Does the defendant have assets to satisfy a judgment?
Enforcing a judgment where the defendant holds assets through a company.
An important factor in deciding whether to launch legal proceedings is the capacity of a defendant to pay a judgment out of their own assets.
Enquiries are often made into whether a defendant personally owns an interest in land that may be seized and sold to satisfy a judgment. The seizure and sale of a defendant's land is often an efficient and effective means of enforcing a judgment that the defendant cannot or will not pay from the defendant's own resources. The judgment creditor can apply for a property (seizure and sale) order which entitles the Sheriff to seize and sell land and other assets owned by the judgment debtor and use the net proceeds of sale to pay the judgment debt.
Where a defendant holds assets 'through a company', in the sense that the defendant owns all of the shares in a company that owns assets, the assets of the company cannot be directly seized and sold by the Sheriff, as a company is a separate legal entity from it shareholders. However, the shares themselves may be assets that are personally owned by the defendant and available to be appropriated, or their value realised, to pay a judgment pursuant to section 86 of the Civil Judgment Enforcement Act 2004 (WA), via the appointment of a receiver to the shares.
A receiver will ordinarily be a registered company liquidator. Pursuant to a court order, a receiver can have the power to exercise the rights of the judgment debtor as a shareholder in the company. Depending upon the circumstances of a particular company, the receiver can cause funds to flow to the judgment debtor shareholder to pay the judgment debt in the following ways:
- By selling the shares in the company.
- By passing resolutions to require the director/s of the company to pay a dividend to the shareholder, either out of cash holdings, trading profits or the sale of capital assets (within the confines of relevant business laws). A director that does not carry out lawful resolutions may be removed and replaced.
- By passing a resolution that the company be wound up, causing a liquidation of the company and a return of funds to the shareholder at the end of the liquidation process.
Whilst the appointment of a receiver is discretionary, an application will have greater prospects of success where there is little or no prospect of the judgment being satisfied by another method of enforcement (such as seizure and sale of the defendant's land and other assets), and provided that the probable benefits of the receivership outweigh the probable costs.
Where there is a risk that a defendant may, before trial, diminish, dissipate or conceal assets, including assets held through a company, a court has the power to make freezing orders restricting the manner in which the defendant and third parties may deal with their assets so as to preserve those assets until enforcement of a judgment following trial.
This article is for general information only. For further information about identifying, freezing or appropriating a defendant's assets, or advice regarding a litigation matter, please contact our Rob Ioppolo, Senior Associate on (08) 9420 7119 or by email to rioppolo@talbotolivier.com.au.
