The tools of justice
There are a number of ways in which to recover debts. This is a summary of the legal tools at your disposal.
Precautionary warrants
The creditor might find himself in a situation where he has not yet obtained an executive title (which might take some time if the debtor is contesting the creditor's claim) and is concerned that the debtor might dispose of his assets or take any other action which might prejudice his rights. In this case the creditor may request the court to issue precautionary warrants. This will effectively safeguard the creditor's interest by seizing property belonging to the debtor, which property is deposited in court or kept under the custody of a third party, until the creditor's claim is properly determined and converted into an executive title.
Once issued, precautionary warrants shall remain in force until the creditor obtains an executive title, or until they are rescinded by the court. Once the creditor obtains an executive title, then a precautionary warrant becomes an executive warrant.
Since the precautionary warrant is used even though the creditor's claim has not been confirmed by means of an executive title, it must therefore be used prudently. In fact the law requires that applications for precautionary warrants must be confirmed on oath by the creditor. If the court feels that a creditor's application for a precautionary warrant is abusive then he can be found liable for damages.
Precautionary warrants are usually issued concurrently with the commencement of legal action. At any rate, once a precautionary warrant has been issued the creditor must bring forward his legal action against the debtor within a specific time period. Failure to do so will entitle the debtor to request the court to remove the precautionary warrant and may expose the creditor to an action for damages.
Notwithstanding that a creditor has filed a precautionary warrant in accordance with all the provisions of the law, the debtor may still request the court to remove the precautionary warrant in certain situations. One such case would be when the debtor is in a position to lodge a deposit or other equivalent security in court to safeguard the creditor's claim. The removal of the warrant is also possible when the debtor can show that the amount being claimed by the creditor is prima facie unjustified or excessive. The debtor may also request the court to condemn the creditor to pay him a penalty between €1,164 (Lm500) and €6,988 (Lm3,000) if he can prove that the creditor failed to bring the action within the time prescribed by law following the filing of application for the precautionary warrant.
Furthermore, the creditor can also be condemned to pay such penalty if he fails to show that the warrant had to be issued or that within the 15 days prior to the application for the warrant, he had called upon the debtor to pay the debt or to provide sufficient security. The debtor may also request the payment of the penalty if he can prove that the creditor's claim is malicious, frivolous or vexatious, or if the circumstances of the debtor are such as not to give rise to any reasonable doubt as to his solvency and his financial ability to meet the creditor's claims. It is therefore clear that while precautionary warrants are useful tools which will ensure that the creditor's rights are not prejudiced by the debtor's actions, they must be used prudently and responsibly.
Types of precautionary and executive warrants:
● Warrant of description
This warrant is a precautionary warrant and is therefore used to secure a right over a movable object until the creditor has obtained an executive title. The court executing officer will execute this warrant by describing the item specified in the warrant, stating the relevant details such as the number and quality of the item. Once the court executing officer has done this, the item shall remain in the custody of the person in whose possession it is found and that person shall be responsible for its safe keeping. This warrant is useful to record the condition, quantity and location of items belonging to the debtor (whether they are in his possession or in the possession of a third party), thus ensuring that they are not disposed of to the detriment of the creditor's rights.
● Warrants of seizure
Warrants of seizure can be both precautionary as well as executive. This warrant is a court order issued on the application of the creditor whereby the executive officer seizes the debtor's property for the eventual judicial sale by auction (see below), so that the creditor can be paid from the proceeds of such sale. There are various types of warrants of seizure.
● Warrant of seizure of movable property
This is used to seize movable property from the possession of the debtor, which property can range from normal household items to money, jewellery and articles of precious metal or intrinsic value. The objects seized may be put under the care and responsibility of a third party known as the consignatary. Not everybody can be appointed consignatary (for example close relatives and employees are not accepted) and the consignatary is responsible for their safekeeping.
● Warrant of seizure of immovable property
This is a court order for the seizure of immovable property belonging to the debtor. Once property is seized, the court will appoint an expert to appraise the property and fix a date and time for the judicial sale by auction. The court may accept an appraisement filed by the debtor himself, after hearing any objections which the creditor might have to such an appointment. The appraisement shall consist of a valuation of the property together with a detailed description, including the existence of any legal burdens, leases and other third-party rights over the property in question.
● Warrant of seizure of a commercial going concern
The law defines a going concern as "any kind of commercial enterprise conducting a business activity and including machinery, apparatus, goods, corporal and incorporeal rights, both movable and immovable property, licences, copyright and goodwill". A warrant of seizure issued on a commercial going concern will therefore seize all the foregoing, including both the movable and the immovable property of the going concern. Prior to authorising the sale of the seized going concern, the court will appoint an expert to draw up a report on the going concern, which report must include the assets and liabilities, and whether, given the amount of debts which the going concern has, it should be put under administration rather than sold.
