Enforcement of Judgment Debts
In litigation proceedings the Court may order the unsuccessful party to pay the successful party a sum of money (the “judgment debt”). Although Court orders should be complied with there is no mechanism to compel the payment of the judgment debt by the unsuccessful party (the “judgment debtor”) and the successful party (the “judgment creditor”) may need to enforce the payment of the judgment debt through a number of legal processes.
Processes which may assist in forcing the judgment debtor to pay include –
(1) Examination
Sending the debtor an Examination Notice will require the debtor to answer questions on his or her financial circumstances and to provide copies of documents requested. Details of the debtor’s financial circumstances may assist in identifying options for the payment of the judgment debt.
If the Examination Notice is not complied with the judgment creditor can apply to the Court for an Order for Examination. This order requires the debtor to attend Court at the “Examination Hearing” so that he or she can be questioned by the Registrar of the Court as to his or her financial circumstances and proposed arrangements for paying the judgment debt. As the debtor is required to attend Court, this is a useful opportunity to negotiate a payment arrangement.
If the debtor does not appear at the Examination Hearing and does not make arrangements with the Court, the creditor may apply to the Court for an Arrest Warrant. This Warrant authorizes the Sheriff’s Officer to arrest the debtor and to bring him or her before the Registrar so that the examination may be conducted.
(2) Garnishee Order
The judgment creditor can apply to the Court for a Garnishee Order which requires another party to pay money held for the debtor to the Court or to the creditor. For example a Garnishee Order may compel the debtor’s tenant to pay rental income to the creditor or the debtor’s bank to pay funds from the debtor’s bank accounts to the Court.
A Garnishee Order may be made against the debtor’s employer. However in this situation the debtor’s employer must leave the debtor with some wages or salary to use as living expenses. Currently the prescribed amount is $278.32 per week.
If the party who is directed by a Garnishee Order fails to pay that money without excuse, that party may become liable for a part of or the whole of the judgment debt.
Note that a Garnishee Order may be of limited effect where the debtor removes his or her money from bank accounts before the Garnishee Order is served on the debtor’s bank or where the debtor resigns before or shortly after the Garnishee Order is served on his or her employer.
(3) Writ of Execution for the Levy of Property
The creditor may apply to the Court for a Writ of Execution for the Levy of Property which empowers a Sheriff’s Officer to attend a debtor’s residence (or business if the debtor is trading as a company or business) and attempt to seize goods for sale at public auction.
Sometimes a debtor may pay the debt to the Sheriff at the door to prevent the Sheriff taking away his or her goods. Alternatively a Writ of Execution may be unsuccessful if the debtor asserts that property is jointly owned by a spouse or partner or all goods are subject to a security interest in goods or hire purchase.
Note that there are certain items which cannot be seized – clothing, bedroom or kitchen furniture and tools of trade where their value does not exceed $2,000.
Even if property is seized, the debtor may apply to the Court to pay the debt by instalments. If the application is successful, the Writ is stayed so that the property cannot be sold. The judgment creditor must then wait until the debtor fails to pay an instalment before he or she can apply to the Court and request the Sheriff to proceed with the Writ.
A Writ for the Levy of Property must not be executed against land unless the debtor consents or the Sheriff is satisfied that the land should be sold before other property in order to minimise the hardship to the debtor. Currently this power to sell cannot be exercised if the outstanding debt is less than $10,000.
(4) Charging Order – District and Supreme Courts only
The judgment creditor may apply to the Court for a charging order which restrains the debtor from dealing with the property unless the creditor consents. Property which can be charged includes shares in a public company, money on deposit in a financial institution or equitable interests in a property.
As the debtor is prevented from dealing with the property, the debtor may pay the judgment debt so that the charge over the property can be removed.
(5) Bankruptcy Proceedings – individual debtors
If the judgment debt exceeds $2,000, the judgment creditor may commence bankruptcy proceedings against the debtor within 6 years of the judgment debt being entered. This is a long, complicated and expensive process but may encourage debtors to pay due to the onerous status of being a bankrupt.
The other downside to commencing bankruptcy proceedings is that a trustee must be appointed to investigate the debtor’s affairs and to realise the debtor’s property. The proceeds of sale are firstly applied to the trustee’s fees and secondly to the debts of secured creditors. As judgment creditors are unsecured creditors, it may be that complete recovery of the judgment debt is not achieved even if the judgment creditor has incurred costs in the bankruptcy proceedings.
(6) Winding Up Proceedings – corporate debtors
If the judgment debt exceeds $2,000, the judgment creditor may similarly commence winding up proceedings against the debtor. This will encourage corporate debtors to pay as the company’s assets will otherwise be sold and the company wound up.
Winding up proceedings are similarly long, complicated and expensive and judgment creditors are faced with the same risks as bankruptcy proceedings as liquidator’s costs and secured creditors’ debts have priority over judgment debts.
Alternatively the judgment creditor may wait until the financial circumstances of the debtor improve as the judgment debt may be enforced up to 12 years from the date judgment is entered. During that time interest accrues from the date of judgment to the date the debt is paid and any money received is first applied to interest. Interest is currently calculated at the rate of 9% per annum.
A judgment creditor is also entitled to claim specific costs of the enforcement process as part of the judgment debt. The recovery of these costs however will depend upon the successful enforcement of the judgment debt.
For more information please contact
Tony McMinn on (02) 9957 4501 or amcminn@rbhm.com.au;
James Hamilton on (02) 9018 6403 or jhamilton@rbhm.com.au
Karina Fung on (02) 9018 6415 or kfung@rbhm.com.au
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