‘Obtaining a court judgment for payment from a debtor can be a huge relief, particularly if your claim was contested. However, enforcing that judgment and actually obtaining payment can be problematic in itself if the debtor is not cooperative,’ says Barry Wood,dispute resolution solicitor expert with Richard Reed Solicitors.
There are, however, various methods you can use to enforce your judgment and get your money back. Choosing the right method can save you time, money and stress and ensure that you recoup sums that are rightfully owed to your business as quickly as possible.
Barry provides a brief overview of the methods of enforcement that are available, and how your solicitor can help you decide upon and take the best enforcement action to obtain payment.
Writ of control and warrant of execution
This is a method of debt collection whereby a court enforcement officer (often known as a bailiff) will enforce your debt for you. In the County Court this is called a ‘writ of control’ and in the High Court this is called a ‘warrant of execution’.
It is necessary for your solicitor to apply to the court to issue a writ or warrant, but this does not require a court hearing. Once the bailiff is provided with the court order, they can attend the debtor’s premises and take goods to the value of the debt and your costs, and sell them in order to meet the target amount.
This can be a very effective method of obtaining funds. The downside is that there may not be goods of sufficient value to meet your debt, or goods may be owned by a third party, such as under a hire purchase or lease agreement.
Charging order or order for sale
This is where a charge is granted by a court over a debtor’s beneficial interest in land or other assets. Once a charging order is registered, the debtor cannot sell that property without first paying its debts from the sale proceeds. This can be used in addition to other methods of enforcement and can be very effective. It has the benefit of placing your debt above other unsecured debts.
It is necessary to apply to the court to obtain an interim charging order first, then a final charging order. If payment is still not forthcoming, then your solicitor can apply to court for an order for sale.
If the debtor is cash poor but asset rich this can be a very good way of enforcing your debt, especially if it is a significant sum.
The downside is that this process can be quite slow, as it is not possible to obtain an order for sale before going through the first two processes. You may also find that your charging order ranks behind others who take priority, so it is important that the asset being charged is of sufficient value to cover all possible charges before taking this action.
Third party debt order
A third party debt order can allow you to take funds owed to your debtor from a third party to pay your debt, without this money going to the debtor first. This can be a good tactic if you are owed money from a company with a transparent supply chain, where the debtor is owed money by a company up the chain. That money can be paid directly to you instead. It is also possible to intercept money that a bank was due to pay your debtor.
It is necessary for your solicitor to apply to court for an application for an interim third-party debt order before an application for a final third party debt order will be given.
The benefit of these orders is that they can be quick, and it means a third party is obliged to make payment to you directly rather than to your debtor. However, the downside is that it is necessary to make two applications to the court before this can be effective. There also needs to be sufficient cash available to make this worthwhile.
Liquidation, administration, or receivership
If standard enforcement methods do not work then it may be necessary to move the debtor company into a formal insolvency process, such as liquidation, administration, or receivership.
- Liquidation is a final solution for a company. You can issue a winding up petition against the debtor company in court and, if granted, the company must cease to trade immediately and an Official Receiver will be appointed over the company. They will gather in all of the company’s assets, and pay the company’s creditors from those assets in a specific priority order set out in insolvency legislation.
While this is sometimes the only way to obtain payment from a non-cooperating debtor, unless you have a secured interest such as a fixed or floating charge, or a personal guarantee, you will rank equally with all unsecured creditors and are therefore unlikely to be paid in full.
- Administration is an alternative method that can be used by a creditor of a company. It differs from liquidation in that it is intended to be a rescue process, or at least a process that will bring a better return for creditors than liquidation, because often a company will continue to trade in administration, even if just for a short while. Therefore, a business or asset sale may obtain a higher return than a liquidation sale of assets. Whether this is the best option for you will depend on the type of business of the debtor.
The administrator will run the company and will pay creditors as they are able to in due course, under the same legislative priority order as liquidation.
With both procedures it can take some time to recover your money, and even if you do, depending on the financial position of the company, and your own secured status, you are unlikely to recover it all. It is, however, a good way of focusing a company to pay their debt and ensuring they take your payment request seriously.
- Receivership may be an option if you are a secured creditor with a charge over a company – either fixed or floating – it is possible to appoint a ‘receiver’ who will be appointed over the secured assets under the charge only, and will sell these or obtain rent on these in order to repay your debt, depending on the asset that is secured by the charge.
This method will often be used once a charging order has been granted over a company and/or its assets, and can be very effective in obtaining a return on money owed.
How we can help
If you have an uncooperative and difficult debtor, sometimes obtaining a judgment debt is just the beginning of your journey to recover your debt. We will review the financial position of the debtor with you to decide upon the best and fastest way of enforcing that judgment debt for you.