For any business large or small, maintaining a healthy cashflow is fundamental to its continued success and ability to trade. All too often the failure of a client or customer to pay their invoices has a knock-on effect and can be a contributing factor in an otherwise profitable business suffering financial difficulty or even worse, forcing its closure.

It is therefore imperative that businesses pay close attention to the level of its debtors and the monies owed by its customers and clients and take early action to mitigate same and flush out those debtors who are simply choosing not to pay as opposed to those who are unable to pay.

Whilst it is an unfortunate economic reality that the risk of bad debt can never be fully eradicated, there are some simple, practical and proactive steps which businesses can take to mitigate this risk.

In the first instance it is good practice to ensure that invoices are issued in a timely manner with the payment terms being expressly stated on same. Systems should then be in place to ensure that chasers and payment reminders are sent promptly once the agreed credit periods have expired and care should be taken when providing new services and products to customers who have outstanding balances. The number of chasers and reminders that should be issued will vary from business to business and will depend on the relationship with the particular creditor, but ultimately your business should be clear as to how much internal chasing they are prepared to do before they pass the matter over to their solicitors to pursue for them.

Businesses should also review their terms of business to ensure there are clear terms and conditions in place setting out to their clients and customers important details such as the type and rate of interest that will be applied to any overdue accounts. It is also worth bearing in mind that businesses in Northern Ireland can avail of Late Payment of Commercial Debts legislation that allows them to recover statutory interest and compensation that may be more favourable than their existing terms, this piece of legislation being particularly useful for businesses that do not have such terms in place at all.

Generally speaking, debts under £5,000 fall within the jurisdiction of our Small Claims Court. Debts between £5,000 – £30,000 fall within our County Court jurisdiction and debts over £30,000 are dealt with in the High Court.

Irrespective of the value of the debt and the particular Court through which proceedings are issued, the aim of the legal proceedings will ultimately be to secure a Decree, Judgment or Court Order requiring the creditor to pay the amount owed to the debtor.

Whilst the award of a Judgment should signal a positive result for a business which is owed money, the reality that we regularly see is that the award of a Judgment, whilst a crucial and necessary first procedural step, does not of itself provoke an otherwise errant debtor to suddenly discharge the amounts due. It is therefore necessary to continue the legal process by promptly enforcing the Judgment once it has been served and remains unsatisfied.

There are generally two options for enforcing a Judgment in Northern Ireland.

The first option is to enforce the Judgment through the Enforcement of Judgments Office (EJO) and the second option is to issue a creditor’s bankruptcy or creditor’s winding up petition through the Bankruptcy Court.

1. The EJO

The EJO is a Court-led enforcement process which has many attractive and unique features such as:

• It operates on a first-come, first-served basis. This means that if there are no creditors already ahead of you in the enforcement queue, then any subsequent creditor that chooses to enforce via the EJO will essentially have to wait until your Judgment has been discharged in full before they can obtain recovery.
• The EJO has quite wide powers and autonomy which allow it to investigate a debtor’s financial position and to award a variety of enforcement orders such as:
  • An Attachment of Earnings Order if a debtor is employed and has disposable income.
  • An Instalment Order is a debtor is self-employed and has disposable income
  • An Order Charging Land if the debtor owns property
  • A Seizure Order is the debtor owns valuable, unencumbered assets
  • An Order Appointing a Receiver to intercept monies that may become due to a debtor

2. A creditor’s petition

The alternative enforcement option available to creditors who hold a Judgment is to issue a statutory demand which gives the debtor a final period of 21 days to pay the outstanding debt, after which a creditor’s bankruptcy petition can be issued against individual debtors that owe more than £5,000 or a creditor’s winding up petition against limited companies that owe more than £750.

Depending on the value of the Judgment, enforcing via a creditor’s petition can sometimes be the most cost-effective and efficient way to proceed.

Remarkably habitual debtors can become comfortable with being subject to judgment proceedings and even EJO proceedings and continue to ignore those processes for as long as possible, mainly because the processes allow them to be somewhat passive.

However, one of the most significant advantages of issuing a creditor’s petition is that same is immediately listed for a hearing before the Bankruptcy Master in the High Court in Belfast and, in the absence of payment in full or debtor engagement, it is likely that either a Bankruptcy Order or Winding Up Order will be made and that will have an immediate and quite dramatic impact on a debtor, particularly if they are a trading business such as:

• The immediate cessation of trading
• The immediate closure and securing of the business premises
• Freezing of bank accounts
• The immediate uplift of moveable assets
• The sale of all assets of value

If an individual debtor is made bankrupt they are immediately divested of their assets, which basically means that they lose all of their assets, irrespective of the value of the debt that made them bankrupt.

A Trustee in Bankruptcy is appointed and their role is to realise all of the Bankrupt’s assets for the benefit of all of the Bankrupt’s creditors, not just the creditor that issued the petition.

Similarly, if the debtor is a limited company then it being placed into compulsory liquidation will result in a Liquidator being appointed and their primary objective will be to realise all of the company’s assets as far as possible for the benefit of the company’s creditors.

Given the destructive impact of a creditor’s petition if it is allowed to proceed, we regularly see that it is only at this stage a debtor who has been otherwise unresponsive, is forced to engage with our office to avoid being made bankrupt or placed into compulsory liquidation.

At Millar McCall Wylie we regularly act for businesses who are owed money from their customers and offer a cost-effective, efficient and proactive litigation and enforcement service to help our clients pursue outstanding monies due to their businesses. We have a wealth of experience in all aspects of civil litigation, enforcement and the workings of the Bankruptcy Court and can carry out a wide variety of pre-litigation and pre-enforcement searches to help our clients decipher which of their debtors are a mark for recovery and most likely to respond to litigation and enforcement.

If your business has problematic debts and wishes us to review and advise on how best to proceed then please contact our Insolvency & Restructuring Team.