Judgement debt: what you need to know

By Robert Owusu, FCIB

If you owe money to someone else, then you are a debtor and the other person is a creditor. If you fail to pay a debt, your creditor can go to court to get a judgement that you owe the debt. If your creditor has a judgement, it means he can now use different ways to get the money from you. This is called                                                      enforcing a judgement. The legal term is execution of the judgement. The creditor chooses how to enforce the judgement and can use several different types of enforcement action at the same time.

Governments continue to pay huge sums of money as judgement debts to individuals and companies due to court orders or breaches of contracts. Inappropriate contractual breaches have been established as a dominant challenge of this menace. Therefore, there is the need especially, for governments to take a critical look at the situation and find a lasting solution to the bottlenecks in signing and abrogation of contracts. Until this is done, public officials will continue to take wrong decisions detrimental to the nation.

WHAT IS A JUDGEMENT

In law, a judgement is a decision of a court regarding the rights and liabilities of parties in a legal action or proceeding. Judgements also generally provide the court’s explanation of why it has chosen to make a particular court order (Source: Wikipedia).

In other words, when the court makes a final decision after considering all evidence and hearing both parties cases  – this is called “judgement”( Source: State Library New South Wale).

WHAT IS A JUDGEMENT DEBT

A judgement debt refers to a legally enforceable obligation, usually for a specific sum of money that arises from a court’s decision in favour of a creditor (judgement creditor) against a debtor (judgement debtor) who failed to fulfill a financial obligation. This court ordered debt typically results from a lawsuit or legal dispute where the debtor is ordered by the court to pay a specific amount to the creditor as a resolution of the dispute (Source: Debexpert).

WHO IS A JUDGEMENT DEBTOR

A judgement debtor (defendant) is an individual or entity that has been found legally responsible for a debt through a court judgement. The designation means they are obligated to pay the judgement creditor (plaintiff) the specified amount or ordered by the court (Source: Debexpert).

It can also be referred to a person or an entity who owes the money a court judgement says he owed. For example, a verdict has gone against a person or entity, that person or entity, is considered a judgement debtor (Source: Law dictionary).

IMPACT ON JUDGEMENT DEBTOR

• Judgement debt may impair ones creditworthiness making it difficult to obtain lines of credit and assets.
• The court ordered asset evaluation, directly affects a judgement debtor with outstanding judgement debt. It outlines how their assets will be distributed to satisfy the judgement. This could mean selling property or garnishing money owed by third parties to the judgement debtor until the debt is paid off.
• Ignoring or defying these court orders, carries severe consequences.
• A judgement debtor may face additional fines or even jail term if he fails to comply with an order for asset evaluation.

WHO IS A JUDGEMENT CREDITOR

A judgement creditor is a person or an entity who is owed money and has been to court and obtained a judgement for the money owed. For example, the court agreed that he was owed the money and declared him to be a judgement creditor (Source: Law dictionary). If the judgement debtor fails to pay, the judgement creditor must return to the court asking for the judgement to be enforced.

CAUSES OF A JUDGEMENT DEBT

Judgement debt payments continue to be one of the major sources of financial drain on economy. Countries are compelled to waste their limited resources on judgement debt payments at the expense of developmental programmes.

The major causes of this menace include:-

• Inappropriate contractual breaches by governments and agencies have been identified as the key sources of judgement debt. For example, in Ghana over the past decade, research has indicated that, judgement debt due to contractual breaches accounted for 73% of the total judgement debt payments between 2000 and 2019 ( Source: Centre for Social Justice – CSJ).
• Government’s failure to promptly pay compensations for its compulsory land acquisitions can result in judgement debt.
• Statutory breaches committed by public officials in the course of their official duties.
• Blatant disregard for public procurement laws.
• Corrupt activities by public officials in their line of duty all of which result in the payment of huge sums of money from the public coffers.

WHAT SHOULD A JUDGEMENT DEBTOR DO

Once a judgement debt has been entered, generally, a judgement debtor will have the number of days specified in the judgement to pay the debt to the judgement creditor. Therefore, the following are the necessary steps that the judgement debtor is expected to take:-

1. ASSESSMENT OF FINANCIAL SITUATION

Accordingly, the initial step is to assess his financial situation to work out if the debt can be paid in full to the judgement creditor within the specified number of days. This can be highly beneficial as the judgement debtor will not pay any interest on the debt to the judgement creditor.

2. REQUEST JUDGEMENT CREDITOR TO HOLD OFF ENFORCEMENT ACTION

If a judgement debtor cannot afford to pay the debt in full within the prescribed period to the judgement creditor, the judgement debtor can nevertheless request that the judgement creditor hold off on any enforcement action.

