Options for Enforcing Judgments

Options for enforcing judgment

So you’ve achieved judgment against you debtor and they still have not paid – now what? There are various options available to you to enforce the judgment, but the best option for you will depend on the debtor’s income and assets.

Some of the options are:

• Investigation summonses;
• Warrants of sale over goods and land;
• Charging orders; and
• Bankruptcy for natural persons or winding up orders for companies (these are not strictly debt enforcement proceedings, but often lead to payment being made).

In this topic we will explore what type of debtor each of these options targets, and the process involved. This will enable you to identify which option is the most appropriate for each debtor.

Investigation summonses

You can ask the court to serve an investigation summons on the debtor. To request that the Magistrates Court serve an investigation summons on your debtor, you must file a Request to Registrar (Form 18)

The investigation summons requires the debtor to attend court for examination of their assets and income and capacity to pay. The examination of the debtor must occur in the court which is closest to them – this means that you can no longer choose your court location based on your Terms of Trade. You can post your Request to Registrar form to the relevant court if it is not convenient for you to file it personally. The investigation summons itself is then served on the debtor by the court’s Sheriff.

The examination process usually culminates in the court ordering the debtor to pay the debt in weekly or monthly instalments set at a certain amount per instalment, what can be frustrating is that the instalments can be small and follow up steps are required if the debtor defaults.

Warrants of sale over goods and land

A warrant of sale is an order by the court for the Sheriff to seize and sell assets of the debtor in order to repay your debt. Only assets to the value of your debt will be sold.

The warrant of sale authorises the Sheriff to enter the debtor’s home or business and seize property to the value of the debt. The Sheriff will first try to satisfy your debt out of personal property of the debtor, but if this is not valuable enough the Sheriff can seize and sell real property, as well.

Certain assets will be excluded from those that can be seized and sold by the Sheriff, including:

• Assets used by the debtor to earn their living;
• Hired or leased goods (because these are not actually owned by the debtor); and
• Household goods, clothing or motor vehicles worth less than $2,500.

The process of requesting a warrant of sale is the same for an investigation summons. A Request to Registrar must be completed and filed. This form asks you to provide the current address of the debtor for a warrant of sale over personal property, and the property details if you are requesting a warrant of sale over real property. A warrant being enforced against real property must be registered on the Certificate of Title.

The fees for warrants of sale are broken down into a number of different aspects:

• Filing fee;
• Service fee;
• Fees for seizing and processing the property for sale (these are charged depending on the amount of time the Sheriff spent); and
• “Poundage”, which is an amount taken by the court based on the value of the property sold.

Warrants of sale have limited success against goods, but can be very effective when enforced against real property.

For the options below, we recommend lawyers be retained because of the complexities.

Charging orders

If your customer (or guarantor) owns real estate, this can be a very effective way to recover debts.

A charging order allows you to register a charge over the debtor’s assets (usually real property). If the property is later sold, your charge will take priority and you will receive repayment of your debt (or as much of your debt as the equity in the property can satisfy). You can also subsequently apply for an order for sale of the real property,

In order to get a charging order, you must apply for one using a General Application form accompanied by an Affidavit setting out the reasons why you want the charge, details of the debt, details of the real property owned by the debtor, etc.

It is important to note that a charge will take lower priority than an earlier registered mortgage (in the case of real property) or an earlier registered charge (in the case of a company).

A charging order against land must be registered on the Certificate of Title.

Worker’s liens

In South Australia, the Worker’s Liens Act 1893 (SA) gives building contractors and sub-contractors the right to a lien over the land they are working on for their contract price.

The nature of construction work is that owners of land receive permanent benefits from the work of building or construction contractors or sub-contractors, often with limited upfront payment. Accordingly, the purpose of worker’s liens is to secure the payments due to the worker against the assured valuable property of the owner (the land).

Bankruptcy

A debtor can be made bankrupt by a sequestration order if they owe you more than $10,000.

Some of the consequences of becoming bankrupt for your debtor are that:

• Their assets are sold to repay creditors;
• Any income they earn over the threshold is applied towards their debts;
• They have bankrupt status for three years; and
• They have a permanent record of their bankruptcy on the National Personal Insolvency Index (which affects their credit rating and ability to lend money in the future).

The process of bankrupting an individual is quite complicated, and has a number of steps.

The first step in bankruptcy proceedings is that a Bankruptcy Notice must be served on your debtor. The Bankruptcy Notice is a formal “final notice” that gives your debtor one last opportunity to satisfy the debt. The Notice of Bankruptcy must be issued by the Official Receiver.

The courts that have jurisdiction for bankruptcy proceedings are the Federal Magistrates Court and the Federal Court. A sequestration order is achieved by a creditor (or multiple creditors) presenting a Creditor’s Petition to the court. A Creditor’s Petition must be presented to the court within 6 months of the “act of bankruptcy”, so it is important to keep the process moving forward.

If the Magistrate or Registrar is satisfied with the Creditor’s Petition, he or she will make a sequestration order against your debtor’s estate.

The bankruptcy documents can be difficult to prepare properly, and many creditors choose to engage a lawyers at this stage in the debt recovery process.

The bankruptcy process is also quite expensive. Accordingly, bankruptcy should only be considered for debtors that you believe will pay up to avoid becoming bankrupt.

Winding up orders/Statutory demands

Winding up orders are the equivalent of bankruptcy orders for companies.

The effect of winding up a company is that a liquidator is appointed to collect in all of the company’s assets to repay its debts. This means that, depending on how high your priority is as a creditor, you should be paid what you are owed. However, this is not guaranteed, particularly if the company has many large debts or secured creditors.

The process for achieving winding up orders is similar to that of bankruptcy in that it has several steps that must be followed to achieve a winding up of your debtor company.

The first step is to serve a Statutory Demand on your debtor company which requires payment of the debt owed to you. If the debt is not repaid within 21 days of service of the statutory notice, you may commence action to wind up the company.

Similarly to bankruptcy proceedings, winding up orders are expensive.