Understanding legal enforcement options and which is best for you

August 2014

Understanding legal enforcement options and which is best for you

When legal proceedings are underway and successful judgment has been obtained against the defendant, where do you go next?

Obtaining the judgment orders the defendant to pay the sum of money awarded by the Court, which usually will include the debt award, costs, interest, and, in the case of a commercial debt, a claim for late payment charges (if claimed). The Court serves the defendant with a copy of the judgment award by post with a stipulated time period for payment; unfortunately in the real world this does not always produce a payment of the award.

“Debtors who have some knowledge of the legal system may be aware that a judgment is not an enforcement method, it could merely be viewed as an interim step, therefore debtors may feel they can ignore it. Alternatively, those with no knowledge of the legal system may not understand the severity of non compliance with a judgment and what enforcement action that could lead to. Either way, this results in no action and the need for the creditor to take the next step in the process” Mark Firth, Optima Legal.

It may appear that the system has failed at this point, but there are options available to push a defendant to pay - each of which has its positive and negative aspects - but all of which will result in risking further court fees and solicitors’ charges.

The main considerations when deciding upon the next course of action will be determined by the same factors considered when action was first commenced:

What is the current financial status of the defendant?

  • Is the defendant company still trading?
  • Has the defendant’s credit rating significantly altered?
  • Is the defendant working?
  • What assets do they have?

Any method of enforcement can be used, either standalone or in conjunction with others, until the judgment debt is paid. The key is to understand the legal process and the likely outcomes well enough to ensure the fastest and most cost effective solution is chosen. Here we will look at the main methods of enforcement, their pros and cons, and in what situation are they best used:

1.    Warrant of Execution

For smaller debts, a warrant may be issued via the court for execution by the Bailiff. Where the debt is under £600 and/or is a result of a Consumer Credit Agreement, a Bailiff must be used.

Unfortunately, Bailiffs have limited powers and there is often a delay before they attend. The most fundamental problem generally is that Bailiffs do not have the power to force entry and it can be difficult to find or obtain goods worth the value of the debt. The High Court Enforcement Officer (HCEO) may be more effective and action can be transferred to the HCEO where the above conditions do not apply.

Cost: There is a standard fee of £100 to issue the warrant, which will be added to the total amount outstanding.

Why use a bailiff:  The potential visit by a Bailiff can quickly produce a positive outcome. The trick is to choose the accounts that will be most susceptible to this form of action. 

2.    High Court Writ

Judgments for debts of £5,000 and over can only be enforced by a HCEO, which was formally known as the Sheriffs Officer.

HCEOs are personally authorised by the Lord Chancellor and work privately or in private companies under the authority of a Writ of Control  ‘delete Fieri-Facias (Fi-Fa)’. The Writ is issued by application to the Court on all High Court Judgments and where a County Court Judgment has been transferred up to the High Court for debts of over £600 in value and up to 6 years old.

Cost: The fee for issuing the Writ is £60, which is added to the total amount recoverable.

If they are successful, the HCEO will collect the judgment debt, the court costs, the £60 fee, interest at 8% and their fees, costs and charges from the defendant.

HCEOs recover their fees from the judgment debtor, but only when they collect. If the HCEO is unable to collect, under the TCE Act 2007 which came in to force on the 6th April 2014, there is a compliance fee of £75 plus VAT paid by the creditor for each address visited. Other than the Compliance fee, the HCEO receives no income for an unsuccessful enforcement; as a result, HCEOs tend to have significantly higher collection rates than those of the County Court Bailiffs, who are salaried without any financial incentive to collect.

Once instructed the HCEO will issue a notice of Enforcement to the debtor informing them of their intention to collect. The debtor will be given a period of  7 clear days ‘excluding Sundays and Bank Holidays under the new compliance stage to respond and either pay in full or make an acceptable arrangement.  If no contact or arrangement is made the HCEO’s will visit the premises to take control of the debtor’s goods in order to enforce the writ. HCEO’s are also permitted to force entry into commercial premises to enforce, a power not permitted to County Court Bailiffs.

When to use High Court Enforcement: Now is a good time to consider High Court Enforcement - the powers of the HCEO continues to evolve and their identity in the public eye has been enhanced through TV programmes such as BBC1’s Here Comes The Sheriff. As competition among the firms providing High Court Enforcement services increases so does their requirement to improve their commercial offering.

3.    Attachment Of Earnings

If the debtor is employed you can apply to the Court for an Attachment of Earnings Order which attempts to recover money directly from the debtor’s salary. This is an increasingly popular enforcement method which has increased by 9% on the same quarter in 2012.
The amount that can be deducted from the debtor’s earnings is subject to a Protected Earnings Rate (the amount determined by the court that would be reasonable living expenses for the debtor in their circumstances). The Court may therefore order repayment in small monthly instalments, provided the debtor remains in employment and this may prove to be a realistic solution to receive regular payments over a longer period of time.

