Marcus Pallot and Jamie Guyan, of Carey Olsen, explain why it is important to engage with creditors at the first sign of any problems
MANAGING your money can be difficult and, as a society, we are averse to talking about money and, in particular, money worries. Coupled together, these two things can become a dangerous cocktail with serious consequences. But there’s plenty you can do to avoid this, as long as you do not bury your head in the sand.
What does not burying your head in the sand look like?
Not burying your head in the sand just means doing something about the problem. Various debt advisory services are available, but Citizen’s Advice Jersey is always a good first option. If anything happens that you know will impact your ability to pay your debts, then the best advice is invariably to tell whoever it is on the other side. It’s best to do so before (if you can), or as soon as, any issues arise.
The types of issues that come up include loss of employment, reduction of pay or an increase in other bills such as utilities or mortgage repayments. Speak to the creditor to see what arrangements can be put in place or what changes to your services can be made to make them more affordable. Doing this early also helps prevent missed-payment fees or increased interest, and avoiding court action avoids the debt increasing to take account of court and legal fees.
Whatever may be said about lenders and creditors, the practical reality is they have no interest in court proceedings and enforcement actions if they can avoid it. All that does is take up a lot of their time and resource and is likely to incur a raft of fees that they are unsure about recovering and creates risk. It doesn’t get them their money back, or get their bill paid, which is what they really want. In short, they are far more likely to agree different payment terms if they think their debtor is being straight with them.
What could happen if you do bury your head in the sand?
If the creditor isn’t getting any engagement from their debtor, then they will either go straight to court or engage a lawyer or debt collector to try and get a response. But, as mentioned above, as soon as that happens there will be greater fees incurred, which the creditor will seek to add to the debt. Before going to court, the creditor should write a letter before action: that’s a letter setting out the claim, asking for payment and making it clear that if payment isn’t made as requested, and in the timeframe requested, then they will go to court for a judgment.
If you do not respond or fail to agree a way ahead or fail to pay what you owe, then claims for under £30,000 are heard in the Petty Debts Court and claims for over £30,000 will be heard in the Royal Court. In either case, you will receive a summons to the appropriate court on a particular day. If you do not respond to the summons, or fail to attend court, the usual result is that a judgment will be given in your creditor’s favour which can be enforced against you.
Enforcing a judgement
Once your creditor has a judgment, there are several options available to them to enforce it against you and seek to recover the money due. These include:
- The Viscount can take possession of your moveable assets (ie not your home, or other properties) and sell them to pay off the judgment. This really does mean the Viscount can attend and take your possessions such as your car and any other valuables that you have and sell them at auction. He can then deduct his fees and apply the remainder in part or full satisfaction of your debts. He can also inform your employer and distrain against your wages for up to £80 per week.
- If you own immoveable property in Jersey (ie your home), the judgment can be registered against that. This enables the creditor to enforce the judgment against that property using bankruptcy procedures which can ultimately mean repossession of your property. It is also likely to put you in breach of any existing mortgage type lending so your existing provider could also call a default.
- Bankruptcy – a creditor in Jersey can apply to the court for a declaration en désastre. This applies to everything you own no matter where it is. There is also a separate procedure called dégrèvement where a creditor takes action against specific immoveable property. That can mean they take your property, pay off any debts secured on it and then can keep your property or any amounts coming from a sale of it.
Companies – directors
Creditors can enforce debts against companies in much the same ways as against individuals, but there is also a way for a creditor to put a Jersey company into a winding up. If you are a director of a Jersey company and you receive a statutory demand or other claims saying that a winding up may result, then you must get advice quickly on this.
If you do nothing, then the company can be put into a winding up and a liquidator can be appointed. This is a formal bankruptcy and you could lose the chance of working with your creditors to come out on the other side and continue to trade.
There are also additional risks for directors of companies in Jersey because they are subject to additional legal duties, including not wrongfully or fraudulently trading. Directors should ordinarily be asking themselves: ‘Can the company pay its debts as they fall due?’
As a director, as soon as you know, or ought reasonably to have known, that you could not do this, then your duties change from being owed to your shareholders to being owed to your creditors. From that time, the best advice is either to cease trading or (if you carry on trading) to work to ensure you are doing your best for your creditors and make sure you can show that by having accurate records of your meetings and deliberations.
Engage with your creditor
This is the conclusion. And do it early. It is far more likely to stop additional costs and charges and to lead to a chance to reschedule the debt than to be the catalyst for proceedings or enforcement.