Creditors have new weapon to tackle firms in debt war

Published on Sunday 17 January 2010 21:00

MOST of us will have seen the Boxing Day coverage of the descent of hordes of shoppers on the high streets.

While not all of us will have been willing to queue to find that "steal", the majority will have sought that post-Christmas bargain fix, and many retailers are reporting record post-Christmas sales.

Now, though, the melting snow and the VAT increase signal a reversion to normality, and many businesses will return to the reality of ordinary trading with a bump.

Shops, restaurants and pubs in particular may feel the pinch, as the rest of us abstain to make up for our Christmas excesses.

It is these very businesses that face a further challenge in the shape of a new enforcement remedy that came into being at the end of last year.

Specifically, creditors have been handed a new weapon against businesses in the war on debt.

It is called "money attachment".

Until now, in Scotland, cash owned by a debtor has not been susceptible to any kind of action by creditors seeking to enforce a debt.

Applications can now be made under the Bankruptcy and Diligence etc (Scotland) Act 2007 to empower creditors to instruct cash to be seized from the business premises of those who owe money.

At a stroke, businesses can face an unheralded visit to any premises, other than their home, where they have cash, cheques, postal orders, foreign currency and similar items that are convertible into money and to seeing their cash being taken in satisfaction of their debt.

The new system is quite complex, but, putting it relatively briefly, if a creditor has a court order stating that a sum is due, or another "document of debt" such as a lease, they have served a charge for payment and that payment is not made within 14 days, they can instruct sheriff officers to search business premises for cash and take what they find to cover the debt, plus any interest and expenses incurred.

Money attachment will not be allowed without a court order on Sundays, local public holidays, or outwith the hours of 8am to 8pm. However, the remedy is going to be most useful against pubs and clubs, restaurants and shops, which tend to be cash-rich after a busy day's trading (and keep that cash on the premises).

It is, however, expected that court approval for money attachment outwith these times will become the norm. This will allow sheriff officers to enter premises at times when the cash supply will be highest, such as at a bar's closing time.

Under the new rules, sheriff officers can go on to premises unannounced and demand the opening of safes and tills. They are entitled to assume that all the money they find belongs to the debtor.

While this regime may paint a Draconian picture, more akin to the Sheriff of Nottingham than reasonable debt enforcement, it should be remembered that all that is being done is that cash is being taken legitimately to satisfy a debt that is owed.

Debtors have some protection under the new rules, in that they have a two-week period in which to apply to the court to have all or some of the money returned, where taking the cash has been unduly harsh, or the precise procedure to be followed has been deviated from.

This remedy is likely to be very useful for HM Revenue & Customs, landlords and wholesale suppliers seeking to enforce debts, not just for taking cash from retail premises, but also because cheques could be seized and, in some instances, offices too.

Those who are vulnerable will have notice that money attachment is on the cards by way of the charge for payment.

If they cannot find a way to come to some arrangement with their creditor, they should prepare for the possibility of a visit – and bear in mind they must comply with the law.

Moving cash into their homes is, in reality, unlikely to be practical for every business and won't provide a long-term solution to the problems they face.

Businesses at risk of such a visit should brief their staff on what to do in the event of the arrival of sheriff officers.

This includes verifying their identity, checking their paperwork, including the amount they are authorised to take, making sure they have the court order they need to remove the money if it is outwith the permitted hours, and keeping a note of everything that happens so that, if there has been any departure from the specified procedure, the removal might be successfully challenged in court.

&#149 Pamela Abbott is a solicitor with CCW Business Lawyers.