Obtaining a judgment against a company can be an effective way to recover the debt owed by a company. But it’s a claimant’s nightmare to obtain a judgment against a defendant company only to find that the company is insolvent or does not have sufficient means to satisfy the judgment debt. Unfortunately, having a County Court Judgment (“CCJ”) (or, on rare occasions, a High Court Judgment) is not always enough to compel a Defendant to pay what is owed, and it is up to you, the Claimant, to take action against judgment debtors who refuse to pay.
What happens when a company owes you money but does not have enough assets to pay you?
As a general practice, it’s advised that before commencing litigation you should always carry out your due diligence. Carrying out due diligence into the potential defendants’ financial circumstances is important to ascertain their levels of solvency, i.e., cash in bank/assets/debtors/creditors.
If the potential defendant is insolvent or your action is likely to produce insolvency, it will likely be of little business benefit to start legal procedures, which may merely serve as a drain into which you will be tossing your money, unless the defendant’s finances alter unexpectedly.
However, if the defendant is an insolvent company there may be alternative defendants, like the company directors and shareholders, who can satisfy the judgment. While firms are treated as independent legal people in the perspective of the law, the decisions and acts done by a company are those of individuals. Individuals who misuse their limited liability privilege by causing harm to others in the name of the corporation may be exposed to a claim as individuals.
As we just mentioned above when using a limited company, necessary checks are worth making to improve the chances of enforcement, should that be necessary. We will talk about who to sue, their financial status, company name changes, where to enforce and what can be seized in this article.
Who to sue?
Limited corporations are, of course, legal entities in their own right, so you’ll have to sue the company rather than the directors or any other employees.
However, the only exception to this is if you have requested and received personal guarantees from the directors, which is usually the case. If you have such guarantees, you will have to sue the company as well as the guarantor(s).
You should always sue the registered limited company name instead of a trading name or individual. Suing the correct organisation is always vital, but it’s especially critical in the case of restaurants since the trading name can change regularly.
You must sue the limited company, not the group if it is a member of a group of firms. In the vast majority of cases, the group will not be held responsible for the debt.
Are they solvent?
Right before you begin with the claim procedure, it’s worthwhile checking the company’s legal and solvency status, both at Companies House and the Insolvency Service. Else, you may be wasting your time and money in chasing a company that no longer exists or has recently been liquidated
If you need to enforce any unpaid judgments you’ve been awarded, it’s also a good idea to double-check these facts. Enforcement by High Court Enforcement Officers (HCEO) is prohibited against a firm under liquidation or administration.
If you doubt the financial stability of the company, take quick actions to recover your dues before other creditors do.
Has the company changed its name?
Defendant company will try everything possible on earth to avoid paying. Some companies even shut down and re-open as a new businesses to avoid their debt liability. The probability of an HCEO taking control of the goods for selling will no longer exist assuming the goods have been transferred to the new company.
However, before the date of seizure, we always double-check that the transaction has been completed, including payment. We’ve been able to seize and remove assets in cases where the transfer was completed on paper, but the agreed-upon payment was not made.
If the registration number of the company is the same and only the name has been changed, then it’s the same company and you can take action to enforce the judgment.
Where to find them for enforcement?
An HCEO can be used in any part of England or Wales where the debtor conducts business. This implies we can visit the registration office, trading address, branches, warehouses, and other locations.
The registered address will appear on most judgments; nevertheless, when it comes to enforcement, these are frequently accountants’ offices with no assets belonging to the debtor. It is quite helpful to supply the HCEO with data of all trading addresses and other locations where assets are located when instructed.
Gaining access
HCEOs have the court’s permission to force entry into the commercial premises, if necessary, normally by changing the locks.
HCEOs can also take action against a limited corporation with a home office. They cannot, however, force entrance or seize any assets belonging to the particular residing. If the enforcement officer believes they belong to the firm, he has the authority to confiscate them, giving the debtor five days to prove personal ownership.
What can be seized?
Except for perishable products, all objects that the HCEO has cause to believe belong to the firm may be seized. If a third-party claims ownership of seized goods, that claim must be supported by evidence. If you disagree with the claim, a Master will determine through the interpleader process.
Because objects are tools of the trade, limited corporations cannot claim that they are exempt from seizure. This exemption is only accessible to sole traders that use the things exclusively for their business (and only up to £1350 in value).
Summing-up
The notion that a company has its own legal identity is well-established, and the courts will strive to uphold it. It is also critical that you have a sound legal basis for overcoming this barrier in order to gain access to the directors.
If you have been wronged by a firm and want to pursue its controllers, you should seek independent legal counsel as soon as possible so that the best course of action can be determined. Contact Shergroup to help you with the best advice and the war forward in taking an action towards the defendant company. Our enforcement agents are experienced in handling matters like these and can free you from all tasks from serving papers to enforcing the judgment and collecting the payment on your behalf. Enforcement is our first love, and we make sure that we go all out in helping our clients with the best outcomes.
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