’There are many legal options available for enforcing a judgment debt once you have obtained an order from the court,’ says Barry Wood dispute resolution expert with Richard Reed Solicitors. ‘However, the most effective method of enforcement will depend on the particular circumstances of the debtor, and where their assets lie. Determining this before taking any action can save wasted time and costs in the long run.’
In a previous article we looked at the various options for enforcing a judgment debt. In this one, Barry looks at the information to be acquired, and shares his top tips to ensure that you have the best chance of success.
The importance of research and information
The method your solicitor will use to recover your judgment debt will depend on the debtor’s financial and trading situation. Before taking any recovery action it is necessary to find out if the debtor has the money or assets to meet your debt, or you may be throwing good money after bad.
It is therefore essential that information is gathered to determine what assets might be available for recovery, or what financial position the debtor’s business might be in.
For example, if your debtor’s business involves the sale of tangible assets, it makes sense to seize those assets to sell in order to recoup your debt. If their business is cash rich, then the prospect of insolvency may be a good incentive to ensure quick payment. If your debtor supplies others, as a main part of their business model, then identifying the supply chain and where money may be intercepted might be the best method of enforcement.
Considering the financial position of the debtor
To make a decision about which debt recovery enforcement method to use, you will need to consider whether the debtor has a cash-based business or if it has more by way of fixed assets?
It is also important to find out whether there are other judgments outstanding against them already. Are they at imminent risk of insolvency? And do they already have charges over their assets?
We can find this information in a variety of ways, by checking the financial position at Companies House, as well as the Register of Judgments, Orders and Fines which will show any outstanding claims against the debtor.
We will conduct a Land Registry search to see what property may be owned by the company and determine if there are any existing charges on the property.
We also check if there are any pending insolvency proceedings.
Sometimes it is necessary to instruct an enquiry agent, and we will use only a well-respected agency using legal methods of enquiry to get results.
If necessary, we will just ask the judgment debtor for information. If this is not forthcoming, we can apply to court for an order compelling the debtor to answer questions.
Negotiating with your debtor
Before considering any action, we will consider if negotiation is possible. While enforcement options are available, these all take time and resource to a greater or lesser extent. It may be that the debtor intends to pay, but is having cash flow difficulties. If this is a short-term problem, it may be beneficial to enter negotiations before taking enforcement action.
If instalments are offered and are reasonable, this can often save a lot of time and the extra money required for enforcing.
Needless to say, we will look at each matter carefully on the facts. Some flexibility in negotiations might yield a quick and acceptable return, but unnecessary procrastination and delay may take up more time, during which assets may be depleted.
Practicalities – timings and process
There is a limitation period on judgment debts of six years.
If the debtor is not cooperative, then it is important to move on quickly to maintain momentum, keep the pressure on, and to avoid assets being moved out of reach, or others who shout louder being paid before you.
If there is a risk of asset dissipation
If you have legitimate concern that the debtor might remove assets, we can move quickly on your behalf to prevent this. For example, by:
- applying for a freezing order – this will freeze assets and prevent the debtor from removing or dealing with those assets; or
- applying for an order for the preservation, detention or custody of the assets in question, depending on the asset, which will safeguard assets of value.
How might insolvency of the debtor affect the ability to collect?
Insolvency can sometimes be the only solution to collecting a debt, but it is not always the ideal solution. Insolvency of your debtor means that they do not have enough money to pay everyone that they owe, so you will almost certainly not obtain full repayment, and once the liquidation has ceased your debt is written off.
Insolvency is a more effective option if you have obtained security in advance, such as a charge over a property or a floating charge over company assets. However, there are circumstances in which a creditor may be required to forego the security of its charge in order to enforce by means of insolvency action. It is therefore important to consider the pros and cons of continuing to rely on a charge which may give full security against assets or secure the majority of the debt or in the alternative what the pros and cons are of releasing such charge and embarking on insolvency action.
Before embarking on insolvency proceedings, there are methods we can use to establish if formal insolvency is likely to be effective in obtaining a return for you.
The more creditors the debtor already has, the less likely you are of recovering your full debt in a formal insolvency of your debtor. In particular if there are secured creditors they will take priority over you if you are an unsecured creditor.
We can find out whether there are additional judgments outstanding against the company. We will look at the last accounts available at Companies House, to see the creditor situation. We can check the charges register at Companies House and at the Land Registry, to see if there are charges already over the business and assets that will take priority to your own debt. We also check if there are any pending insolvency proceedings.
If there are assets belonging to the company, then before taking insolvency proceedings, we can boost your status as a creditor by applying for a charge over those assets first. That way, on formal insolvency, you will rank as a secured creditor in priority to the company’s other unsecured creditors.
How we can help
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. We will also ensure that recovery of a judgment debt due to you can be carried out as quickly and as cost-effectively as possible.