The impact of the coronavirus outbreak on how we conduct business has been far reaching with many unforeseen consequences as a result. Jonathan Frankel, Litigation Partner, at Cavendish Legal Group highlights the challenge now facing creditors in securing monies owed due to increasing unemployment.
In ‘normal’ times, a successful outcome in a litigation case means being able to secure a judgment for a debt or by way of compensation from the opposing party. However, since the onset of the coronavirus pandemic almost a year ago, this is now only half the battle. The economic strain on both business and individuals has left judgment creditors faced with an uphill battle to secure the monies owed.
Usually there are a number of viable methods of enforcing judgments which creditors can pick and choose from. For example, a creditor looking to secure a lump sum payment can apply for a charging order over a debtor’s land or commercial property. They will then be able to apply for an order of sale over the asset and have the judgment debt paid from the proceeds.
Alternatively, other creditors may be more open to regular interim payments and opt to apply for an attachment of earnings order, whereby the money is taken from the debtor’s salary direct from their employer.
Rising unemployment makes orders ineffectual
But this is becoming a more difficult option in a climate, thanks to the impact of coronavirus, where five per cent of the population is unemployed, according to data from November 2020. An increase of 0.6% increase from just the previous three months, which leaves 1.72 million people without a salary and renders an attachment of earnings order ineffectual.
In fact, since March 2020, even where judgment creditors are successful on obtaining an interim charging order and subsequent final charging order over a debtor’s property, they are barred from obtaining possession of any residential property.
This means that creditors are therefore unable to obtain an order for sale and ultimately are sent back to square one in terms of getting their judgment settled.
Commercial debtors impacted
The limitation on enforcement proceedings due to Covid-19 also extends to commercial debtors. If a judgment creditor is owed money by a company, the usual method is to serve a statutory demand for the amount owed and if not paid, petition for the debtor company to be wound up and the debt paid from insolvency proceedings.
However, the Corporate Insolvency and Governance Act 2020, which came into force June 2020, means that creditors can no longer petition for insolvency for a statutory demand issued after March 2020. Any other of the usual grounds for proving the company can’t pay its debts and therefore should be wound up, now come with a burden of proof on the creditor to show Covid-19 has not had any effect in the financial status of the company.
During these difficult times it would not be hard for any company to show they have suffered some element of financial loss due to Covid-19, which leaves the creditor with a difficult task at hand.
Specialist advice required
However, all is not lost for creditors of money judgments and there are viable routes to securing payment even during the uncertainty of present times. Creditors need the right advice and to speak to specialists in litigation with experience in all methods of enforcement.
With a specialist onside, creditors can get the right advice to help evaluate the options available at the onset of their claim and throughout the litigation process. It is also worth noting that while these emergency measures have been implemented for the time being, each blockade has a deadline and creditors will still be able to secure the monies owed in a judgment, ready to enforce when the time comes.
On the flipside, if a debtor of a money judgment is concerned about what assets and securities will be protected, a specialist firm will be properly equipped to advise them on their position during Covid-19 and provide peace of mind in what can be a very stressful time.