3. PAYMENT IN INSTALMENTS

The judgement debtor and the judgement creditor may be able to try and reach agreement to pay the debt in instalments. Where agreement between the judgement debtor and the judgement creditor cannot be reached, the judgement debtor can bring an application to the court to pay the judgement debt in instalments.

The court will normally consider such an application without hearing from the judgement creditor, based upon the financial position of the judgement debtor and the proposed instalments to the judgement creditor.

Process for payment in instalments: –

Where a judgement debtor want to pay in instalments, the debtor has to fill out a form at the local court “confessing” to the debt and applying to pay by instalments. The judgement debtor must provide details of his income and assets. If the court agrees to the application:-

• The judgement debtor must keep up the payments or the judgement creditor will take further legal action.
• Interest may be charged on the debt until it is fully paid.
• The judgement debtor has to pay the creditor’s costs for the statement of liquidated claim and their lawyers’ costs.

However, the judgement creditor can seek to set aside the court’s determination in respect of an application to pay by instalments granted in favour of a judgement debtor. In some circumstances, the judgement debtor may apply to the court to have the judgement set aside. The judgement debtor has to explain to the court why he failed to lodge a defence or did not attend court.

Also, the judgement debtor will be required to file his notice of grounds of defence within a specified time. In some cases, the judgement debtor has to pay additional fees and costs.

CONSEQUENCES FOR A JUDGEMENT DEBTOR FOR IGNORING THE ABOVE-MENTIONED STEPS

Becoming a judgement debtor can be quite an unsettling notion. Therefore, judgement debtors should resist the urge to ignore a judgement creditor. If a judgement debtor does nothing, the judgement creditor may enforce the judgement against the judgement debtor in varied ways as detailed below:-

THE RIGHTS OF A JUDGEMENT CREDITOR (PLAINTIFF)

1. WRIT OF EXECUTION

The judgement creditor can send the court Bailiff to your home to remove items to settle the debt. The Bailiff cannot force entry to the judgement debtor’s shed or garage. The Bailiff cannot take or sell:-

• The judgement debtor’s bedroom or kitchen furniture.
• The judgement debtor’s tools of trade or
• Goods which are not for the judgement debtor.

 

2. GARNISHEE ORDER

The judgement creditor can ask the court to “garnishee” the judgement debtor’s wages or bank account. This is a court order telling the judgement debtor’s employer or bankers to give the judgement debtor’s money to the judgement creditor.

3. EXAMINATION SUMMONS

When a judgement debtor receives an examination summons, the judgement debtor must go to court and tell the judgement creditor all about his income and assets. If the judgement debtor don’t turn up, the court can ask the police to bring the judgement debtor to the court on a warrant. If the judgement debtor lie in court, he can be fined.

4. WRIT AGAINST LAND

It is a writ directed to the sheriff of the court to seize the property of the judgement debtor as may be sufficient to satisfy the amount of the judgement debt together with interest and cost. The purpose is to enable the property to be sold to pay the judgement debt.

5. BANKRUPTCY

The judgement creditor can apply to the court to have the judgement debtor declared bankrupt. The creditor can issue creditor’s petition and seek a sequestration order making the judgement debtor bankrupt.

RIGHTS OF A SOVEREIGN JUDGEMENT CREDITOR AGAINST A SOVEREIGN JUDGEMENT DEBTOR

Sovereign debt is the government debt of a country, a sovereign nation. It is also referred to as government debt, national debt, public debt or country debt. The sovereign debt of a country consists of all its debt liabilities to both domestic and foreign creditors (Source: CFI).

Sovereign creditors therefore, have certain rights when it comes to collecting debts. These rights include:-

• The right to seize the debtor’s property if debt is secured.
• The right to report the debtor to credit reporting agencies.
• The right to hire a collection agency to collect the debt.

However, enforcement proceedings against sovereign states present unique challenges that do not arise in enforcement proceedings against private entities. Creditors lack strong enforcement rights due to some reasons that make sovereign debtors become challenging targets.  As a result, there is a growing consensus among enforcement lawyers that enforcing judgements and arbitral awards against sovereign states, is becoming harder.

The reasons include:-

• The assets held by foreign states and state-owned entities are protected by immunity doctrines that vary between jurisdictions.
• There is also no bankruptcy mechanism to provide for a collectively-binding adjustment of a sovereign’s debts.
• Pursuing foreign governments through court systems they control is often futile exercise.
• There are typically minimal political consequences for governments to resist legal debt obligations.
• As the size of judgement or award increases, so does the likelihood that a foreign government or state-owned entity will refuse to acknowledge it.

