An Attachment of Earnings Order allows a creditor to recover their debt by having payments subtracted from the debtor’s pay or wages as part of the employer’s payroll process. Payments are sent automatically by the employer to the Centralised Attachment of Earnings Payment System (CAPS) at Northampton County Court, who will forward the payment on to the creditor.

An attachment of earnings order can only be requested if the debtor is employed, is not self-employed and is not a member of the armed forces. The court will work out the minimum the debtor needs to live on (the protected earnings rate) and will only grant an order for wages or salary in excess of this amount.

The process of obtaining an attachment of earnings order can be slow and expensive (the application has to be made in the debtor’s local County Court) and is only effective with the co-operation of the debtor’s employer, as the creditor is not able to follow up or chase non-payment by the employer – this can only be done by CAPS.

We can apply to the court for an order that the debtor attends before a court official to be examined about his/her/their assets and means.

These applications can be useful but are not common. They are time-consuming because you have to wait for an appointment, which may be given weeks or, normally, months ahead. The information given is of limited use and there may be difficulty serving the debtor. In addition the costs you incur are not recoverable from the debtor.

Who Is Questioned?

• In the case of an individual defendant, you will examine them.
• In the case of a company defendant you can examine any director, the company secretary or any other person in the company who should have a good working knowledge of the company’s financial status.

Style Of Examination

• The examination will normally take place before a court official, in which case it will be reasonably relaxed.
• If you feel the cost is worth it, we can instruct a solicitor or barrister to attend the examination and conduct a more rigorous cross examination. In exceptional cases, the examination can be held before a judge. In this case we would have to arrange someone to attend for you and conduct the examination.
• There is a standard form of questionnaire and the debtor will be asked to bring along the more obvious financial documents, such as payslips etc. If you want additional questions asked, or for the debtor to bring additional documents, we can ask for this in the application.
• If the debtor does not attend, the Court will make a further order against him compelling him to attend and he will be arrested if he does not. Again, we would need to instruct a process server to serve this order.

This is the most common first method of enforcement. For a reasonable sum you get someone experienced attending the debtors premises and collecting the money, or taking steps to enforce payment by seizing and selling goods, or giving you a report as to the debtor’s position.

What Can Be Taken?

Such tools, books, vehicles and other items of equipment as are necessary to the debtor for use personally by him in his employment, business or vocation;

Such clothing, bedding, furniture, household equipment and provisions as are necessary for satisfying the basic domestic needs of the execution debtor and his family.

Most moveable items belonging to the debtor can be taken including any money, banknotes, bills of exchange, promissory notes, bonds, specialties or securities for money belonging to the debtor.

What can’t be taken?

Essentially the basic items to enable the debtor to live and work can’t be taken.

How Are The Items Realised?

The items seized must generally be sold by auction. Items can only be sold privately with the court’s permission. This will normally only be given where the goods are of a specialised nature or would be of special value to e.g. the debtor’s colleagues or family.

The cost and delay of making an application for permission to sell privately must be balanced against any possible gain.

How to help the HCEO/Bailiff

You can help the HCEO/Bailiff by providing all the information you have about the debtor’s whereabouts, contact details and movables.

This would include obviously any addresses and also telephone numbers, mobile numbers, details of vehicles etc.

For example, if you know that the debtor keeps valuable equipment or vehicles at different locations, let us know what they are and where they are.

Who Enforces?

The county court bailiff enforces judgments for less than £600.

The High Court Enforcement Officer enforces judgments for more than £5000.

Judgments between £600 – and £5000 can be enforced by either the High Court Enforcement Officer or the bailiff.

Generally speaking the HCEO is more effective than the bailiff.

Forcing Entry

Entry can be forced into commercial premises e.g. by employing a locksmith to pick the lock but entry cannot be forced into residential premises.

What If Someone Claims Them?

Someone other than the debtor may claim that the goods belong to them.

If you feel the claim is doubtful (e.g. because it is from a relative or friend of the debtor), and if the goods are sufficiently valuable it is often worth contesting it and going as far as the first hearing for directions. Quite often a claimant either will fail to attend this hearing, or will fail to put in evidence of ownership, in which case the claim will be struck out. In this case the costs of the HCEO will be payable by you in the first instance, but you would be entitled to recover them and your own costs from the claimant.

