Getting that money you are owed

Although this article relates to the Republic of Ireland, the legal concepts described here tend to be used in most Common Law systems around the world. 

Because Ireland is a former British colony, its whole judicial system is very much based on the Common Law, and it is a prime example of the use and adoption of such a system.

It has, however, gone in a somewhat separate direction from Britain since independence in 1922, and it differs from the ‘mother’ system in a number of ways.

✅ THE PROCESS

Usually, the first step for a Creditor (the person to whom the money is owed) is to obtain a judgement of debt against the Debtor (who owes the money).

This is basically a court decree (decision) confirming that the debt is indeed owed by the debtor to the creditor, and it is obtained on the basis of evidence such as signed contracts or memorandums, bills of lading (to prove delivery), invoices, receipts, and possible witness evidence.

Not all of these are required, just enough to convince the judge that the claimed debt is actually due and owing.

Please note, a written contract as such is not normally required – you just need proof of the circumstances giving rise to the debt.

Once the judgement has been obtained, it is now up to the creditor to decide how best to enforce it.

✅ INDIVIDUAL DEBTORS (PHYSICAL PERSONS)

Where the debtor is a private individual, the following remedies are open.

•   Instalment Order

An IO is a command by the court to the debtor to start repaying his debt by a stated instalment sum by week, month, quarter or other period.

• Garnishment

One effective option, although not always easy to obtain in common law jurisdictions, is to obtain a court order to oblige a third party who is in possession of money belonging to, or owed to, the debtor.

This is called garnishment.

It is usually accompanied by an instalment order and is used to oblige a third party such as the debtor’s employer or his bank to pay the amount of the IO to the creditor directly.

This method is very effective in cases where the debtor is in full-time employment or is known to have significant cash reserves, although courts are sometimes reluctant to use it, with judges always being wary of bringing third parties into legal disputes.

• Judgement Mortgage

This is often used, mainly in the case of large amounts owed, to change unsecured debts into secured ones by creating a charge on property owned by the debtor (normally real estate, not movable property), in the amount owed.

It is not a very quick way to get paid, but it does mean that once the debt has been charged to the debtor’s property, the creditor can subsequently seek a repossession order (see Repossession Order below).

In any case, the property in question cannot be sold or otherwise disposed of without the creditor being paid. This may be applied for and granted as part of an initial judgement.

For a moderately large debt owed by someone who owns a substantial amount of real estate – and as long as the creditor is not in any kind of hurry – this can be a good option.

• Execution Order

This order allows the creditor to seize movable goods owned by the debtor. Once granted, it is passed to the local bailiff (better known as the sheriff in Ireland), who will then arrange to take into possession the goods belonging to the debtor.

•   Repossession Order

An RO grants the creditor the legal right to seize the debtor’s property on which a charge for the debt due already exists – whether by standard mortgage agreement or by judgement mortgage.

This remedy is normally used by banks and other lenders where large property loans remain unpaid and all other attempts to recover the unpaid debt have failed.

Whereas in UK a repossession order is not legally required, and the existence of a charge on the property is sufficient, in Ireland an actual repossession order must be provided to the sheriff (bailiff) when requesting him to seize charged property. 

•   Eviction Order

In Ireland, where the property is a residential one and the occupants need to be forcefully removed, an Eviction Order – ordering those occupying the property to cease doing so – must also be obtained. 

Courts are reluctant to give those in cases where the property in question is the sole residential property owned by the occupants. Generally speaking, creditors apply for such orders only in extreme situations, where there is absolutely no other means of recovering the debt and/or all other options have been exhausted.

Generally, banks and other lenders much prefer to negotiate with the debtor and persuade him to voluntarily sell the property.

• Committal Order

Although the ‘debtor’s prison’ of Victorian times has disappeared as such, in rare cases debtors can have a committal order issued against them, on foot of which they can then be arrested and held in a normal prison until the debt is paid. 

This is only used in cases where the debtor is known to have the resources to repay the debt but has shown a clear reluctance to do so.

✅ CORPORATE DEBTORS

The range of options for recovery of debts owed by companies is a little narrower.

• Judgement Mortgage

The procedure and nature of a JM are similar to those for physical persons, but they are often given against movable assets also. These are called judgement liens.   

• Instalment Orders

(See above)

•   Repossession Orders (See above)

Repossession orders against corporate debtors are easier to obtain, because they are seen by the courts as being less damaging to personal human interests.

It is much easier to ask a company to vacate an office or warehouse than a family to abandon their home. 

However, the problem with this remedy, especially against smaller companies, is that such companies tend to rent rather than own the premises (business property) they use.

•   Execution Order

  (See above)

• Involuntary Bankruptcy (Liquidation & Receivership)

This is normally only used in cases of very large debts owed by large corporate debtors, and where other attempts to recover the debt have proved unsuccessful.

It is expensive, lengthy and stressful, and can have considerable human cost in terms of employee redundancy, disruption of services/supply of goods, and tax revenue for the state. 

Effectively, it leads to the disposal of some or all of the debtor’s assets and could eventually result in its dissolution (winding up).

Receivership is usually sought first, where a Receiver is appointed, whose job is to manage and, where necessary, dispose of (sell) the company’s assets so as to ensure the creditors get as much of their money as possible, while still trying to save the company and keep its operations running. 

In cases where the Receiver fails to resolve the matter and the company cannot be saved, a Liquidator is then appointed to dissolve the company, disposing of whatever assets remain in such a way as to ensure a fair and equitable distribution of money to creditors, according to the degree of priority.      

✅ DISCUSSION POINTS

Discuss which option(s) you might use in each of the following scenarios, giving reasons.

1.       The debtor is a private individual who owes you EUR 1,000 for some work you did for him.  He recently lost his job and is genuinely in a difficult financial situation.  However, you too are in a difficult situation, and although you would be happy to settle for a small sum like EUR 50 each month until paid, he refuses to pay anything, saying he will give you the whole amount once he finds another job. That could take more time, however, than you can afford to wait for.

2.       The debtor is a private individual who owes you EUR 3,000, and he is in a steady job that gives him a comfortable living.  He is not very keen to pay, and despite repeated attempts, he has refused to pay even a single cent.  He has no assets apart from his house and its contents, and his car.

3.       The debtor is a self-employed individual who owes you EUR 5,000.  His income varies from month to month, but you know he has quite a lot of assets, including a 12-metre yacht, some expensive works of art, and two luxury cars (both for his personal use).    

4.       It turns out that the debtor in 3. above does not own the assets mentioned.  His brother-in-law owns the yacht, one of the cars is registered under his 22-year-old son’s name, and the art works are in the name of his daughter. 

5.       The debtor, who works in a well-paid job (he earns EUR 10,000/month) owes you EUR 75,000 for some construction work you did for him three years ago. All attempts to get him to pay have failed, and you now feel you must take tough legal action.  His assets, as well as his family residence, which he shares with his wife and child, include a substantial holiday home near a lake, a small speedboat, and a horse used by his daughter (kept at a local riding centre).

6.       Your client, an export/import company that rents a small office in the city but has no fixed assets of its own, owes you EUR 50,000. You do know that it always keeps a considerable inventory of goods at a very large warehouse it rents in an industrial area, and it has some hi-tech equipment at its office.  You have been trying for almost two years to get paid, but without success.