However, in spite of the above-mentioned reasons, with the right combination of high pressure tactics, couple with aggressive, creative, multijurisdictional strategies, can force sovereign debtors to take a seat at the bargaining table and efficiently monetize judgements and arbitration awards.

Below are some specific examples of effective techniques from recent successful matters where legitimate claims were recovered against sovereign entities:-

1. LOOK OUTSIDE THE DEBTOR’S BORDERS

While immunity doctrines can complicate the seizure of sovereign assets, the truth is that, discovery from third parties outside the debtor’s boarders is generally fair game. Therefore, a critical first step would be looking at a wide range of targets, in multiple jurisdictions- one example is banks in the United States, through which US dollar transactions may flow.

Chances are that, one of these many trails will lead the creditor to creditor-friendly jurisdictions and, subsequently, pressure points that can be leveraged against the sovereign. Obtaining this information in some cases can be done covertly through ex parte applications and under-seal discovery fillings, without having to alert the debtor. In this instance, it’s important to show that the sovereign debtor is likely to move their assets out of a given country if made aware of any asset tracing efforts.

1. CONSIDER EXOTIC ASSET CLASSES (ESPECIALLY MOVABLE KINDS)

Exotic asset classes are often worth more to the sovereign debtor the potential financial returns that they promise to a seizing creditor, example of this asset class include overseas investments through sovereign wealth funds, ships carrying export products sold by state-owned companies, receivables owned by foreign business counterparties and pending legal claims. When these kinds of assets are at stake, even a temporary seizure or credible threat of execution can drive an otherwise hardheaded debtor to the bargaining table.

For example, in the Netherlands, creditors can obtain “conservatory assets” of a sovereign debtor’s commercial assets oftentimes within 24 hours of filling an application and before the judgement is recognized by the local courts. This is an effective way to apply immediate pressure on the debtor, even if the assets are only briefly passing through these jurisdictions (such as oil tankers and cargoes). The only caveat is the conservatory arrests can be easily challenged in court and it is important to be prepared to defend them on short notice.

1. GO IN THROUGH THE “SIDE DOOR” BY TARGETING SOEs

One challenge to overcoming sovereign immunity is the burden of proving that the sovereign’s assets are being used for commercial purposes. In contrast, it is much easier to do so for assets held by one or more of the sovereign’s wholly or majority owned companies. One approach is to “pierce the corporate veil” and show that the state-owned enterprise (SOE) is an “alter-ego” of the state, thereby making their assets fair game for enforcement.

1. USE OF MEDIA AND PROSPECTIVE INVESTORS

Public relations and public affairs campaigns can be particularly effective in creating political discomfort for government decision-makers or informing other prospective investors or business partners of the perils of doing business in the debtor nation.

MEASURES TO CONTROL JUDGEMENT DEBT MENACE

Judgement debt continues to be one of the major sources of increased cost to individuals, entities and especially, governments. However, due to the relatively fragile and unstable financial, economic and political climate, governments in the developing countries have been the most victims of the situation. Below are some salient steps that can help control the menace:-

1. EFFICIENT OVERSIGHT RESPONSIBILITY

• All requests relating to the payment of judgement debt should be accompanied by relevant supporting documents including the original copy of the abrogated contract, forming the basis of the judgement and a summary of the court’s ruling in respect of such payments.
• An appropriate authority at the Finance Ministry should ensure to review the payment requests for supporting documentation and Audit Service approval before effecting payments.
• No judgement debt payment request should be honoured by the Ministry without supporting documents and Audit Service approval. It will be prudent in such instance for the Attorney General’s office to produce the supporting documents. In a situation where the supporting documents are not available, the court that rendered the judgement should be contacted, prior to honouring the payment request, to provide for verification the evidential matter upon which the judgement was based.
• Furthermore, payment requests stemming from arbitrations and out of court settlements shall be subjected to the similar level of scrutiny as above.

2. AVOID AMBIGUOUS CONTRACT PROCEDURES

• Institute measures to prevent abrogation of legally binding government contracts unless there is clear evidence that the other party has failed to fulfill his part of the contractual obligations.
• The determination of fulfillment of contractual obligations should solely be the responsibility of professional lawyers with technical competence in the Attorney General’s department or reputable external legal consultants.
• Previous government’s contracts should be reviewed in a very transparent manner to ensure that the abrogated contract is in the interest of the nation. In addition, the involvement of stakeholders like the Cabinet and Parliament should not be ignored in decisions regarding contract abrogation.

