Dealing With Debts

By Barry Lee

This article appeared in the June 2010 edition of Futura Magazine, you can read the original article here.

1. Introduction

In the present market environment, the deciding factor in terms of whether a business survives or not invariably comes down to cash flow. An otherwise successful business model can be ruined if the company’s debtors do not pay their debts in a timely manner. Prior to the credit crunch, a business could still survive notwithstanding the fact that debtors may have been slow in discharging monies owed as banks and other credit institutions were only too happy to provide short term financing in the form of bank overdrafts, invoice discounting facilities etc. As any small or medium business owner will testify, this is no longer the case.

Matters have been compounded by the fact that in the existing difficult trading environment an increasing number of companies are being wound up. Since June 2009 over 100 companies a month are being declared insolvent. In many instances the fact that a particular company is declared insolvent can have a knock on effect and 6 months down the line its largest creditors can often find themselves in the same situation.

Companies obviously wish to preserve their existing commercial relationships and as such may be slow to instigate legal proceedings so as not to jeopardise future business. However, a balance needs to be attained and if a company is viewed as a “soft touch” it will invariably be one of the last creditors to be paid. In contrast, if a company does take legal action against a debtor, it can get the message out generally that the company takes debt collection matters seriously. If debtors know that you are serious about pursuing monies owed to you and that you are not simply making empty threats, it can have the immediate effect of moving you up the list in terms of who gets paid first.

2. Deciding to Issue Proceedings

The first question to consider before issuing proceedings is what is the current position of the debtor? Debt collection proceedings can take time and if the debtor in question is no longer trading or is already effectively insolvent or bankrupt, there may be little point in instigating proceedings.

If you have already made a formal demand in writing for payment of the account the first step is to engage a solicitor to write to the debtor giving them seven days in which to make payment of the account. Usually when the debtor receives correspondence from a solicitor, they will realise that the matter is being taken seriously and this can persuade them to make some kind of offer of repayment rather than simply disregarding the matter entirely.

In the event that the solicitor’s letter does not produce a result, the next step is to issue proceedings. Where and how proceedings are issued will depend on the level of the debt in question. The District Court deals with debts up to a maximum of €6,348.69, the Circuit Court deals with debts between €6,348.69 and €38,092.14 and the High Court deals with debts over €38,092.14. To issue proceedings a summons is served on the defendant debtor notifying him of the creditor’s claim. As a general rule, if the case is undefended, there is no Court hearing and Judgement issues automatically to the creditor. If the case is defended, there will be a trial at which the creditor’s witnesses must attend to give oral evidence.

3. Enforcement Options

Once judgement has been obtained, the next step is enforcement of the judgement. There are many different enforcement options open to a creditor. The size of the debt will determine which enforcement options are appropriate. Obviously, if the debt in question is relatively low in value, it would not make financial sense to utilise some of the more exotic and expensive enforcement options.

a. Registration of Judgement
Threatening to register a judgement for publication in the trade gazettes is often an effective and cheap method of securing payment. Stubbs Gazette and Experian All Ireland Gazette are weekly publications which list all judgements registered that week. They are widely read by bank managers and credit controllers and publication of a judgement can have a serious affect on the continued trading of the debtor in question.

b. The County Sheriff
Creditors can apply to Court to engage the County Sheriff to assist in enforcing a judgement. The County Sheriff in an officer for the Court who may seize goods belonging to the debtor in satisfaction of the debt owing. These goods, once seized will then be sold and the proceeds will be used to repay the debt.

c. Garnishee Order
A “Garnishee Order” can be used where a third party owes money to the debtor in question. A court order is obtained directing the third party to pay the monies directly to the creditor. A Garnishee Order should only really be considered for larger debts as the costs involved are relatively high however it can be useful where the creditor knows that the debtor is selling his house or is due to receive rent or some other form of payment in the future.

d. Judgement Mortgage
A creditor can apply to have a judgement mortgage registered on the debtor’s property which can prevent any dealings with the property (e.g. a proposed sale or remortgage of the property) unless the relevant debt is discharged. A judgement mortgage is valid for 12 years from the date of judgement and if in that time the debtor sells his property or refinances his mortgage he will have to repay the debt plus statutory interest and costs. In higher value claims it is possible for a creditor to take a further step and have the relevant property sold to pay off the debt by applying to the Court for an Order for Sale of the Property.

e. Liquidation
If the debtor is a company, it is possible for a creditor to petition for a Winding Up Order in respect of the debtor company. Pursuant to section 214 of the Companies Act 1963, in the event that a company (having been called upon to do so), fails to pay its liabilities within a period of twenty one days, it is then deemed to be insolvent. In such circumstances, a petition may then be brought before the Court to have the company wound up and a Liquidator appointed. This threat of liquidation can be very effective in persuading the company in question to pay the debt owing to the creditor.

4. Proactive Steps - Manage Your Relationships with your Debtors

It is obviously preferable if a company never has to go to court to chase bad debts as it can be a time consuming process and is not always guaranteed to produce a successful result. With this in mind, it is possible for a business to take certain pro-active steps to minimise the number of bad debts it incurs. For instance, before entering into a large transaction with a new client, in the present market environment it is advisable to carry out searches in respect of the client to ascertain if it has a good credit history (have any previous judgements been registered against the client etc.). If the client / potential debtor is a company, it is required to submit audited accounts to the Companies Registration Office which can be viewed by the general public. A review of these accounts may assist in establishing the financial health of the company and may impact on your decision whether or not to do business with the company.

Businesses would also be very well advised to review their terms and conditions of trading in order to minimise the amount of time and effort spent on debt recovery issues. Very often businesses give very little thought to the contractual relationships that they are entering into and it is only when they are seeking payment of monies owed that this matter is considered. Upon entering into a transaction various pre-emptive steps can be taken to protect the creditor such as obtaining personal guarantees from the debtor company’s directors and incorporating retention of title clauses in favour of the creditor into the relevant contract. A clearly defined contractual relationship can be the most effective way of protecting a creditor from the risk of debtors failing to pay their debts and in the long run can save the creditor considerable time and money.

The above information is a very brief overview of the law pertaining to debt recovery and should not be taken as definitive legal advice.

Barry Lee is a Senior Associate with Adrian Burke & Associates. Adrian Burke & Associates is a full service corporate law firm which provides specialist legal advice on corporate transactions, restructuring, banking, mergers & acquisitions, commercial litigation, corporate recovery & insolvency. For more information contact 01 665 0437 or e-mail


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