.
The process is commenced by a Court application which will be served on the debtor, who must either settle the debt or provide information regarding their means. The Court will consider the information, decide how much the debtor can afford to pay from their salary and make the Order accordingly.
The Order is served on the debtor’s employer, who must begin paying the required sums to the Court. The Court will pass the money to you until the debt is satisfied.
Advantages
The threat of their employer becoming embroiled in Court proceedings persuades many debtors to settle the debt. The method is relatively inexpensive and does not rely on the debtor making voluntary payments since the sums are automatically deducted from their wages.
Disadvantages
You can only use this method if the debtor is employed; self-employed debtors are specifically exempt. Further, since the debtor is entitled to retain enough of their salary to cover living expenses, recovery can be lengthy. This type of Order may also preclude you from pursuing certain other enforcement methods without the Court's permission. It only applies to individuals – it is not available against companies or other businesses.
Choosing the appropriate method is crucial when seeking to enforce a judgment. You should seek help from an experienced dispute resolution solicitor who will advise on the most suitable option, and consider any investigations required. Where the debtor is an individual, those investigations may include questioning them under oath about their means. Where your judgment is against a company, your solicitor may recommend applying for an Order compelling a company officer to be examined under oath about the company’s financial affairs.
Can you charge interest on the debt?
Yes, interest accrues on judgment debts exceeding £5,000 at a rate of 8% a year. Generally speaking, interest runs from the date of judgment until the debt is satisfied, so it can quickly add up. However, some enforcement methods cause interest to stop accruing, and the amount payable will be that which is outstanding at the date of the relevant Order.
How long does a County Court Judgment last?
You have 6 years to enforce your judgment. However, delays can sometimes be prejudicial, so you should seek legal advice from a business dispute solicitor as soon as possible.
What can you do if the debtor closes the business to avoid paying the debt?
The law recognises that unscrupulous individuals sometimes seek to close a company to avoid settling debts, through a process known as dissolution. As such, restrictions operate to prevent them from doing so.
A company cannot be dissolved without settling its debts first. If directors apply to dissolve a company with outstanding debts, creditors can object to the application, and it will be suspended. If the company has already been dissolved, you can apply for it to be reinstated and take the appropriate enforcement action.
Directors who dissolve a company without paying its debts risk sanctions, including being disqualified as a company director, forced to compensate creditors and, sometimes, prosecution.
What if the business claims they are insolvent?
Unfortunately, if a debtor is genuinely insolvent, recovering your debt can be an impossible task. You can verify the truth of a debtor’s insolvency claims by searching information held at Companies House or the Bankruptcy Register.
You can also compel the debtor, or an officer of the debtor company, to attend Court to be questioned as to their means, under oath. Since anyone who lies under oath can be subject to a fine or imprisonment, this can be a useful way of getting to the bottom of a debtor’s true financial situation.
Summary
Enforcing a judgment can sometimes be as arduous as obtaining it in the first place, particularly in cases involving evasive debtors. Luckily, there are many options available to assist in collecting your judgment debt, some of which can be used simultaneously. It is essential to seek help from an experienced dispute resolution solicitor who will advise on the most appropriate methods for your situation, and take all action required to ensure recovery of the debt in full.
