|An inside look at debt collection by Jim Heath|
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In judgment be ye not too confident, Even as a man who will appraise his corn When standing in a field, ere it is ripe. -Dante, The Divine Comedy
TOO RIGHT. You've won your case, and got a court judgment. But you haven't got any money yet. As I've repeatedly warned, unless you've done some checking first, you may never get any.
By some miracle, the debtor may now pay you without any fuss. If so, that's the end of the matter.
Usually it ain't that simple. Most people don't put off paying a debt, drag their heels right through a court case, unless they're short of money in the first place. They dispute the bill because they haven't got enough money to pay everyone they owe.
Even when you hold a court judgment, a debtor can be alarmingly reluctant to pay you anything. For example, maybe you've been chasing Harry Slime and you're pretty sure he hasn't got any cash. But you know he does have a car. Now he isn't going to sell that car to pay you. You have to force him.
If you've been chasing a company, you can run into other kinds of problems. Lots of them.
First, here's a little summary of the things you can do, now that you hold a judgment:
1. You can drag the debtor into court and question him about what he owns, what his salary is, who owes him money -- and anything else about his financial position. If the debtor is a company, you can make the directors bring in the books, tax records, the whole works. (You suddenly have the interrogation powers you usually associate with tax officers.)*
It's a good idea to use these powers. You'll find out where the assets are ( if there are any), and can work out what to do next.
2. You can get the sheriff to seize property owned by the debtor. (This sounds great, but there are snags.)
3. If the debtor is an individual, and he has an employer, you can get the court to order the employer to pay you part of the debtor's wages.
4. If anyone owes the debtor money, you can get the court to order that they pay you instead. (You can see how useful it is to question the debtor in court, to find out all these things.) 5. If the debtor is a company, you can apply to put it in liquidation. Usually this isn't a wonderful idea, because you don't get first grabs this way. (All other creditors can jump in and share whatever shrivelled slice of pie might be left.) But the threat of liquidation can sometimes be useful: the directors may be worried that their personal assets could be grabbed, if the liquidator later shows that the company kept merrily trading even when it was clear it wouldn't be able to pay all its bills.
* You used to be able to do this using what was called a 'summons for oral examination'. It's missing in the new court rules, but I'm told this was an oversight and it's going to be put back in. By the time you read this, the old oral examination summons will probably be up and running again. But if not, you can do the same thing in a roundabout way by using the Attachment of Debt Proceedings (Rule 27.27). But you need help from a lawyer.
If you're thinking, "Ah, ha! Let's do that: wind up the company, and go after the directors' money. They have heaps." Well, it might be worth doing after you've tried other things. But only if the company owes you a lot, and the directors are rich. There are risks: it will cost you $2000 or more to put the company into liquidation, other creditors will share in the plunder -- and the directors may successfully defend themselves... "Who, us? Trade when we shouldn't have! Ridiculous. " If they have money themselves, you can bet they won't just hand it over. They'll get some expensive legal talent on their side. Who knows, they may even be innocent...
REMINDER: one way or another, you now have a judgment against the debtor. It doesn't matter what process you used. You may have used a lawyer, and gone through a whole trial. You may have got it by default, after you issued a summons yourself and the debtor didn't defend it. You may have got it after an arbitration, where you handled everything yourself. You may have got it when the debtor failed to show up at a pre-conference hearing.
Even if you didn't use a lawyer before, you'd better get one now. It's still all right for you to decide the grand strategy: "I want to examine the Directors in court, about the company's assets" or "I want to attach Harry Slime's wages" or "I want to send in the sheriff to seize assets." But if you try to handle the paperwork and formalities yourself, you might botch it -- and cost yourself time. At this stage, you aren't asking your lawyer to do anything very complex: he's only helping you through routine forms, and giving some simple tips. Use his experience for these things. It shouldn't cost a lot.
I'VE GOT news for you. The sheriff isn't a ferocious creature who'll immediately burst into the debtor's building and start ripping stuff out. The sheriff may remove goods at some stage, but it doesn't happen instantly.
What actually happens?
First, you've got to apply to the court to send in the sheriff. The sheriff only obeys instructions from the court -- not direct orders from you. To get the sheriff to move, you need to get what's called a 'warrant of execution.' I've mentioned this many times already. This is certainly a scary-sounding document ('execution'-- boy!). But it's actually a routine order to the sheriff to try to collect the money the debtor owes you. You can get a warrant of execution automatically after you have a court judgment, just by filling out a form and applying for it. (Assuming the debtor hasn't already caved in and paid you.)
The court checks the details, then issues the warrant of execution -- usually pretty quickly. It's then up to you to send it to the sheriff with the required fee ($86 at the moment).
But this doesn't mean the sheriff instantly hops into his (or her) car and proceeds, foot to the floor, to the address on the warrant. The sheriff may have a backlog. (Dear friend, you aren't the only one chasing a debt.) It might take him a few weeks to act on your warrant. Even if he hasn't got a backlog, it may take him a day or two to organise a visit to your debtor.
