Q&A - Enforcing against a company
Posted by Shirley Moore on 21st November 2011
Q: We’ve got a Judgment against a former customer for just over £10,000 which we’ve tried enforcing but the company occupies fully serviced premises. We don’t want the expense of winding up the company. Are there any alternatives?
A: The key to effective recovery is information, which is why keeping close to your customers during the entire course of your business relationship with them is important not just for customer relationship management but also to protect you in the event of it going wrong.
Enforcing against a company can be more difficult than against individuals or partnerships because as well as having limited liability, the business itself often has very limited assets. It is therefore always wise to consider requesting directors’ guarantees. Not only will you then have recourse to the director’s assets as well as those of the company but the directors’ knowledge that you can do so can help focus their minds.
Here, I assume that there are no such guarantees in place and that the company has no significant assets situated off the premises which you might be able to enforce against. It therefore really comes down to what you know about their business. Do you for example have details of their bankers? Do you know who their main customers are and what their income pattern is? If so, an option might be to apply for a Third Party Debt Order, which is an order of the court directed at someone who owes your customer money, compelling them to pay you instead of your customer (now debtor).
Third Party Debt Orders are not often used and when they are, they tend to target bank accounts because of course if a customer has a bank account which is in credit, the bank is a debtor of the customer. The orders have a much wider application though, and can be directed at any third party who owes your debtor money. E.g. if the debtor was a builder undertaking work under a RIBA contract, once an architect’s certificate has been issued the sum due under the certificate becomes a debt due to the builder and can be made the subject of a Third Party Debt Order.
The reason Third Party Debt Orders are not used more frequently is twofold. Firstly, you need to have the information on who owes them money and secondly, timing is key: the order becomes binding on the third party when it is served on them and if the debt is not due to your debtor at that time, it will not be effective.
For obvious reasons the application is made without notice to either the debtor or the third party. If the case appears to be made out the court will initially make an interim order, which is served on both the third party and the debtor and has the effect of freezing the money in the hands of the third party pending the hearing at which the court will decide whether to make the order final.
