Debt Recovery Review
21 January 2010 by Nicola Sweeney
There is no specific legal definition of a debt. It has been described as “a sum which can be arrived at by simple arithmetic”. Perhaps the key word in that phrase is “simple”.
Debts may become due in three ways:-
Contract:
Contract Debts may arise on foot of bank loans, overdrafts, goods sold on credit, higher purchase agreements etc; basically Contracts with a term either expressed or implied that a specific sum or sums of money are to be paid.
Statute:
Statute debts on foot of tax or levies
Judgement/Orders:
A Judgement or Order of the Court will impose monetary liability. A Court Order is enforceable as a debt in exactly the same way as a Summary Judgement arising from a contractual debt.
What is Debt Collection?
For a solicitor, debt recovery is the process of collecting money by threatening and issuing proceedings, obtaining Judgement and enforcing that Judgement on behalf of a client.
Pre-Litigation
Once a decision has been made to take legal proceedings for recovery of a debt the first action will be to issue a “demand letter” to the debtor formally demanding payment of the debt due, together with any applicable interest failing which legal proceedings will be instituted.
If the debtor is a limited liability company and the amount of the debt outstanding is in excess of €1,269.74 it is possible to serve a Notice pursuant to Section 214 of the Companies Act 1963 on the debtor company demanding payment within 21 days failing which the company will be deemed to be unable to pay its debts and a petition can then be made to the Court to wind the company up. It must be noted however that if a petition is to be issued pursuant to Section 214 of the Companies Act 1963 the debt must be undisputed or the petition may be struck out by the court.
Litigation
In the Republic of Ireland there are three separate and distinct levels of Courts each with their own monetary jurisdiction and distinct procedures. The District Court has a monetary jurisdiction from zero to €6,350, the Circuit Court has a monetary jurisdiction from €6,350 to €38,000 and the High Court from €38,000 upwards. In the event that the debtor fails to pay the sums due and owing, Summary proceedings may be issued and served on the debtor. These proceedings refer to a “liquidated” claim. These rules were intended to provide a quick and easy solution where the amount or provenance of the debt is unlikely to be disputed i.e. where the claim is undefended and no Appearance is necessary in Court.
If the debtor defends the case or makes a counterclaim, the Courts will deal with the case in the ordinary way.
A. Non Contentious
Where proceedings are issued and served on the debtor and the debtor fails to reply, or does not defend proceedings for any reason, Judgement may be obtained by having same “marked in the office”. This procedure can be availed of when the Court office is satisfied that, for example, service of the proceedings has been properly effected on the debtor, that the debtor has not entered an Appearance or Notice of Intention to Defend the matter. In such a case it is possible to obtain Judgement by a relatively simple procedure involving lodging an Affidavit of Debt and certain other documentations in the Court office. The advantage of obtaining Judgement by this route is speed and cost.
In the event that a debtor enters an Appearance simply for the purposes of delay and fails to enter a Defence it is possible to obtain Judgement in the office in the Circuit Court or apply to the Master in the High Court for liberty to enter final Judgement.
B. Contentious – Judgements and their Enforcement
In the event that a debtor intends to defend proceedings s/he must deliver a Defence within the time prescribed by the rules. Having received the relevant proceedings the debtor can request full particulars of information from the Plaintiff concerning the matter in dispute to which the Plaintiff is obliged to reply. Depending on the particular case the issue of discovery of documentation may or may not be relevant. Discovery is a process whereby the parties to an action disclose to each other on Affidavit all documents relating to the matters at issue in the action. Once pleadings have closed and all necessary documentation has been exchanged, the matter may be set down for Trial and a date for hearing obtained. At the hearing of the case before a Judge, evidence is given orally and all documentation to be relied upon must be original documentation where possible.
Limitation Period
Section 11(6)(a) of the Statute of Limitations Act 1957 provides that no action other than a criminal action can be brought upon a Judgement after the expiration of twelve years from the date on which it became enforceable. The twelve year period will start to run from the date of pronouncement of the Judgement even where the Judgement is not enforceable until entered.
Post Judgement Interest
Section 26 of the Debtors Ireland Act 1840 and the Courts Act 1981 provide for interest to accrue on money Judgements at a rate which is now set at 8% per annum. There is no discretion conferred on a Judge with regard to the Debtors Ireland Act Interest.
Although a Judgement creditor has twelve years in which to execute a Judgement post Judgement, interest can only be recovered for six years (the most recent six years), except in respect of a Judgement Debt due to the Revenue Commissioners.