Let's consider what happens if everything goes well.
The sheriff shows up at the door and the debtor is there. The sheriff explains his humanitarian mission: he is seizing goods to cover a debt owed to so and so (to you, which is why it's humanitarian).
"Oh dear, oh dear," says the gentle and amazed debtor. "How did such a thing ever happen? Here let me pay you right away." He peels off a few hundred-dollar notes, the sheriff gives him a receipt, and that's the end of it. A couple of weeks later, you get the money from the court.
Usually, it ain't so easy. Many things interrupt this smooth flow between warrant of execution and money in your pocket:
Happens all the time. For example, if you're chasing a debt owed by a company, the Law required you to send the original summons to the registered office of the company. This might be a firm of accountants.
The sheriff arrives at the same address, and before he's half way through his introductory speech, he gets told that the company he's after doesn't really work there. There's nothing to seize. The sheriff of course can't grab just anyone's gear to pay your debt, so he goes away and returns the warrant of execution, with an explanation about why he couldn't execute it.
It's not the sheriff's job to find the correct address of the company (or person) he's chasing. The sheriff isn't a debt-collector. He simply obeys plain orders from the court. Go to this address, seize goods from this person, or that company. If there's anything incorrect about the order, then the sheriff is stymied.
This wrong-address problem happens a great deal. Remember, probably a year has gone by since you filed the original summons. Lots of companies move in a year. (Even more individuals move: about one million a year, in Australia.) So unless you correct the address that appeared on the summons, it's likely to get passed through to the warrant of execution. Lawyers offices are by no means immune from mistakes of this sort (and worse, as we'll see in a minute).
If the sheriff is sent to the wrong address, it isn't tragic. But it costs you a bit of time, while the warrant of execution gets corrected.
Remember that advice, way back? That there's no point going through a whole legal process, to find the debtor has no assets or way of paying you.
A lot of the time, that's exactly what the sheriff finds. He goes to a company address and formally seizes everything. ('Formally,' because the sheriff first seizes things 'on paper'. He usually gives the debtor a few days to pay, and if he doesn't pay, then the goods can be taken. Meanwhile, the debtor isn't allowed to remove the goods or sell them, without the sheriff's permission.) But the debtor often pipes up and announces that everything is leased. And the only valuable things are owned by the debtor personally, in his own name. The sheriff goes ahead with the paperwork, but he knows he won't be able to get any money out of the company. He won't be able to sell the stuff owned by the leasing company for enough to pay the balance owing, cover the costs of the sale, and have anything left over. (Assuming the leasing company even let the sheriff do it.) And anything that's owned by someone personally can't be seized to cover a company debt (though the person who claims to own it can be required to prove it.)
On the other hand, if the sheriff is chasing a debt owed by a person, then what does he find? Not much, usually. Unless the lounge suite is new or leather, it will cost more to take it away than it will get at auction. The sheriff won't take things that aren't worth taking. (You wouldn't thank him, would you, for an invoice instead of a payment?) Similarly, that old Morris 1100 will be left at the debtor's house, even if it's fully paid. (Cars have to be towed away, and advertised, and that costs.)
If the car is worth something, but it's on hire purchase, it can't be seized. So we're down to the TV and the video recorder. Everyone has those. Sometimes they've even been paid for. But there's a snag: Victorian State law says that one TV and video recorder are 'necessary household property'. The sheriff can't take them. He can take any extra TVs or video recorders -- but he has to leave the basic survival kit of one each. Anyway, even if he gets a TV, it isn't worth that much. You should see the rows and rows of TVs at the auctions -- put there by sheriffs, and from repossession by cash-converters and money-lending people. Oodles of TVs, which means they go cheaply. Maybe $350 each.
In this lamentable category of 'nothing to seize' comes the all-too-common case of a husband who runs up debts, and the wife who owns all the goods. There's nothing the sheriff can seize from the husband, though the house may be full of Picassos and antique furniture and gold bars. It all belongs to her -- see, here are the papers to prove she bought all this treasure. Even if the stuff is jointly owned, the sheriff can't seize it.
This happens so much it would make you weep. And it will if it happens to you.
For example, some people sue one of the partners in a partnership. Finally, a year down the track -- after summons, judgment, warrant of execution -- the sheriff stands at the door of the partner you sued. "I only own half of the stuff," he tells the sheriff.
You might think, "Fine. He can take half then. That should be plenty." But hold on: he means half of everything. The sheriff can't seize (and sell), half a table, half a computer, half a filing cabinet. So you're stuffed.
This goes back to what I was saying about making sure you're suing the right person. Make sure you know whether the money is owed by a person, or several people (yes, you can sue in bunches) or a company, or a trust.
But that's incredible! How could anyone even think of suing a company after it's gone broke?
