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Debt recovery – collection agencies scrap for priority

Sydney Mitchell LLP

If you are owed money, you should seek legal advice straight away or face finding yourself at the bottom of the pecking order of creditors.

Just that situation arose in a guideline High Court case in which rival debt collection agencies scrapped over which of them had priority to cash recovered from a debtor.

Two creditors obtained money judgements against the debtor and entrusted different collection agencies with the task of enforcing them. Writs of control were obtained by High Court enforcement officers (HCEOs) and were passed to certified enforcement agents (EAs) employed by the agencies.

The writs entitled the EAs to seize the debtor’s goods, or cash in lieu, in order to satisfy or part-satisfy the judgement debts.

The EA whose writ of control was issued first in time (the first EA) visited the debtor and agreed to defer further enforcement action on the basis that the debtor would pay what he owed by instalments.

However, the second EA, whose writ of control was issued about a month later than that of the first EA, was less accommodating and persuaded the debtor to pay the money owed to his client immediately and in full.

Feeling that the first EA was the rightful winner of the enforcement race, and that the second EA had unfairly snatched away the fruits of his victory, the former’s employer successfully argued before a judge that his writ took priority.

The agency for which the second EA worked was ordered to remit the £12,050 he had extracted from the debtor to the first EA’s employer comments Gemma Parker, FCILEx,Legal Executive at Sydney Mitchell LLP.

In dismissing an appeal against that ruling brought by the second EA’s employer, the Court found that, on a true interpretation of the Tribunals, Courts and Enforcement Act 2007, priority was afforded to the creditor whose writ of control was first received by an HCEO.

The fact that the second EA was the first to obtain the fruits of his writ did not change that position.

Giving guidance for the future, the Court reaffirmed the long-established principle that a debtor’s goods become bound by a writ of control on the date of its receipt by an HCEO and that, although the same goods can be bound by multiple writs, it is only once the first writ is satisfied that any surplus can be applied in satisfaction of the second writ, and so on, in accordance with priority.