Obviously, if you decide to accept the claim once you have seen the evidence, you will have to pay the HCEO’s costs and may have to pay the claimant’s costs as well. Although it is sometimes possible to negotiate a settlement by which you withdraw your opposition to the claim without paying the claimant’s costs, this is not always possible.

If you do not accept the claim, the HCEO will make an application for the court to decide who owns the goods. There will be an initial appointment at which the court will give directions for the claimant to file an affidavit setting out the evidence supporting the claim and for you to file an affidavit in reply to this. After that the court will give directions for a hearing date at which the court will decide the dispute. The hearing will be in the HCEO’s local court. If the claimant does prove ownership, you will be responsible for the claimant’s costs and the HCEO’s costs as well as your own. The cost of going this far will depend on what evidence is put in and we can give you an estimate once we have seen the evidence.

Don’t Do A Deal Direct

It is important that you do not make any deals direct with the debtor once the HCEO has been instructed. If you do, and you forget the HCEO’s charges, you will find that you have to pay them! That can be an expensive mistake!

What Does It All Cost?

Various costs are involved at different stages.

The costs of instructing HCEO/bailiff – these are partly recoverable from the debtor if the HCEO/bailiff collects in full. If he does not they are payable by you.

Abortive costs – if the bailiff is unsuccessful he makes no further charge. If the HCEO is unsuccessful he will make a charge for the abortive attempt to execute.

Costs of seizing and selling – various costs may be involved here. There may be costs of breaking into premises, removal and storage costs and costs of sale. Apart from the expense actually incurred (e.g. for removing goods), the HCEO is entitled to commission of between 2.5% and 12.5% depending on the stage reached.

Where a debtor owns property e.g. a house, it is possible to get your Judgment secured by a charging order on the property. This gives you similar rights to those of a mortgagee. Once you have got the order you can then apply, by a separate action, for the sale of the property. An order for sale is rare.

The Procedure

Obtaining a charging order is a two-stage procedure. We make an application on paper and without notice to the debtor. The court grants an Interim Charging Order and sets a date to consider the case again. The charge is registered and HM Land Registry and the debtor is told about the appointment. At the hearing the court grants a Final Charging Order. This again should be registered.

What Property Can You Charge?

You can get a charge on the debtor’s interest in: –

• Land
• Government stock
• Stock of any body (other than a building society) incorporated within England and Wales
• Stock registered in a register kept within England and Wales even though the body is incorporated outside England and Wales
• Unit trusts
• Funds in court
• Any interest under a trust

Is It Worth It?

It is usually only worth getting a charge on a property if there is equity in it – i.e. it is worth more than has already been borrowed.

Most land is registered at HM Land Registry. It is possible to get a copy of the title and see what charges are registered. The title does not show how much has been borrowed or what the property is worth although more recently the price paid is shown.

You can take advice on the value of the property. You can make an application for an information order to find out the amounts borrowed.

Charges may give the right to make further advances or may cover variable amounts e.g. an overdraft in which case even if there is equity now, there may not be later.

Share In A House

It is also possible to get such an order where the debtor only has a share in the property e.g. where he owns a house jointly with his wife. The charge will then be on his share of the property and not on the property itself and is much less secure. A restriction will be entered on the debtor’s title to say that notice must be given to the creditor but if that is done a sale or charge of the property can be registered. It’s up to the people selling, often a husband and wife, to pay you!

Enforce By Sale

Once you have a charging order you can enforce it by an application to sell the property. If an application to sell the property is subsequently made the costs will depend very much on whether the application is opposed, for example by a wife with children in the home. In one case sale was postponed for 10 years until the debtor’s children became of age.

Some creditors automatically apply for a charging order, rather than instruct the HCEO etc., and find that the debts are paid off reasonably quickly because the debtor does not like having the charge on the property.

Instalment Orders

A debtor who cannot pay the amount due under the judgment may apply for an instalment order. A charging order can be granted even if the defendant is paying under an instalment order but the court won’t allow a sale unless the defendant defaults on the instalments.

Where your debtor is owed money by a third party, the court has the power to make an order directing that the money be paid direct to you, rather than to your debtor. For example, the debtor may have a deposit account with a bank or building society. You only need to have evidence that the debtor has an account with the bank etc, you don’t need to know the account number or even the branch, although it is helpful to have that information.

