03 Jun Enforcement options: Which one is best?
Have you obtained Judgment against another party but are struggling to recover the sums owed to you? Saqib Khan, Associate solicitor at HRJ Foreman Laws discusses the process of enforcing a Judgment, the different types of enforcement methods together with the pros and cons applicable to each option allowing you to make an informed decision.
The enforcement process
Obtaining an award for damages against another party may merely represent the initial phase in securing what you are rightfully owed. If the party mandated to pay damages (the “Judgment Debtor”) does not fulfill the payment by the deadline set by the court, the party who has been awarded the damages (the “Judgment creditor”) must file an application with the court to enforce the Judgment. It is important to note that a court will not automatically enforce any judgment or order; the responsibility lies with the Judgment Creditor to initiate enforcement actions.
It is essential to gather as much information as possible regarding the Judgment Debtor (i.e., the individual who owes you money). This includes any known addresses, contact telephone numbers, email addresses, date of birth, and connections to businesses and/or employment.
Before considering any method of enforcement, it is beneficial for the Judgment Creditor to establish an understanding of the financial circumstances of the Judgment Debtor. This will enable the Judgment Creditor to acquire a clearer insight into the assets, if any, that the Judgment Debtor holds, in order to possibly secure collateral from.
Enforcement methods
The five main enforcement methods are:
Charging orders & orders for sale
A charging order serves as a mechanism to secure a judgment debt by placing a charge on a Judgment Debtor’s beneficial interest in land, securities, or specific other assets. This measure prevents the Judgment Debtor from selling the land without settling the debt owed to the Judgment Creditor, as long as there is sufficient equity remaining after the payment of prior creditors. The charging order or order for sale enforcement method can be utilised alongside other enforcement methods, either at the same time or in succession.
The procedure for acquiring a charging order can be protracted, and a charging order alone does not generate funds to fulfill a judgment debt. This enforcement method compromises of essentially, a 3-step process to include the obtainment of an Interim Charging Order, a Final Charging order and lastly an Order for sale.
Once a Final Charging Order has been obtained, the Judgment Creditor will have to progress to an application for an order for sale of the property or simply await its sale in due course by the owners or following an order by other creditors. After a sale, there may not be sufficient funds to satisfy the judgment debt in full, or at all, if there are several prior charges registered against the property/asset in question.
County Court Bailiff or High Court Enforcement Officer
A County Court Bailiff or High Court Enforcement Officer (HCEO) will visit the premises of the Judgment Debtor to collect the owed amount or will take measures to enforce payment by seizing and selling goods or provide you with a report regarding the Judgment Debtor’s assets. Entry into commercial premises can be forcibly gained, however, forced entry into residential premises is not permitted.
The items that are seized are typically required to be sold at auction. The expenses incurred in hiring a Bailiff/HCEO can be partially recovered from the debtor if the debt is fully collected. Conversely, if a bailiff fails to recover the debt, the costs will be your responsibility.
Third Party Debt Orders
Third-Party Debt Orders enable the collection of funds owed to a debtor by third parties. Although they can be utilised for any debts owed by third parties, they are predominantly employed in relation to a debtor’s bank or building society account.
The process of obtaining a Third-Party Debt Order consists of two stages. Initially, an application for an interim order must be submitted. The debtor is not informed of this application to avoid the risk of funds being dissipated. Typically, the Court will grant an interim order if the necessary evidence and documentation are provided. Once this order is established, the associated funds are frozen, preventing the debtor from accessing them.
In the interim order, the Court will establish a date for the hearing. During this hearing, the Court must be persuaded of various factors, such as the immediate obligation of the sums owed to the debtor and the assurance that the order will not adversely affect third parties.
If successful, the Court will grant a Third-Party Debt Order which must be delivered to both the third party and the Judgment debtor. The third party is allotted a designated timeframe to remit the appropriate sums. Should they neglect to comply, enforcement measures may be pursued against them.
Attachment of earnings order
An Attachment of Earnings Order (“AEO”) provides that a portion of a Judgment Debtor’s earnings is withheld by their employer and remitted to the Judgment Creditor until the debt is settled.
This order is applicable solely to individuals who are employed and owe £50 or more to the Judgment Creditor. An AEO cannot be obtained if the Judgment Debtor is unemployed, self-employed, a corporate or partnership debtor, serving in the armed forces, or working as a merchant seaman.
‘Earnings’ encompass any amounts payable to an individual in the form of wages or salary, pension, statutory sick pay, and the earnings of a company director.
Insolvency proceedings: Winding up petition or bankruptcy
The type of enforcement method in the context of insolvency proceedings will depend on whether the Judgment Debtor is a company or an individual. In circumstances where a company has a debt that exceeds £750 and is not contested, the winding-up procedure may be initiated.
The initial step involves determining the basis for which a winding-up order can be issued. It is advisable to serve a statutory demand to the company and allow a period of three weeks for a response prior to commencing winding-up proceedings. This is due to the fact that a company that cannot settle a statutory demand for an amount greater than £750 is considered unable to meet its financial obligations.
You can learn more about service and validity of statutory demands in our article – Statutory demands – Here’s what you need to know.
In cases where the Judgment Debtor is an individual and the Judgment Debt surpasses the personal bankruptcy threshold of £5,000, you have the option to file for bankruptcy.
The bankruptcy process is appropriate for debts that are not disputed. The courts tend to view bankruptcy applications unfavorably in instances of contested debts, and claimants may incur additional costs as a result.
If the Judgment Debtor fails to make payment and is declared bankrupt, an official receiver will be appointed to manage their assets. These assets will be gathered and sold to settle the debts, including those owed to you as a Judgment Creditor.
Our team of litigation specialists at HRJ Foreman Laws possess significant expertise in the enforcement of Judgment Debts. With our knowledgeable professionals by your side, you can rely on us to advise on the most appropriate and efficient enforcement method applicable to your case.
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