ENFORCEMENT OF JUDGEMENTS
There is a range of options available to a creditor and each should be explored as a possibility while at all times bearing in mind the associated costs. Much will depend on the ability of a Judgement debtor to pay and whether or not they have assets that can be seized or a reputation that they are anxious to preserve.
Enforcement of Courts Act 1926 and 1940 and the Enforcement of Courts Order Amended Act 2009
This is a procedure available against individuals only. It cannot be used against companies. It is a form of enforcement applicable to all amounts from €0.10 cent to €10,000,000.00. It is an application taken on behalf of a Judgement creditor against the debtor in the District Court where the debtor resides. A Summons for Attendance of Debtor is lodged with the District Court together with a Statutory Declaration which is sworn by the creditor . The debtor is then examined before the Court as to their means. Having examined the Judgement debtor, the Judge may then make an Instalment Order against the debtor. If the Judgement debtor wilfully fails to pay the instalments as they fall due a Summons can be issued for his/her arrest and imprisonment.
Committal Order Procedure Pursuant to the Enforcement of Courts Order Amended Act 2009
Subsection 8 sets out the standard and onus of proof and the criteria that must be applied by the Judge before making an Order for Imprisonment. This new legislation also introduces the option of mediation and a provision for a debtor to seek Legal Aid where they might be at risk of imprisonment.
Notwithstanding all of this the Court clearly has the power to send a debtor to prison if the creditor can prove that the debtor has wilfully refused to pay the Instalment Order to the satisfaction of the District Court and beyond all reasonable doubt.
Judgement Mortgage
In the event that the debtor possesses property within the state it is possible to register a Judgement as a Mortgage against their property by a speedy procedure. This ensures that the Judgement sum is secured as a mortgage against the property for a period of up to twelve years. It is also open to the Judgement creditor to apply to Court to have the Judgement Mortgage declared well charged on the property and proceed to have the property sold through the Courts.
Bankruptcy
The object of bankruptcy is similar to the object of a liquidation of a company, namely to hand over assets, liabilities and affairs of the bankrupt to a trustee or assignee for the purposes of realising the bankrupt’s assets and then distributing the proceeds of sale amongst the creditors. The consequences of a debtor being adjudicated a bankrupt are wide ranging and very serious and as such the threat of bankruptcy can be a very effective method of securing payment.
The Sheriff
The Judgement can be sent to the local Sheriff for execution. The Sheriff will call to the debtor and attempt to seize goods of the debtor to the level of the Judgement.
Registration of Judgements
The Register of Judgements is a manuscript book maintained in the High Court Central Office where judgements from the may be registered. The main consequence of the registry of a Judgement is publicity
Garnishee Proceedings
Garnishee is a process of enforcing a money Judgement by the seizing, by Court Order, debts due to the debtor . This process allows the Court to order a third person to pay directly to the Judgement creditor the debt due from him to the Judgement debtor. There are a number of essential requirements which must be fulfilled before Garnishee Proceedings can be instituted:-
1. The relationship of debtor and creditor must exist.
2. The debt must be enforceable by the debtor.
3. There must be something in existence which the Law recognises as a debt.
Receiver by way of Equitable Execution
The appointment of a receiver by way of equitable execution may be appropriate where the debtor has a business that is profitable. Under this procedure a creditor appoints a receiver to collect rents and profits of the debtors business on behalf of the creditor. The receiver runs the business and collects rents and profits until the debt has been paid.
Mareva Injunction
This is a process where the creditor obtains an Order against the debtor preventing the disposal or dissipation of assets up to the value of the debt pending the Trial of the action or pending payment of the Judgement debt. For example if a debtor is selling his house or business which is his only asset a Court may grant such an injunction.
COSTS
A Plaintiff who is successful in obtaining Judgement by way of Summary proceedings will be awarded scale costs as set out by law. These costs do not compensate the Plaintiff fully for all costs incurred by a Plaintiff in securing a Judgement. In the event that a Plaintiff obtains Judgement at hearing, the decision as to whether to award a successful Plaintiff his costs is at the sole discretion of the Trial Judge. However, it is a general rule that costs follow the event. The level of costs is decided by a Court Officer in the event that the sum cannot be agreed by the parties.
Further Information:
Please contact:
Nicola Sweeney – nsweeney@mckr.ie – Tel: +353 1 670 2990
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