The order only affects accounts in the sole name of the defendant and not accounts held jointly with someone else. Of course, it is only useful if there is a credit balance in the account.

Debtors don’t often have accounts in credit! The procedure can be used against debts due e.g. from a customer of the debtor, but getting that information can be difficult. Such applications are made, but not very often.

What this order does not do is freeze the debtor’s accounts in the way that is possible in Scotland.

This is the most expensive enforcement option but sometimes the most effective. The first step, in the case of an individual, is to serve a statutory demand on the debtor personally. If he does not pay, or dispute the debt, within 21 days a bankruptcy petition can be presented. The real expense starts at this stage.

In the case of a company you can proceed straight to the winding up petition based on the unsatisfied Judgment. You can also present a Winding up Petition based on an undisputed debt without obtaining judgment or serving a statutory demand. This is very quick and can be very effective indeed.  

Winding up Petitions presented against a company are advertised in the London Gazette. After advertising the Petition, other creditors may become involved. These may include HMRC or other creditors. If other creditors do become involved, and the debtor wants to settle this petition, it may have to satisfy them as well, otherwise they may wish to take over the Petition. 

The important point to realise is that if the debtor makes payment after the date of issue of the Petition and the creditor informs the court that it does not wish to continue with the Petition, another creditor may take over the Petition. If a winding up order were subsequently made on behalf of a supporting creditor, you the creditor would have to repay to the liquidator the money recovered. This is because the Winding up Order dates back to the date of presentation of the Petition. This does not apply to payments made by a third party e.g. a director. 

The court fee and receiver’s deposit for a bankruptcy petition are £970.00. The court fee and receiver’s deposit for a winding up petition are £1477.00. In view of the size of these disbursements, we may ask for these to be paid before we present the petition. 

However, if the debtor lives in London, much of the work has to be done by personal attendance at the court rather than by post. If the debtor is unco-operative and evades service at all points, this can cause the costs to rise beyond this. Such proceedings are the most costly option but can have great advantages with certain types of debtor.

Preparation And Alternative Strategies

We always encourage our clients to use the full range of the legal recovery options available to them if they need to. The effectiveness of a letter before action that has been sent, or any deadlines you have given a debtor will be seriously compromised if you are not willing to take things further.

With all of that in mind, Lovetts are always happy to discuss the options available with their clients before they arrive at the claim stage. If a debt can be dealt with in a matter more appropriate to the circumstances at an earlier stage then we are happy to put it forward as a strategy. So what are the areas you should consider prior to claim and what preparation should you make?

1. Do I Have The Evidence?

Always be aware that a case may be defended. If a case is defended you will need the evidence to support it. Do you have the people and the documents to support yourclaim?

2. Do I Need To Take Advice?

Consider getting advice before starting proceedings if there is a serious dispute, or, you have doubts about your case. Remember you may have to pay the other party’s costs if you later want to stop the case.

3. Consider ADR (usually mediation)

If there is a real dispute, the court requires the parties to consider whether the dispute should be settled. If negotiations fail you should consider ADR (Alternative Dispute Resolution) before going to court.

The options here are:

• Mediation (a form of negotiation with the help of an independent person or body);
• Early neutral evaluation (where an independent person or body, for example a lawyer or an expert in the subject, gives an opinion on the merits of a dispute); or
• Arbitration (where an independent person or body makes a binding decision), many types of business are members of arbitration schemes for resolving disputes with consumers.

In many cases, you may not know there is going to be a real dispute until proceedings are issued.

However, generally, if there is a dispute, then unless summary judgment is possible, you should consider suggesting mediation before proceedings are issued.

It’s worth bearing in mind the following observations:

“Megarry J once described the law reports as charts of the wrecks of unsinkable cases. Because of its uncertainty and expense, prudent parties usually try to avoid litigation where possible. It has to be borne in mind that the “settlement value” of a claim is not an objective fact (or something which can be assessed by reference to an available market) but a matter of subjective opinion, taking account of all relevant variables. Often parties may have widely different perceptions of what would be a fair settlement figure without either being unreasonable. The object of mediation or negotiation is then to close the gap to a point which each finds acceptable” (Supershield Ltd v Siemens Building Technologies FE Ltd [2010] EWCA Civ 7 per Toulson LJ at para 28)

Mediation is the normal form of ADR. Mediation is designed to a solution which is mutually commercially acceptable at the time rather than work out the strict legal rights and wrongs of a situation.

