UK consumer debt levels are currently sitting at record highs, with business debts following a similar trajectory. While interest rates remain so low, much of that debt is considered to be manageable and is repaid, although the Bank of England has already warned that an interest rate rise would mean debt was considered to be sitting at dangerous levels.
But what options do you have if you are owed a significant sum by a customer who seems to be unwilling – or claims to be unable – to pay? There are a number of enforcement routes which can help you to recover a debt, although it has to be said that debtors are increasingly alert to the ways of avoiding enforcement and repayment.
However, one option which can take debtors by surprise is a Garnishee Order, also known as a Third Party Debt Order – largely because by the time a debtor is aware that an order has been made, their funds have already been frozen!
A Third Party Debt Order is a way of enforcing a County Court Judgment (CCJ) against an individual or a company, and is usually made to stop a debtor from removing funds. It is usually made against a bank (although can be another institution, an employer or an individual) and the person or organisation that is holding the money is referred to as the ‘third party’. The person or company which who owes you the money is known as the ‘judgment debtor’, while you are referred to as the ‘judgment creditor’.
You can make an application for an order at any time after you have obtained a CCJ, although the judge who considers your application will only make an order if the judgment debtor has failed to pay the CCJ when it was due, or has failed to pay one or more instalments due under a CCJ.
The timing of an application may be crucial, as the court order sent to the third party will only ‘freeze’ funds held in an account on the day it is received by the third party. So if, for example, the order is received by a bank a couple of days before a debtor’s salary is paid into the account, or shortly before a company account receives proceeds from a business sale or completion of contract, you are likely to receive very little, as the ‘freeze’ will not be applied to any monies arriving into the account after the order was received.
Another issue to consider when applying for a Third Party Debt Order is ownership of the account you are asking to be frozen. If the account is held in joint names, and the other account holder does not owe you money, the application will inevitably be rejected.
Despite these risks, as long as you know the account details of the debtor, a Third Party Debt Order can be an effective measure to enforce a CCJ. The debtor will not be alerted when the application is made, and they will not be notified until after you have served the third party with the order – by which time their bank account or funds will have already been frozen.
As always, it’s important to seek expert advice before beginning the legal process to recover debt. The procedure for using the Third Party Debt Order process is as follows:
- Obtain a County Court Judgment (CCJ).
- Complete court form N349, and send the application to the court with the necessary fee.
- The court will issue an Interim Order with a hearing date.
- Serve the Order on the third party, and then file a certificate of service with the court.
- The third party will disclose the amount frozen (if the third party is a bank, they will also disclose any other bank accounts the debtor may have); you will then need to send this correspondence to the court.
- Attend the hearing listed at court.
- Obtain the Final Order, and either you or the court serve the Final Order on the third party, then wait to receive the funds.
This post was written by Head of Credit Control, Karen Buttrey. For more help or if you have a question contact Karen using the form below.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.