An Introduction to Debt Recovery – Part 5

This is the latest in a series of articles written by Krystene Bousfield, Solicitor and Head of Debt Recovery at Travlaw LLP. During the coming months, Krystene will delve into the sometimes uncomfortable, but 100% necessary, world of debt recovery, providing tips, advice and helpful assistance to enable you and your business recover monies to which you are entitled – be that from suppliers or customers.

This series of articles is very much intended to be interactive, so please get in touch with any feedback or specific queries you may have.

Click here to read previous entries in Krystene’s Debt Recovery series

Part 4 – Use The Force!

As this is a Debt Recovery series, I do not propose to get into detail about the litigation process or the steps we take to obtain a Court Judgment. That being said, obtaining such a judgment is an inevitable and in most cases necessary step before enforcement, so please get in touch if you have any questions or queries or if you require assistance with the court process.

Enforcement action of course takes place when a judgment is obtained but the money is not forthcoming. (There is one enforcement process where a judgment is not initially required – but we’ll save that topic for another day).

In the next few articles, I will start looking at the different enforcement options that are available, and in what instance they are each most appropriate. This is when ‘Knowing your Debtor’ becomes even more crucial and we shall see why as we explore the options available.

Part 1 – CHARGING ORDERS

What is it?

A charging order secures a debt against a debtor’s property; a bit like a second mortgage.

Useful when:

Charging orders are useful for debts of a relatively large sum and also in instances where you do not require payment of the debt immediately. If you obtain a charge on a property, you will only receive your monies

  1. if / when the property is sold or remortgaged, and
  2. if there are adequate funds to pay you once any creditors with charges before you (for example a mortgage provider) are paid out.

Do I need a CCJ first?

Yes, it is necessary that you must first have a Court Judgment before being able to obtain a Charging Order.

Requirements:

It may be stating the obvious, but in order to place a charge on a property, it is necessary for the debtor to own the property, and be registered as the owner with the Land Registry. So, for example, if you obtain a charging order against Mr Potter, and know that he is living at 4 Privet Drive – that’s great, but further enquiries will show that the property is actually owned by another individual, Mr Dursley – so you cannot place your charge on it.

Some companies own property, but many do not and instead rent the premises that they use as their business or registered address. Again, it is not possible to put charge on these properties, as same must be owned by the debtor named on the Court Order.

Steps to take in advance:

A Land Registry search is absolutely vital before making a Charging Order application. Not only will it show whether the debtor is a registered owner of the property, it will also state if there are any other charges on the property (mortgage, remortgage, other creditors) thereby helping you decipher the likelihood of getting paid out should the property be sold.

If it is confirmed that your debtor owns the property, we would recommend that an additional search is carried out as to the current value of the property in today’s market. You may well be more inclined to place a charge on a property valued at £450,000, than you would be on one valued at £125,000

 The process involved:

The Charging Order process should, hypothetically, take no longer than 2-3 months (depending on the speed at which the court system is working.

One short court hearing will be necessary, however this is very much a formality and there is no need for you or any witnesses to attend. We can do this on your behalf.

ORDER FOR SALE

Whilst Orders for Sale are a separate enforcement method on their own, it makes sense for them to be mentioned alongside Charging Orders. This is because, once a Charging Order has been obtained against a property, a creditor can take a further step of asking the court to put the property on sale immediately.

This method is not something we see a lot of, as it is very difficult to convince a court that such as order is appropriate – especially if we are dealing with a property in which people are living or working, and so I will not be discussing this option of enforcement in detail here.

If, however, you require further advice on Orders for Sale or wish to discuss the process further – please get in touch.

Next time, we will look at Third Party Debt Orders and orders for Attachment of Earnings, both of which are popular in recovering smaller debt sums from either companies or individual debtors.

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