If the going concern is put under administration the appointed administrator will be responsible to manage it until the debt is paid. Such an administrator shall have the right to sell and carry on trade in the going concern's day-to-day business, subject to obtaining the necessary authorisation from the court in the case of decisions of an extraordinary nature.
● Judicial sale by auction
Once the debtor's property has been seized by means of one of the warrants of seizure, the creditor will want to sell the seized property at an auction which is carried out under the authority of the court. The auction is advertised in one English language and one Maltese language newspaper. Both the debtor and the creditor may, at their expense, advertise the auction in any newspaper of the choice or broadcast over any medium.
When the property seized is being sold by judicial sale by auction, the creditor may bid animo compensandi, which means that he may purchase the seized property himself on account of the money owed to him. If the property is purchased at a price higher than the amount owed to him, then he is obliged to deposit in court the surplus amount.
● Garnishee order
This is a court order issued to third parties who might be in possession of money or movable property belonging to the debtor. These orders are typically served on commercial banks but may in fact be served on any person who might be in possession of the debtor's money or movable property. On receipt of the garnishee order, the third party has a maximum of 21 days to deposit in court any money or movable property in his possession. If the third party fails to do so within the mentioned time limit, he shall be responsible towards the creditor for damages and interest, and may also be liable to arrest. The law prohibits the issuing of a garnishee order in certain instances such as on salaries, wages, social benefit or pension (only the first €698 (Lm300) per month are protected). The garnishee order can be both a precautionary and an executive warrant.
● Warrant of prohibitory injunction
This is a precautionary warrant which may be used to ensure that a debtor does not transfer his property to third parties while the creditor obtains an executive title. As the name suggests, this warrant takes the form of a court order prohibiting the debtor from transferring such property. This warrant may be used only where the debt is not less than €11,647 (Lm5,000) and can be used on both immovable and movable property. If used to prohibit the transfer of immovable property, then the warrant must be served on the Director of the Public Registry. This will ensure that anyone purchasing the debtor's property will become aware of the existence of this warrant once the searches are carried out by the notary, unless of course the warrant has been done at the last minute well after the notary had already carried out the searches. At any rate, any transfer of immovable property done after the service of the warrant to the Public Registry shall be null.
This warrant may also be used to prohibit the sale or transfer of shares which the debtor might hold in a commercial partnership. The warrant must be served on the Registrar of Companies and any transfer of shares done after such date shall also be null.
• This article was taken from the booklet titled Know Your Debtor, published by the Malta Association of Credit Management.
The creditor might find himself in a situation where he has not yet obtained an executive title (which might take some time if the debtor is contesting the creditor's claim) and is concerned that the debtor might dispose of his assets or take any other action which might prejudice his rights. In this case the creditor may request the court to issue precautionary warrants. This will effectively safeguard the creditor's interest by seizing property belonging to the debtor, which property is deposited in court or kept under the custody of a third party, until the creditor's claim is properly determined and converted into an executive title.
Once issued, precautionary warrants shall remain in force until the creditor obtains an executive title, or until they are rescinded by the court. Once the creditor obtains an executive title, then a precautionary warrant becomes an executive warrant.
Since the precautionary warrant is used even though the creditor's claim has not been confirmed by means of an executive title, it must therefore be used prudently. In fact the law requires that applications for precautionary warrants must be confirmed on oath by the creditor. If the court feels that a creditor's application for a precautionary warrant is abusive then he can be found liable for damages.
Precautionary warrants are usually issued concurrently with the commencement of legal action. At any rate, once a precautionary warrant has been issued the creditor must bring forward his legal action against the debtor within a specific time period. Failure to do so will entitle the debtor to request the court to remove the precautionary warrant and may expose the creditor to an action for damages.
Notwithstanding that a creditor has filed a precautionary warrant in accordance with all the provisions of the law, the debtor may still request the court to remove the precautionary warrant in certain situations. One such case would be when the debtor is in a position to lodge a deposit or other equivalent security in court to safeguard the creditor's claim. The removal of the warrant is also possible when the debtor can show that the amount being claimed by the creditor is prima facie unjustified or excessive. The debtor may also request the court to condemn the creditor to pay him a penalty between €1,164 (Lm500) and €6,988 (Lm3,000) if he can prove that the creditor failed to bring the action within the time prescribed by law following the filing of application for the precautionary warrant.
Furthermore, the creditor can also be condemned to pay such penalty if he fails to show that the warrant had to be issued or that within the 15 days prior to the application for the warrant, he had called upon the debtor to pay the debt or to provide sufficient security. The debtor may also request the payment of the penalty if he can prove that the creditor's claim is malicious, frivolous or vexatious, or if the circumstances of the debtor are such as not to give rise to any reasonable doubt as to his solvency and his financial ability to meet the creditor's claims. It is therefore clear that while precautionary warrants are useful tools which will ensure that the creditor's rights are not prejudiced by the debtor's actions, they must be used prudently and responsibly.
