How to Collect on a Judgment
Many businesses—large and small—find themselves in a position where they are owed money by one or more of their customers. This is frequently the case in the construction industry, but this sector by no means holds a monopoly on bad debts.
Whether the owed party is a nationwide design firm with locations across the country or a one-person specifications company run out of a home office, the process is much the same. Lawyers are retained, lawsuits are started, and judgments are obtained. Then what? It is not as if the court magically opens its coffers and writes a cheque for what you are owed.
During the litigation process, it is quite common for a party to obtain a piece of paper from the court that legally declares a particular person or company owes them a certain amount of money. This is known as a ‘judgment.’ However, obtaining this is often simply the first step in a long and frustrating journey of actually collecting the amount of money being owed.
Once you actually have a judgment, the first decision to be made is whether to spend the time, money, and resources in pursuing collection efforts. Some of the initial questions you should ask yourself in figuring out this dilemma are:
- Is the debtor a company that has stopped operating?
- Has the debtor already gone bankrupt?
- Is there anyone else who is also owed money?
- If there are others who are owed money, do they also have judgments?
If the answer is ‘yes’ to any of these questions, it may not be worth proceeding to enforce your judgment after all—the costs may far exceed any potential recovery. Nevertheless, there are still many different reasons to go ahead with enforcing judgment. Sometimes, not all information is known at the time the decision to sue is made—it is only after an action has commenced that the solvency or situation of a company becomes clear.
Further, some companies have policies in place which state that, at a minimum, you must obtain a judgment and file a Writ of Seizure and Sale (see later in this article) before an account can be considered ‘unrecoverable.’ Finally, a company may be still solvent and operating when the Statement of Claim is issued, but ultimately go under once creditors actually start obtaining judgments.
Three legal remedies to help get your money
If the decision is made to take the next steps to collect on your judgment, there are a number of legal avenues you can pursue. The three most useful and commonly used enforcement remedies are:
- Writs of Seizure and Sale;
- garnishments; and
- examinations in aid of execution (i.e. JD Exams).
These three basic methods of enforcement are the same regardless of whether your judgment is against a corporation or an individual. (It is critical to consult with your lawyer about your particular situation.)
Writs
A Writ of Seizure and Sale is filed with the sheriff’s office where a debtor resides or carries on business, immediately after the judgment has been obtained. Filing such a writ has the effect of binding any lands or assets held in the name of the judgment debtor in the jurisdiction where the writ is filed. For example, if a debtor owns real property in the jurisdiction where the writ is filed, a creditor can take steps to force the sale of the real property by the sheriff’s office and collect money from the proceeds.
Garnishments
Garnishments are the legal method used by creditors to intercept and seize any monies owing by third parties to the debtor. On obtaining information that a debtor is owed a monetary amount by a third party, a creditor would serve that third party with a “Notice of Garnishment.” Once served, the third party is legally obligated to remit those funds to the sheriff’s office for ultimate distribution to the execution creditors.
The most common garnishments are that of a debtor’s wages (if an individual) or a bank account. However, other monetary assets that can be caught by a garnishment include accounts receivable and rent monies.
JD exams
An Examination in Aid of Execution allows a judgment creditor to legally compel a debtor to provide information about his or her assets. This measure is typically used when there is little known about the debtor’s assets. One may examine the debtor on all matters relating to his or her financial affairs; during the course of the examination, one is entitled to review all relevant documents, such as the debtor’s bank records, financial statements, and payroll information. Information obtained during the course of such an examination may provide the jump off point to try other enforcement remedies such as garnishments or the seizure and sale of real property.
How these enforcement remedies work
A hypothetical case study is useful to understand more clearly how these enforcement remedies work in a practical sense. Your client, ABC Co., owes you $100,000 for unpaid services, so the decision is made to commence a lawsuit against the company for the outstanding invoices. ABC does not defend the action and you obtain a default judgment against the company. The only information you have about ABC to use as a starting point for enforcing your judgment is the name of the president and sole shareholder. What do you do?
The first step you can take is to serve the president with a Notice of Examination in Aid of Execution. This compels him or her to attend a meeting at a specified location and time to answer questions about the company’s assets. During the examination, questions should be asked to determine the particulars of:
- where ABC carries on business;
- whether its premises are owned or leased;
- which financial institution it uses (both the name of the institution and the local branch particulars); and
- specifics as to its accounts receivables.
If ABC’s president is particularly helpful and answers all questions truthfully, you now know the company owns office space in Mississauga, Ont., banks at the TD Canada Trust location located at Square One Shopping Centre, and is owed about $50,000 from its largest customer, 123 Inc.
Armed with this information, you can now file a Writ of Seizure and Sale in Mississauga’s Regional Municipality of Peel and issue garnishments to be served on both TD Canada Trust (at the branch level) and 123 Inc. If you are lucky, TD Canada Trust and 123 Inc. may have monies due and owing to ABC and will remit the funds to the sheriff’s office for ultimate distribution to all of ABC’s execution creditors. In the perfect world, you have recovered the full amount owed and can now proceed to close your account.
A word of caution—very rarely do things in real life transpire as quickly and easily as in this example. Except in instances where there is a legitimate dispute between the parties as to the quality or nature of the services or materials provided, a customer who defaults on its payment obligations has usually run into financial difficulty and does not have sufficient assets to cover its liabilities.
For example, in the hypothetical scenario explored in the previous paragraphs, it could have been that the office premises were leased (with ABC locked out), the bank account at TD Canada Trust was empty, and 123 Inc. had remitted the money it owed ABC to the Canada Revenue Agency (CRA) because ABC failed to pay its income taxes for the last three years.
It is important to be realistic when pursuing these matters and, more importantly, be willing to reassess your position as you navigate the choppy waters of debt collection.