“In so many cases? the best time to mediate is before the litigation begins. It is not a sign of weakness to suggest it. It is the hallmark of commonsense. Mediation is a perfectly proper adjunct to litigation. The skills are now well developed. The results are astonishingly good. Try it more often.” (Ward LJ in Egan v Motor Services (Bath) Ltd [2007] EWCA Civ 1002)

4. Consider A “Part 36 Offer”

This also applies where there is known to be a real dispute. If the debt is more that £5000, you should consider making an offer that complies with Part 36 of the Civil Procedure Rules. The offer says how much you will accept, including interest but excluding costs. If the offer is not accepted and:-

• the case goes all the way to trial, and
• you get a judgment which is the same as, or better than your offer,

you would normally recover around 80-90% of your costs from then on. If you don’t make a part 36 offer, the rule of thumb for costs is that you normally do well to recover two thirds of your actual costs.

You could also be awarded interest at up to 10% over base on both the money you recover and your costs.

A well pitched offer can therefore put some pressure on the late paying client to think very carefully before refusing it and forcing you to go to trial.

5. Is All In Order?

• If you are supposed to have a contract signed by the debtor, do you have it? Is it signed by the debtor?
• Have any disputes or queries been resolved or brought to a point where it is clear they can’t be resolved without going to court?
• Have any negotiations been dealt with?
• Has the late paying client promised payment or admitted the debt in anyway? If so, let us have a copy.

6. Terms Of Business

Some people are under the impression that a contract has to be in writing. It doesn’t.

Every order involves the parties making a contract. For example, a contract is created when someone places an order over the telephone. Where your company has printed terms and conditions they don’t just apply automatically to every order. They have to be part of the contract. They will be part of the contract if:

• The debtor has signed a written contract containing your terms (signing a fax sheet referring to terms on the back which aren’t transmitted isn’t enough)
• The late paying client signed up to your terms when completing your account application form either because the terms were on the back or are referred to in the application form. If your terms change after the debtor has signed the application form don’t forget the new terms have become part of the contract with the debtor in one of the other ways mentioned here!
• The terms were sent to the client before the order was placed so the client knows your terms of business – but see “Battle of the forms” below.

It is not enough for the terms to be on the invoice, your debtor has to have been told of them before the order was placed. However, the fact that your terms were on invoices for previous orders may possibly be enough to incorporate them into later orders.

If you are satisfied that you have duly considered all alternatives and have done the necessary preparation, than you can rest assured that you have done your best to ensure any claim issued is a success.

Note

This briefing paper is intended only as an indication of points you could consider and take advice on. You should always take professional advice on any particular situation or the drafting of your terms of business. This note is not legal advice so please don’t treat it as such.

Sending a letter before action (LBA) is only as effective as the creditor’s willingness to enforce it. The risk is that once debtors know you have no intention to carry out your threat of action, your front line weapon rapidly becomes increasingly ineffective.

You may be reluctant to make a claim due to worries about offending your larger clients because you are fearful of not getting further orders.  You shouldn’t be.

If you have tried every other avenue of approach with no success, it is worth remembering that a customer who is no longer paying your invoices is no longer a customer? They are a debtor.

So, What Are The Secrets To Cost Effective Claims?