3. EVALUATION AND ENFORCEMENT OF PROCUREMENT LAWS/PROPERTY ADMINISTRATION

 A centralized contract administration unit should be set up to coordinate the execution and management of government contract and in adherence to applicable laws.

• Compliance with the procurement laws in respect of government contracts should be ensured.
• Procurement laws should be enforced by criminalizing non-compliance and also prosecuting offenders.
• Ensure all government contracts contain well-spelt out written provisions regarding the rights and responsibilities of the parties, the conditions for arbitration and termination as well as the consequences for unlawful termination.

4. SET UP JUDGEMENT DEBT HANDLING PROCEDURES

• A comprehensive debt management policy and procedural guidelines should be formulated and implemented.
• A formally documented judgement debt handling procedure as part of the overall debt management policy, should be implemented.
• The Audit Service should determine compliance with the implemented policy and procedural guidelines as part of its review.
• Effective and appropriate training with resources should be structured and offered to government employees to ensure cost-effective judgement debt processing.
• Accountability procedures should be formalized so that people can be held accountable for non-compliance with legal policy and procedural requirements.

5. ETHICS ORIENTATION FOR GOVERNMENT OFFICIALS 

• Upon assumption of office, all newly recruited government officials should be offered the opportunity to undergo orientation on ethics of governance and public service.
• The orientation should be structured to focus on the relevance of public ethics, respect for individual rights, prevention of abuse of power, the limits of public authority and other important topics.
• Gaining ethical knowledge will help limit problems relating to wrongful dismissal of government employees, unlawful demolition of private properties, abuse of power and contractual issues that result in judgement and settlement debts.

6. CONDUCTION OF INVESTIGATION AND LEGAL ACTION BY SECURITY AGENCIES

 In the best interest of accountability, investigation should be conducted to ascertain whether some individuals have willfully and knowingly caused financial loss to the state.

• Ensure that the investigation is fair and objective and non-political.
• Where after extensive investigation, some persons are found to have willfully and knowingly caused financial losses to the state, appropriate legal action should be taken to prosecute the culprits to serve as a deterrent.

7. ADEQUATELY RESOURCE THE AUDIT SERVICE

• Resources should be adequately provided for the Audit Service to enable them broaden the scope of their duties.
• All contracts should be subjected to Audit Service review for evidence of legal compliance before they are executed. This will minimize financial malfeasance and further drain on organizations or nation’s coffers.
• All judgement debt payment requests should be subjected to audit review for evidence of proper approval and supporting documentation.
• All purported contract abrogation should be subjected to audit review for evidence of expert legal opinion supporting the abrogation before it is effected.
• Annual reviews of the nation’s debt, should be conducted by the Audit Service as part of their debt management practices with much emphasis on judgement debt.

 

CONCLUSION

It appears some public officers deliberately engage in these acts for personal gains. Considering the rate or level at which this situation has caused many countries especially in Africa, it seems there are incentives to subject the state to judgement debt. Is it because other public officers don’t have the nation at heart that they take decisions on behalf of their countries that results in the countries incurring  unnecessary losses?

Some have even posited that, it has become a business venture where some time and resources are invested in to rip off the country for personal gains. Definitely, there will be a technical officer and a lawyer somewhere when contracts are signed. However, at the end of the day, when such abrogation happens, the question one seeks to ask is whether there was a lawyer involved in taking such a unilateral decision.

Many of the solutions outlined can be implemented fairly quickly without legislation in those instances where the recommended controls do not exist, while a few may require parliamentary endorsement. Using the above-recommended measures as a guide, the government in consultation with relevant agencies, can implement reforms that will safeguard the assets of the nation and enhance the livelihood of the citizens of the country.

It is about time we hold people accountable for their financial decisions as far as the public purse is concerned. If we cannot hold people accountable for the financial decisions they take for the country, then it can be concluded that, the menace is going to be perpetual. Be in government is neither about excessive self-interest nor abuse of power but rather, about providing quality and dedicated service to the good people of the country.

As a result, I urge all public officials to always put the interest of the nation first.

ABOUT THE AUTHOR

ROBERT OWUSU, FCIB – is a Fellow of the Chartered Institute of Bankers (Ghana). A seasoned banker with wide experience in Retail Banking, Internal Auditing, Project Management, Electronic Banking with high specialty in Internet Banking. He is also a Consultant and a Supervisor of Chartered Institute of Bankers (Ghana) examination.

CONTACT

E-mail address:  kwa [email protected]; Tel. 0240 821597 & 0546 907904