Part Two of EMC's guide to debt recovery

Credit limits should be set mindful of the costs of the differing ways of instigating legal action. In the February issue I described the formal debt recovery choices available. This month I consider how to proceed once judgment has been made.

Winding-up or bankruptcy orders, following the successful application of insolvency proceedings (see option 2, February EMC) need no further action.

Court judgments (option 1) may yet be set aside by application of the debtor, however, but assuming this does not occur, the next step is enforcement.

Enforcement can be made in these ways.

Warrant of execution

A warrant instructs County Court bailiffs to enforce the debt by placing a levy on any goods they find at the debtor’s premises. The goods must belong to the debtor.

Levying effectively impounds the goods without removing them. If the debtor does not discharge the debt, the bailiffs will return and sell them in a public auction.

Unfortunately, the process can be slow and ineffective. However, any County Court judgment over £600 can be enforced under a writ of fi fa. Here a County Court certificate must be lodged with the High Court, which then instructs enforcement officers to implement the judgment.

Writ of fi fa

In English law, feri facias (Latin: ‘that you cause to be made’) is a writ of execution issued to the enforcement officer with the command that he is to make good the amount of the goods of the party against whom judgment has been obtained.

Again ‘levy’ occurs with the subsequent sale of the goods, should the debt not be cleared. Enforcement officers tend to be more successful as they are paid on result.

However, sizeable debts will need to be covered by a significant quantity or value of property. It all goes to show that you really need to know your customers.

Third party debt order

The courts may be persuaded to make an order directing that the debtor’s clients or bank, if the debtor’s account is in credit, make direct payment. Timing the application of such a service is critical and other conditions may apply.

Charging order

Charging orders are usefully employed where the debtor owns the asset that was the subject of the original debt. Similar to a mortgage, the asset in question is charged with the judgment debt until such time as the asset’s value is realised.

The sale price, once a charge has been successfully applied, must be set to clear the debt unless the asset is repossessed by an earlier owner. In which case, the original debtor or chargee will have no obligation to the subsequent debtor.

Where charges are put on houses in a declining market and the building society repossesses and sells the property, little or no recovery is a real possibility.

Charges are registered with the Land Registry, and no sale or purchase can occur without all interested parties having been notified.

Application for questioning of defendant

The debtor, under threat of an action for contempt of court, is asked to report on the financial status of his company. This information can then be used to determine which is the most appropriate method of enforcing judgment.

Trace or means reports

Where the debtor has disappeared, it is possible for agents, on a ‘no information, no fee’ basis, to investigate the whereabouts and financial status of a debtor. This information can then be used to determine whether and how the debts may be recovered.

To avoid the expense and time involved in having to formally instigate debt recovery, it is important that new customers have all their credit details verified and, over time, updated. In the event of legal action, you need to be assured that there is something of stature to recover from.

Your options

So which method is most suitable? Be guided, where you can, by the advice provided by debt recovery professionals.

To assure success, it is important to communicate any known details of the debtor’s assets and financial position. The advice in these difficult times is, when either marketing your services or chasing payment, ‘know your customer’.

This article was originally published in EMC March 09 as Enforced entry