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Enforcing debts and the impact of Covid-19

Obtaining a judgment (also known as a County Court Judgment or CCJ) for a debt is normally only half the battle; you then need to take steps to enforce the judgment so that you actually get your money back.

UK household and public debts are set to hit record levels in 2020 due to the pandemic with job losses and business closures fuelling recessions at home and beyond.

The UK government has brought in measures to avoid people being hit hard with the consequences of debt, but that has to be balanced against the need now more than ever for people and businesses to be able to recoup monies owed for much needed cash flow.

We have a look at some of the enforcement measures and how the pandemic has impacted on its application.

Charge Order and Order for Sale

A charging order secures the debt against the debtor’s property, such as a house that they own. There is no minimum amount that needs to be owed to apply for a charging order.

Any application for charging order has two stages, an interim order and a final order. An interim order is granted by the court to stop the debtor from selling their property prior to a final order and is usually made by a court on reading of the documents (without the need for a hearing). The court decides at this stage if a full hearing ought to take place. When this application is made, you must provide evidence that the debtor owns the property in question, confirm they are in arrears with payment and give details about other creditors if known. At this point, you would also register the interim charge on the title of the property with the Land Registry – the effect of this is that the debtor cannot then sell the property without your knowledge.

At the hearing a court will decide if a charging order is to be made final. You would normally also be entitled to some of the costs incurred in obtaining the charging order (such as court fees).

You will then need to decide whether to just wait until sale at some future point, wherein the debtor will then need to pay your charge plus interest (currently 8% per annum) before legal title can pass to any third party buyer, or whether you should force a sale by applying for an Order for Sale.

However, you should know that you will not be able to obtain an order for sale if the debt is less than £1,000.

In granting an order the court will need to decide the reasonableness of a sale. In circumstances where minimal sums are owed the court will be reluctant to order a sale. Situations in which a charging order might not be advisable include if the debtor has very little equity in their property or if the debtor resides at the property, especially with young children.

If a creditor (like your lender) also needs to obtain possession of the property, since 26th March 2020, this is no longer permission until 20th September 2020 (extended from 25th June, then extended to 23 August and now extended for the third time to 20 September). These emergency measures were introduced to avoid people losing their homes unnecessarily during this unprecedented time of hardship.

Attachment of Earnings Order

An attachment of earnings order means money is taken directly from the debtor’s salary and paid to you. You cannot apply for an attachment of earnings order if the debtor is self-employed, unemployed, a firm or company, or in the armed services.

In making the order the court will calculate how much money it thinks the debtor requires to live on which is called the ‘protected earnings rate’. The amount that the debtor can be ordered to repay will be above this amount. You cannot get an attachment of earnings order if the amount owed is less than £50 or the take-home pay of the debtor is below the protected earnings rate.

Once you have applied for an attachment of earnings order, the debtor will be required to complete and send to the court a form which gives details of their financial circumstances. A court officer then uses this form to make an attachment of earnings order; if insufficient evidence is given by the debtor on the form the court may list a hearing which the debtor must attend.

This remedy would obviously only be appropriate in a case where the debtor is employed and earns over the protected earnings rate. You will need to bear in mind that during the pandemic many employees may now be furloughed and on reduced income, which will continue to diminish when the furlough scheme is due to end in October 2020. This will then open the door for mass redundancies.

Some people have benefit debt repayment from their wages and in April 2020, the DWP wrote to employers confirming that these Direct Earnings Attachment deductions should not be made from the employee’s pay until July 2020.

Statutory Demand

A statutory demand is type of a legal ‘warning’ that can be sent to a debtor, be that an individual or a company. It will state that if the debt (which is less than 6 years old) is not paid or an acceptable arrangement reached, you may commence court proceedings for the debtor to face bankruptcy or winding up if they do not respond to the demand within 21 days.

You do not have to have obtained a judgment before taking this step, although the debt must not be disputed and usually the best way to ensure this is by first obtaining a judgment.

It is important to note that the minimum sum owed for an individual must be at least £5,000 and for a company the debt must be at least £750. In the event these thresholds are not reached the demand will be invalid.

A statutory demand can be helpful in that it is a serious step which may encourage the debtor to pay what they owe or to at least enter into meaningful discussions about a plan to pay by instalments, or face the very serious consequence that they could then be made bankrupt or the company wound up.

The Corporate Insolvency and Governances Act 2020 came into effect in June 2020 as a temporary measure to remove the threat of winding-up proceedings against businesses (but not banks, financial services companies or insurance companies) had unpaid debt (like rent) due to the pandemic. The blanket ban means that any statutory demand served between 1 March 2020 and 30 September 2020 cannot form the basis of a winding up petition (presented after 27th April 2020).

You will only be able to proceed with a winding up petition (during this period) if you can show that either:

  • COVID-19 has not had a financial effect on the company, or
  • The company would have been unable to pay its debts regardless of COVID-19

A company can also invalidate any winding up orders made before 25 June 2020 if the criteria is met. There have been a number of cases already where companies have sought injunctions to prevent the presentation of a winding up petition.

Bailiffs and High Court Enforcement

In the event that the above remedies do not succeed, you may consider instructing a bailiff.

County Court bailiffs enforce orders from the County Court where up to £5,000 is owed. They can enforce the judgment to obtain payment for the creditor. They can act under the authority from the warrant which authorises them to recover what is owed under the order but also associated costs. They are employed by the courts directly.

High Court enforcement officers have specific authorisation to enforce high value judgments known as High Court Writs. If a judgment obtained in a County Court is over £600 the creditor can enforce this by transferring the matter to the High Court for enforcement.

High Court enforcement offices have greater powers than County Court bailiffs and tend to work within a private company.

Again, you need to be sure that the debtor will have sufficient items of value that can be confiscated and sold in satisfaction of both the debt and any associated bailiffs fees. There are also restrictions on what items can be taken. They cannot take:

  • things you need, such as your clothes, cooker or fridge
  • work tools and equipment which together are worth less than £1,350
  • someone else’s belongings

The above can seem quite daunting and there are many companies (not necessarily lawyers) who will offer you guarantees to get your money back, but you should be cautious of engaging services of anyone who is not regulated as it could easily be more good money after bad money.

Whilst the country was in lockdown, enforcement agents were obviously not able to make personal attendances at people’s homes or places of business.

With the easing of lockdown, the government published in August 2020 guidance on how enforcements agents are to work safely during the pandemic, such as social distancing, risk assessment and appropriate mitigations measures. Consideration should also be given to the vulnerability of the debtor.

Transparency of Costs

All of the above enforcement steps can be taken without reference to a lawyer, but if the value of the debt is significant, you need to weigh up the costs and benefit of having it done properly. Time and expense could be wasted if you have not followed the correct procedure rules and then have to start the whole process again. You are able to recover limited legal costs if incurred during enforcement proceedings.

Since December 2018, the SRA have imposed transparency rules for solicitors who offer work in certain areas including debt recover (up to £100,000). As such if you do need to enlist legal advice and assistance, this should not be as daunting.

An example of our prices for some types of debt recovery work is found here.

COVID-19 and Beyond

We are all in the pandemic together, and leniency will have to be exercised and interests weighed up between debtors and creditors.

Whilst some of the measures identified above is welcome respite for people and businesses on the brink, the issue is that they are only temporary measures to delay, in some cases, the inevitable. The debts owed are not diminished but enforcement merely suspended.

More will be required by the government to ensure wider economy stability and recovery to avoid mass unemployment, homelessness and business closures.