Types of precautionary and executive warrants:
● Warrant of description
This warrant is a precautionary warrant and is therefore used to secure a right over a movable object until the creditor has obtained an executive title. The court executing officer will execute this warrant by describing the item specified in the warrant, stating the relevant details such as the number and quality of the item. Once the court executing officer has done this, the item shall remain in the custody of the person in whose possession it is found and that person shall be responsible for its safe keeping. This warrant is useful to record the condition, quantity and location of items belonging to the debtor (whether they are in his possession or in the possession of a third party), thus ensuring that they are not disposed of to the detriment of the creditor's rights.
● Warrants of seizure
Warrants of seizure can be both precautionary as well as executive. This warrant is a court order issued on the application of the creditor whereby the executive officer seizes the debtor's property for the eventual judicial sale by auction (see below), so that the creditor can be paid from the proceeds of such sale. There are various types of warrants of seizure.
● Warrant of seizure of movable property
This is used to seize movable property from the possession of the debtor, which property can range from normal household items to money, jewellery and articles of precious metal or intrinsic value. The objects seized may be put under the care and responsibility of a third party known as the consignatary. Not everybody can be appointed consignatary (for example close relatives and employees are not accepted) and the consignatary is responsible for their safekeeping.
● Warrant of seizure of immovable property
This is a court order for the seizure of immovable property belonging to the debtor. Once property is seized, the court will appoint an expert to appraise the property and fix a date and time for the judicial sale by auction. The court may accept an appraisement filed by the debtor himself, after hearing any objections which the creditor might have to such an appointment. The appraisement shall consist of a valuation of the property together with a detailed description, including the existence of any legal burdens, leases and other third-party rights over the property in question.
● Warrant of seizure of a commercial going concern
The law defines a going concern as "any kind of commercial enterprise conducting a business activity and including machinery, apparatus, goods, corporal and incorporeal rights, both movable and immovable property, licences, copyright and goodwill". A warrant of seizure issued on a commercial going concern will therefore seize all the foregoing, including both the movable and the immovable property of the going concern. Prior to authorising the sale of the seized going concern, the court will appoint an expert to draw up a report on the going concern, which report must include the assets and liabilities, and whether, given the amount of debts which the going concern has, it should be put under administration rather than sold.
If the going concern is put under administration the appointed administrator will be responsible to manage it until the debt is paid. Such an administrator shall have the right to sell and carry on trade in the going concern's day-to-day business, subject to obtaining the necessary authorisation from the court in the case of decisions of an extraordinary nature.
● Judicial sale by auction
Once the debtor's property has been seized by means of one of the warrants of seizure, the creditor will want to sell the seized property at an auction which is carried out under the authority of the court. The auction is advertised in one English language and one Maltese language newspaper. Both the debtor and the creditor may, at their expense, advertise the auction in any newspaper of the choice or broadcast over any medium.
When the property seized is being sold by judicial sale by auction, the creditor may bid animo compensandi, which means that he may purchase the seized property himself on account of the money owed to him. If the property is purchased at a price higher than the amount owed to him, then he is obliged to deposit in court the surplus amount.
● Garnishee order
This is a court order issued to third parties who might be in possession of money or movable property belonging to the debtor. These orders are typically served on commercial banks but may in fact be served on any person who might be in possession of the debtor's money or movable property. On receipt of the garnishee order, the third party has a maximum of 21 days to deposit in court any money or movable property in his possession. If the third party fails to do so within the mentioned time limit, he shall be responsible towards the creditor for damages and interest, and may also be liable to arrest. The law prohibits the issuing of a garnishee order in certain instances such as on salaries, wages, social benefit or pension (only the first €698 (Lm300) per month are protected). The garnishee order can be both a precautionary and an executive warrant.
● Warrant of prohibitory injunction
This is a precautionary warrant which may be used to ensure that a debtor does not transfer his property to third parties while the creditor obtains an executive title. As the name suggests, this warrant takes the form of a court order prohibiting the debtor from transferring such property. This warrant may be used only where the debt is not less than €11,647 (Lm5,000) and can be used on both immovable and movable property. If used to prohibit the transfer of immovable property, then the warrant must be served on the Director of the Public Registry. This will ensure that anyone purchasing the debtor's property will become aware of the existence of this warrant once the searches are carried out by the notary, unless of course the warrant has been done at the last minute well after the notary had already carried out the searches. At any rate, any transfer of immovable property done after the service of the warrant to the Public Registry shall be null.
This warrant may also be used to prohibit the sale or transfer of shares which the debtor might hold in a commercial partnership. The warrant must be served on the Registrar of Companies and any transfer of shares done after such date shall also be null.
• This article was taken from the booklet titled Know Your Debtor, published by the Malta Association of Credit Management.