Third Party Debt Orders – An Alternative Enforcement Method?

Third party debt orders

Since the coming into force of the Corporate Insolvency and Governance Act 2020 and along with it, the restrictions on creditors using statutory demands and winding up petition, judgment creditors have had to find suitable alternatives to extract funds from companies which appear unable to pay their debts. Although many of those restrictions have recently been lifted, some still remain especially where the liability is in respect of rent arrears.  By obtaining a judgment the Landlord becomes a judgment creditor and a number of alternative enforcement methods become available.

In circumstances where a judgment creditor knows the identity of a relevant third party, they may wish to consider a third party debt order, or TPDO. By a TPDO, sums owed to a judgment debtor that are in the hands of a third party, such as a bank, are frozen and seized for the benefit of the judgment creditor. In most commercial scenarios, a judgment creditor will have ready access to their commercial customer’s bank details, be that from credit applications, invoices, or direct debit mandates.

The process is divided into 2 stages: the interim stage, and the final stage.

The interim stage sees the judgment creditor prepare its application and file it with the court. Once considered by the court, an interim TPDO should be granted, and a copy should be served on the third party. A word of caution, however: the funds in that third party’s possession are frozen on the date they are served with the interim TPDO, so it is helpful to know when there is likely to be funds available in bank accounts, for instance. Any further payments in following the date of service are not captured, and will require a further TPDO.

Once served, the third party must ensure that the level of funds it holds on behalf of the judgment debtor does not fall below the value of the debt until the parties have attended a hearing, details of which are provided on the interim TPDO. During that period, the judgment debtor may apply to the court for permission to use funds on certain living expenses if it can show hardship but, for the most part, it is prevented from using its money until the hearing, which is at least 28 days after the interim TPDO.

Once confirmation is received from the third party that there are sufficient funds, and they are frozen, the judgment debtor should be served with a copy of the interim TPDO, with details of the hearing.

At the hearing, the parties will have their opportunities to explain to the judge why they believe the order should or should not be made, as is the case, and where the order is made final, the third party will be ordered to pay over the debt to settle the judgment.

This is extremely effective, and has the benefit of ensuring early on that, whilst there need to wait until the hearing, you will know that the amount you are looking to recover has been secured until that hearing. It also means the judgment debtor will have difficulty in satisfying its other liabilities ultimately leading to it becoming insolvent.

For advice please call our Commercial Litigation team on 0345 20 73 72 8 or email info@thursfields.co.uk

Daniel Tetsell Dispute Resolution

Daniel Tetsell,

Associate Chartered Legal Executive, Dispute Resolution

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