Um. Lawyers do it from time to time. You know, the process starts when the company is still alive, and momentum carries the legal action forward, right to the end. When no one from the debtor company shows up at court, your lawyer thinks -- "How wonderful, we win by default."
The sheriff, in close touch with reality, eventually comes back with the awful news: the company went into liquidation six months ago. It takes a certain skill for the lawyer to explain this gracefully to his client. His client has 'won' but will probably get nothing. Zero. And he's still up for his lawyer's bill.
You can be very close to success, and have this pulled on you. The sheriff can have everything out of the house and on the morning of the auction, he gets handed a bankruptcy notice. This means you still have to pay the costs for removing all the goods from the house -- and if you get anything at all, it won't be much.
ONE THING you can do is find out what the person or company owns. As I said earlier, once you get a judgment, you're entitled to summons the debtor to court and question him (under oath) about his assets. (It's called a 'Summons for Oral Examination.') You can make a debtor bring his tax returns, bank statements, account books, everything you might want to see. Very useful information: you can discover that boat at the holiday house, or the 60 tonnes of xerox paper the company has stored in a sheep shed. Then you tell the sheriff (in writing).
Another thing you can do is understand the sheriff's position. He is not allowed to break into a place to remove goods, even if the people are never there. He can not act instantly just to satisfy your thirst for vengeance (or money). He will not be impressed if you shout, "I don't care what's there! Just take it!" The sheriff is an extension of the court's authority, and also an extension of the court's insistence on fairness. Someone may owe you money, but the debtor still has rights. The sheriff won't seize stuff until he's sure the debtor owns it (to mention one point).
Calm down. The sheriff will get your money if it's possible to get it.
THE COURT can order the debtor's employer to deduct a certain amount from the debtor's pay, and pay it to you instead. (An 'attachment-of-earnings order'.) This is popular with people chasing debts. It's even popular with the debtors, because it fixes the amount they pay to a small weekly installment. (And hardened debtors know it's illegal for an employer to sack them or 'alter' their position because of the order.)
Of course you can't 'attach' the debtor's earnings if you don't know who he (or she) works for. So Step One is (as usual) to find out. To do it, your lawyer sends the debtor a summons to an examination at court, and also a very long financial form to fill out -- with questions about everything from his average bank interest, to his water and sewerage rates. The debtor is supposed to send the form back to you before the hearing date, so you have time to brood over it. (If he doesn't, or he botches the job, you can drag the same information out of him at the hearing.)
At the hearing, the idea is to get enough information for the court to confidently issue that attachment-of-earnings order. But the magistrate will be balanced about it: he knows you want your money (maybe even need it badly), but he also has no intention of turning the debtor into a pauper who walks around counting his ribs.
Even if the debtor doesn't appear at the examination, you can probably still get an attachment-of-earnings order if you know who the debtor works for. The court can then find out from the employer how much the debtor gets paid. On that information, the court can order that up to 20% of the net earnings be deducted for you. (That's the most you can get, unless the court has full details about the debtor's financial position.)
That's the gist of it. It can get more complicated, but you should be doing this through your lawyer, and he'll look after you. You usually will get the attachment-of-earings order. Even if there are already other attachment orders in force, yours gets in the queue. Money will start pumping to you when the earlier creditors have got what's due to them.
WE'RE beginning to scrape hard now. If you've found that the debtor has no employer, and has no household gear that's worth seizing, what's left?
Well, there's a chance that someone, somewhere, owes the debtor money. When you examined the debtor in court, pressed him hard, you should have found out all those things. If you know that he's done contract work for his Uncle Hermann and hasn't been paid, or sold some things to the Wormhole Antique Shop and they haven't paid him yet, or even that a bank or building society 'owes' the debtor money because it's deposited there in his name, you can get the money. The court will order Uncle Hermann or the Wormhole Antique Shop, or the bank to pay you, instead of the debtor.
If you get this far, your lawyer will be using the word 'garnishee': it's the person (or bank, or whatever) that you claim owes the debtor money. I say 'claim' because the garnishee might deny it. But you can dispute that, with more proceedings, and the legal road will fork again. (To pursue a legal claim, right to the end, can take a lot of stamina.)
If you can't even find a garnishee, you still don't have to give up. The debtor is obviously living somehow. Maybe he's got a pension, or annuity, or does odd jobs for cash. You can insist on finding out all that at a court examination. Then the court can order the debtor to pay you a fixed amount each week. (Let's hope it isn't $3 a week, on a debt of $5000.) If he disobeys this order -- phut! The court can put him in prison. And he still owes you the money when he gets out.
As you see, this is all pretty grotty, end-of-the-line stuff. It takes time. It's not uplifting or fun. The returns are often meagre. But it's where you end up, if you have to pursue a debtor through the courts, right to the end.
By now you shouldn't need a cost-justification study to realise that it's better business to make those boring credit checks right at the beginning. Or even get your money -- or part of it -- in advance if you can.