The benefits of third party debt orders

The High Court recently, in the unreported case of Ion Science Ltd and Duncan Johns v Persons Unknown (22 January 2022) handed down a decision to award a final third party debt order in favour of the applicant in those proceedings. What makes this case particularly interesting is that it is quite possibly the first Order of its kind within this jurisdiction, being a final third party debt order award for under £3 million relating to a cryptocurrency fraud claim. More so, however, considering the substantial award by the Court in favour of the Applicant, this case highlights the benefits of applying for a third party debt order in proceedings where Judgment has been secured against a Judgment debtor.

But what exactly are third party debt orders, and how might they help enforce a judgement against a debtor? A third party debt order directs a third party (such as a bank or building society) to deliver money it holds for or owes to a Judgment debtor to a Judgment creditor in order to pay off a Judgment debt. In general, a creditor can ask the Court for an Order for this third party to pay any Judgment amount to the creditor directly, as opposed to the debtor. It is effectively a means of enforcement of a Judgment it has secured. Provision is made for third party debt orders under Part 72 of the Civil Procedure Rules.

Third party debt orders are not always a popular means of enforcing a Judgment. The reason for this is that they are only effective under specific circumstances, particularly because the Judgment creditor must be in possession of evidence in support of such funds being held by this third party. However, they can indeed be very beneficial in circumstances where the creditor does hold sufficient information regarding funds held or due by a third party. A creditor is also not limited to recovering the entirety of the debt through this method. They can utilise it to recover a portion of the Judgment debt, and then seek an alternative method to recover the remaining balance owed. Furthermore, a third party debt order can be a means of enforcement used simultaneously alongside another method of enforcement.

Making a third party debt order has several advantages, one of which is that it prevents a debtor from withdrawing money from their bank or building society account. This can be extremely effective because a third party debt order is treated as an urgent application by the Court, and a decision is often made by the Court on the very same day that the application is made. Once granted, the Order is served on the third party who is compelled to freeze the money held for the Judgment debtor. They would also have to reveal information about any additional accounts or funds they may have for the debtor.

Obtaining a third party debt order is a two-step process. An application for an interim third party debt order is made first. This can be made at any time after Judgment has been secured against a debtor. A requirement therefore is that the Judgment debt must be due and enforceable. If the Judgment debtor still has time to pay the Judgment or is doing so in instalments as per the terms of that Judgment, the application will surely fail. Furthermore, the application must clearly set out the full details of the third party and information/evidence supporting assertions that this party holds funds for the benefit of the Judgment debtor. They must be for the sole benefit of the Judgment debtor and cannot, for example, be for the joint benefit of another party such as a jointly held bank account.

If the application is approved, an interim order is issued, freezing the third party's funds. This third party is then served the order. The Judgment debtor is not notified of the application until at least seven days after the interim order is served on the third party. This is to prevent the Judgment debtor from disposing of any funds before they are frozen.

The matter will subsequently be listed for a final hearing at least 28 days later. A Judge will consider making a final order at this hearing, which if made, will result in the third party being required to transfer any funds it holds to the Judgment creditor. At the final hearing, the Judgment debtor, the Judgment creditor, and any other interested party will be permitted to make submissions towards assisting the Judge in making a final decision.

Considering the above and the outcome in the Ion Science Ltd and Duncan Johns v Persons Unknown case, it is easy to see why third party debt orders can be an effective and attractive tool for a creditor to utilise in securing payment of its Judgment debt. There are some evident obstacles to overcome, such as ensuring that as a creditor, you hold sufficient information to evidence the funds held by the third party. Separately, it is important to have a strategy in place as to when the application should be made, ensuring that your timing is right based on the availability of funds for the third party to make the payment.  However, ultimately, a well-timed application for a third party debt order can be of great benefit in securing payment of a Judgment debt.

Written by : Simeon Simeonov, Foreign Qualified Lawyer

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