Debt Recovery: An International Perspective
Just as businesses and business dealings have gone global, so have bad debts. The debtor and creditor are no longer necessarily in the same country. This article will focus on questions people may ask with respect to debt recovery in England and Wales.
I have a judgment in the United States against a debtor now living in England or Wales.
Can I enforce the judgment against the debtor in England?
No, there is currently no reciprocal agreement between the United States and England or Wales. Proceedings would need to be issued against the debtor in England or Wales and a new judgment obtained.
I would like to instruct a law firm to collect a debt owed by an individual residing in England. Can this be done on a contingency fee basis?
It depends upon whether it becomes necessary to issue proceedings against the debtor. Under the United Kingdom professional rules governing solicitors/attorneys, solicitors/attorneys are not allowed to undertake litigation on a contingency fee basis. Therefore, in order to proceed through the Courts, the creditor will need to be responsible for all legal costs associated with attempting to collect upon any debt; this includes court costs and solicitors/attorneys fees.
I have a debt owed by an individual residing in England. What is the first step?
Once instructions are received, the attorney handling the matter will attempt to contact the debtor and will send a demand letter€ or letter before action giving the debtor a given number of days in which to pay the debt and failing which, proceedings will be issued against him or her. Should the debtor pay the debt at this stage, there has not been litigation and therefore the attorney will be able to act on a contingency fee under the professional rules.
The debtor has not responded to the letter before action. What is the next step?
The creditor has two options at this stage. The creditor may either apply to the County Court or the High Court for a Money Judgment (depending on the amount involved), or provided the debt owed is £750 or higher, the creditor may apply to the Bankruptcy Court to have the debtor made bankrupt or if the debtor is a company, have the company wound-up.
What does a Bankruptcy/Winding-Up Petition entail?
Should the creditor decide to have the debtor made bankrupt (if an individual) or wound-up (if a company), the debtor must first be personally served with a Statutory Demand. A Statutory Demand sets out the debt owed and gives the debtor eighteen days in which to pay the debt or to apply to the Court to have the Statutory Demand set aside stating that the debt is not due. If the debtor fails to either pay the debt or apply to the Court to have the Statutory Demand set aside within eighteen days, the creditor may then petition the Court to have the debtor made bankrupt if an individual or, if a company, wound-up. Once a Petition has been issued in the Court, a hearing date on the Petition will be set. This Petition must also be personally served upon the debtor.
At the hearing of the Petition, a Judge or Registrar will decide whether to make the individual bankrupt or wind-up the company. Should the debtor be made bankrupt or it is ordered that the company be wound-up, the debtor must then contact the Official Receiver who will assess the debtors assets and liabilities. A meeting of creditors will be set up at which time the creditors will then vote on whether or not to accept the Official Receivers repayment plan (provided there are funds and/or assets to be used for payment).
I would rather obtain a Money Judgment. How is this done?
The creditor may issue proceedings for a Money Judgment in either the County Court, for debts less than £15,000 or in the High Court for debts over £15,000. Proceedings are started by issuing a Claim Form together with Particulars of Claim explaining the basis of the debt. Unlike the Statutory Demand, there are no requirements for personal service of these proceedings. Service may be carried out by using First Class Post and the debtor will be deemed to be served two days following the mailing of the proceedings. Should the debtor either fail to acknowledge service or file a defense within fourteen days of the deemed date of service, the creditor will be entitled to apply to the Court to apply for a judgment in default. Should the claim be defended, a hearing will eventually take place and a Judge will determine whether or not judgment should be entered in favour of the creditor.
Judgment has been entered against the debtor, now what?
Once judgment has been entered against the debtor, the creditor will have to decide how he or she would like to proceed to enforce the judgement. If the creditor has insufficient information regarding the debtors assets, he or she may apply to the Court in which the judgment was made to compel the debtor to attend Court for questioning regarding his or her assets. The information gained at the questioning should allow the creditor to choose the best method available to try and collect upon the judgment.
- If the judgment was issued in the County Court and was for £5,000 or less, the creditor can apply for a Warrant of Execution. If the judgment was for more than £5,000 or the judgment was entered in the High Court, the creditor can apply for a Writ of Fieri Facias. Once either the Warrant or the Writ is issued the Court Officer will execute it. The Warrant/Writ gives the Officer the authority to enter the debtors premises and seize his or her goods up to the value of the judgment plus the costs and expenses of enforcement. The goods are then sold at public auction and the net proceeds are used to pay the judgment debt.
- Another enforcement option is to obtain a Charging Order or a lien. A creditor can apply to the Court to have a Charging Order or Lien placed upon land, securities, or any interest and partnership property owned by the debtor. While this will not in itself produce payment, the creditor will have an interest in the property and will recover money owed once the property is sold. Once a final Charging Order is placed upon the property, depending on the amount of the Charge and other Charges already in place on the property, the creditor may apply to the Court for an Order of Sale.
- If the debtor is employed, the creditor may apply for an attachment of earnings to have the debtors wages garnished. This will enable the creditor to be repaid upon the judgment in monthly installments. There is, however, a minimum subsistence level below which the debtors net income cannot drop and must still comply with the fair debt collection act.
- The creditor may apply for a Third Party Debt Order. A Third Party Debt Order requires that a third party pay the money, up to the amount of the judgment, to the creditor rather than to the debtor. Normally, Third Party Debt Orders are made against banks with respect to a debtors bank account. It is however possible to have a Third Party Debt Order made against anyone who owes money to or holds money on behalf of the Debtor.