When to use: This method is particularly effective with debtors who would be concerned about their employer learning they have financial problems, which in some cases can lead to action by the employer, particularly within industries such as financial services. In addition, once arrangements are put in place, payments are often maintained while the debtor remains in that employment. If the debtor terminated this employment, the employer has an obligation to inform the creditor. The order can then be reassigned to a new employer as required.

Cost: £100 court fee to issue this application which is added to the total debt payable.

4.    Charging Orders

If the debtor owns or has an interest in any property then a Charging Order can be applied for.

Cost: The application fee is £100, which is added to the total debt amount.

If a Charging Order is obtained, the debtor would have to satisfy the debt when the asset is sold provided there is sufficient equity in the property. It is usual for an Interim Order to be made without a Court hearing and a date for a full hearing will be set at this time.

The use of Charging Orders issued peaked in 2008 and have been gradually falling since. They are an attractive enforcement method when the housing market is buoyant and property prices are high which increases the likelihood of sufficient equity in the property to discharge the debt.

The Court will decide whether to make the Charging Order final at a full hearing, which the debtor may attend to defend the application. In the interim, a caution against the debtor’s property would need to be registered to ensure that it is not sold before the hearing. Once a Charging Order is granted an application for an Order for Sale may be made, however this is unlikely to be successful if the debtor has family members living at the property and prior charge holders such as mortgage lenders may oppose an Order. Consequently, whilst a right to payment is secured, it may be many months or years before the property is sold and the debt is paid.

When to use: Attaching a Charging Order may not provide immediate financial reward however; the market value of the debt will increase if charges are secured against debtors’ properties, which can help to increase the resale value of a portfolio.

5.    Third Party Debt Order

This Order seeks to obtain payment of the debt from money held in the debtor’s bank or building society accounts, or from a third party who owes the debtor money.

Cost: £100 court fee which is added to the total debt amount.

The difficulty with this option is that the Order is only effective on the day it is served on the third party, so if the debtor has no money in his account on that day then the Order is ineffective. The creditor must be able to identify any accounts that the debtor has, however it will be highly unlikely for a debtor to volunteer this information, therefore the creditor may need to apply for the defendant to attend court and be questioned about assets and liabilities.

When to use: If you have obtained detailed knowledge of a live bank account then service of the order will cause the bank to freeze the debtors assets in any accounts they hold at that bank, this often prompts a positive response from the defendant.

6.    Bankruptcy/Winding Up Proceedings

If the judgment is against an individual for over £750 then a Bankruptcy Petition can be applied for. This is one of the more expensive ways of enforcing a judgment and it is only likely to be effective if the creditor believes the debtor will respond. This action may threaten the debtor’s employment security so much that it forces payment. If the debtor has assets sufficient to repay the debt and any other creditors, then a Bankruptcy Order should be made.
If the judgment debt is against a company and is over £750 in value then winding up proceedings may be commenced. As with bankruptcy this is expensive and this method should only be used if the creditor believes that the pressure that the company is placed under by such an action is sufficient to make them discharge the debt.

According to the Insolvency Service, company liquidations are down by 2% comparing quarter three in 2013 to quarter three in 2012. Construction, vehicle repairs (wholesale & retail) and administrative and support service sectors were the hardest hit during this period.

Individual bankruptcies are down by 7.3% comparing quarter three 2013 compared with the same quarter in 2012, although IVAs are up 5.9% on the same period.
This may be due to a stabilisation in the economy, or the fact that customers have adapted and realigned their spending strategies over this period to be better able to cope with times of no money. Rationalision within businesses and the tightening and reduction of cost budgets will enable more companies to keep their heads above water as the economy recovers. Likewise creditors are more prepared to accept payment of outstanding debt over an extended period rather than get nothing at all.
Cost: The initial fee for both Petitions is £220, but with additional costs throughout the process can quickly rise to over £1,000.

When to use: Whilst the rules have changed over recent years there are still restrictions associated with a Bankruptcy Order which need to be explained to the debtor. Once the debtor understands the detrimental effects on their immediate and long term future, settlement should follow.

In summary

This is a snapshot of what remedies are available to enforce debt and recover money. The prime consideration has to be the circumstances of the creditor and their financial and commercial objectives.  This will depend upon both the creditor and its legal partner understanding as much as possible about each debtor’s circumstances to make an informed decision about which enforcement tools are most suitable for them.