• Know your client base! You should know your clients better than anyone; after all, you gave them the “loan” when you extended credit.  Keep your records up to date on a regular basis. Always keep in mind that situations change quickly and a company which was previously doing well can easily have cash flow problems if a large creditor gets into difficulties.  
• Know who the debtor actually is! This may sound a little odd but it’s not unusual for the actual debtor identity to be less than clear. Have you got the right name? Does the documentation support your assumption of who you are dealing with? Check who the debtor is very carefully, as getting it wrong can cause problems further down the line. 
• Ensure you have included all the names associated with the business. This is not an issue with a limited company but it can cause problems with a non-incorporated business. If you are issuing a claim against a non-incorporated business ensure you add the names of the owners. This ensures the business itself goes out of business you can pursue the owners themselves. 
• Make sure the debtor is still trading. Carry out a credit search – if the company already has unsatisfied county court judgments, there is a strong possibility it will not be unduly bothered by another.  If so, it may be worth considering insolvency proceedings as an alternative to the county court route, as long as the debt is not going to be defended. 
• Check that you have addressed all known queries or disputes before issuing a claim. The debtor may have spoken to a member of staff in another department or at a regional office about an issue with the service/product. Have you checked with the debtors usual contacts at your business? Sometimes, the customer goes back to the individual who sold them the product if they are unhappy, Check with the sales force in case they have had any feedback. 
• Stay rational and detached. It can be tempting to ‘punish’ a client, or act on a personal grievance. Avoid doing this. Irrational thoughts do not usually end in a happy result! 
• Get on with it! The old adage “speed is of the essence” is particularly true when recovering money.  The longer you leave it, the lesser the chances of a good recovery, hence debt recovery company’s that charge on a “no win – no fee basis” will charge commission based on the age of the debt.  The older the debt, the higher the commission. 
• Review your terms and conditions and make sure you include a term allowing you to recover your costs if you are forced to take action to recover what you are owed. You can also minimise your exposure to costs by instructing solicitors that operate on a fixed price basis.

None of this advice is rocket science but it is the difference between using the legal system cost effectively and finding yourself out of pocket.

Note

This briefing paper is intended only as an indication of points you could consider and take advice on. You should always take professional advice on any particular situation or the drafting of your terms of business. This note is not legal advice so please don’t treat it as such.

When you can claim?

You can claim Late Payment Interest, Compensation and Costs if:

•  You have supplied goods and services

•  Your buyer bought for business purposes

•  The contract is not a consumer credit agreement

•  The contract does not contain a provision for interest on overdue invoices (or any other substantial remedy for non payment)

How much interest can you claim?

•  You can claim interest at 8% over Bank of England Base Rate (at the previous 31st December or 30th June).•  You can claim interest on invoices that were not paid within the credit period but have since been paid. Interest can be claimed for the period starting with the date the invoice should have been paid and ending with the date it was actually paid.

•  You have up to 6 years to claim the interest.

How much compensation can you claim?

You can claim compensation for every invoice that was not paid within the credit period. You can claim compensation even if the invoice has now been paid. Remember, you have up to 6 years to claim the compensation!The amount of compensation you can claim is:- 

Reasonable Costs

You can claim compensation whatever your collection costs are. However, if your reasonable costs of recovering the debt come to more than the compensation, you can claim this as well. It looks as if you can claim the cost to your business of your credit control procedures as well as claiming any costs incurred with Debt Collection Agencies or lawyers. It is highly likely that in small claims track cases the court will view reasonable legal costs as being the equivalent of the limited fixed costs which are allowed. You will have more chance of getting a reasonable level of costs if you have a contractual clause allowing you to recover indemnity costs. You should take advice on including this in your terms of business. 

Inform Your Customers You Will Be Claiming Late Payment Interest, Compensation And Costs

You don’t have to tell your customers that you will claim Late Payment interest, compensation or costs if they fail to pay on time before they have actually breached your payment terms. However, it may be beneficial for your cash flow to tell them in advance of your intentions, should payment be made late. You could put warnings to this effect on your invoices; your statements and in your terms of business. 

Change Your Terms Of Business To Claim Late Payment Interest, Compensation And Costs

You are not entitled to late payment interest, compensation or costs if your terms of business already provide for interest on overdue invoices. So, you may want to change your terms of business and rely on the Late Payment legislation. If you do, make sure your customers know.You should:-•  update all documents on which your Terms and Conditions appear.•  circulate your customers with the revised Terms and Conditions.•  advise your customers when the revised Terms and Conditions will come into effect. N.B. Existing contracts will continue to be governed by the Terms and Conditions which applied at the time they were entered into. Occasionally your customer’s terms of business may be incorporated into the contract and provide for a very low rate of interest on over due amounts. In this event, the court may take the view that the interest rate is not substantial enough and that the Late Payment legislation applies. In that case you would be able to claim interest, compensation and costs under the ACT, rather than just the low rate in the contract.

How To Claim Late Payment Interest, Compensation And Costs

As soon as a payment is overdue you can, if you wish, claim the compensation and, in due course, interest. You can claim the reasonable costs of recovering the debt as and when they are incurred. You don’t issue an invoice for the interest, compensation or costs. You just write and tell your customer the amount due. 

