You have a judgment debt in your favour – now what?
If you have obtained a judgment from a Court or Tribunal in your favour with respect to a debt owed to you, you are known as a judgment creditor. The person or business who owes the debt is known as the judgment debtor.
Even if a judgment is obtained, a judgment debtor may continue to fail to pay the debt owed to you. If that is the case, there are a number of procedures which you can take to enforce the judgment against the judgment debtor.
We look at the main methods used to enforce a judgment debt and outline the process involved below.
Examination Summons
A judgment debtor may be summonsed to appear before Court to be examined regarding what income, assets or available cash the debtor has to satisfy the judgment debt. This is a useful procedure to ascertain the financial status of the judgment debtor and can help you decide what further action to take, if any.
If the debtor fails to turn up to Court at the allocated time for examination, a Sheriff can be ordered to bring the debtor to Court and, in some cases, a failure to comply with an order of examination may result in arrest.
Garnishee Order
A garnishee order is an enforcement order which takes money out of the judgment debtor’s bank account or part of the judgment debtor’s salary, in order to satisfy the judgment debt. That is, a bank or employer may be directed to pay money to the judgment creditor in satisfaction or part satisfaction of the judgment debt.
Writs of Execution
A writ of execution entitles the Sheriff’s Office to attend the judgment debtor’s address and seize property owned by the judgment debtor to sell at auction in order to satisfy the judgment debt.
Bankruptcy/Winding Up
The most complicated procedure to enforce a judgment debt involves issuing and serving a Bankruptcy Notice (if the debtor is an individual) or serving a Statutory Demand (if the debtor is a company). These procedures can have dire consequences for debtors, including bankruptcy for an individual debtor and winding up and deregistration in the case of companies.
If an individual debtor does not comply with a Bankruptcy Notice within 21 days of receipt, the debtor will have committed an act of bankruptcy. Once an act of bankruptcy has taken place, bankruptcy proceedings can be commenced. If a Court is satisfied the debtor has committed an act of bankruptcy, a trustee will take control of the judgment debtor’s assets with a view to paying all the creditors of the judgment debtor.
For corporations, if a company does not adequately respond to a Statutory Demand, the debtor company will be deemed insolvent and a creditor can issue winding up proceedings.
Conclusion
Before taking steps to enforce a judgment debt, you should consider whether the debtor has any income or assets to pay the debt. Although the costs of enforcing a judgment debt are added to the debt which is owed to you, if the debtor does not have any way of paying, you may waste more money in undertaking enforcement procedures.
If you or someone you know wants more information or needs help or advice, please contact us on 1300 149 140 or email ch@lawbase.com.au.