When you claim interest, compensation or costs, it would be helpful to tell your customer :

•  How much is due for interest, compensation and costs

•  What it is owed for e.g. give the invoice number for the principal debt

•  How payment should be made:

• To whom
• By what date
• To what address and
• By what method   

However, you don’t need to have sent any previous warning letter to your customer to claim interest, compensation or costs in an LPD or proceedings. If you can’t send an LPD because your contract contains a provision for interest, you could claim contractual interest in your LBA. 

What Happens If There’s An Argument Over What’s Due?

Sometimes there is genuine doubt about whether an invoice is for the correct amount. Where the customer admits that a certain amount is payable, the court expect them to pay the amount they agree is due and not wait until all the issues have been dealt with. You are entitled to late payment interest, compensation and costs on amounts the customer admitted were due but just didn’t pay until all queries were resolved. Sometimes an invoice depends on a calculation. For example, it may be based on timesheets and hourly or daily rates. If the invoice is wrong but the customer has the information to work out the correct amount, the customer is expected to do the calculation and pay accordingly. You will be entitled to late payment interest, compensation and costs if they don’t. If there is real doubt about the amount of the invoice, or a real dispute as to whether the money is due, you will not be entitled to late payment interest, compensation and costs until the position has been clarified.

What You Should Include And What You Should Avoid

Businesses in the UK should review their Trading Terms and Conditions on a regular basis as business legislation changes from time to time and the trading environment is continually evolving. Terms and Conditions can quickly become out of date. Reviewing the content of your Terms can not only help protect the business from bad debt but could significantly reduce the cost of extending credit.

The Benefits Of Late Payment Interest And Compensation

An effective and strong statement by businesses chasing debts, is to use the Late Payment Interest and Compensation legislation introduced in 1998.

Few enough businesses are taking advantage of this legislation, despite being well within their rights to do just that. By including interest and compensation in your claim, you can offset your internal costs in recovering debts. Why not use this option to claim back such extra costs incurred? Utilising this legislation is a positive decision that will act as a deterrent to late payment as well as providing a new revenue stream.

Businesses should also state in their Terms of Business that they will add to their invoices the full cost of legal fees for any debt recovery activity necessary to secure overdue payments. Do not sit back and incur irrecoverable costs. You can stipulate in your terms a provision to claim realistic costs to offset your expenditure.

Lovetts’ Key Points On Effective Terms And Conditions:

DO:

• Make sure your terms apply to the contract, preferably by getting your customer to sign up to them. At the very least, send them, or refer to them, just before the contract is made.
• Check the other party’s terms in case they are found to apply. Be aware of what you may be letting yourself in for: for instance, will they allow the other party to offset sums they claim are due to them against money due to you, even if their claim relates to a totally separate contract? Make sure you don’t agree to that!
• Print your terms on the back of all quotations with a clear message on the front that they will apply to any order resulting. Alternatively put a clear statement in all quotations, order acknowledgements, invoices and delivery notes that all your supplies are subject to your Terms of Business which are available on request.
• Keep a copy on file of the letter or email sending the terms. We often find that clients cannot locate evidence that terms have been sent to a customer, simply because no one thought to keep details.
• Have a term that allows you to stop work/supplying if any invoice is not paid on time and allows any work in progress to be invoiced for immediate payment. This enables you to claim for everything in one go.
• If you do business internationally, consider if you need a clause making English Law apply to the contract and giving English courts jurisdiction.
• Ensure you have a clause allowing full recovery of legal costs – have this drafted by your lawyers – in addition to any Late Payment Act clauses which will include fixed compensation for your own time. The benefits of being able to recover costs and compensation go well beyond offsetting your costs of recovery; by making any debts owed to your business an expensive luxury, you push home the message that you expect to be paid on time, and that you are serious about recovering due debts and discourage serial late payers.

DON’T:

• Forget that you must be able to prove by telephone notes, emails or letters that your terms, rather than the other party’s terms, were incorporated in the contract.
• Think that sending the terms with your invoice will do – it’s post-contract and that’s too late to incorporate them.
• Neglect to have the terms checked regularly by competent solicitors: the law changes constantly and your terms will need to keep pace!

Looking to learn more about effective Terms and Conditions? Download our free guide on Terms and Conditions

Download our Free Debt Collection Clauses for T and Cs