Bank Account Frozen? Third Party Debt Order Help

Most people in this position have never heard of a third party debt order. They find out when a card is declined or a payment bounces. In fact a judge has made an order without telling them first, and the deadlines for responding have already started to run.

A third party debt order is a court order under Part 72 of the Civil Procedure Rules that lets a creditor who has already won a judgment against you collect the money from someone who owes you money, most often the bank or building society that holds your account. Rule 72.1(1) describes it as an order for payment to a judgment creditor of money which a third party within the jurisdiction owes to the judgment debtor. It replaced what used to be called a garnishee order. The creditor needs a judgment first, because a TPDO is an enforcement step taken after the claim has been decided.

The order is made in two stages. Rule 72.2(2) says the court will not make a final order without first making an interim order, and the HM Courts and Tribunals Service guidance for debtors explains that the interim order prevents you reaching the money until the court has decided what to do at the hearing. If a final order follows, the bank must pay the creditor the debt it owes you, or so much of it as is sufficient to satisfy the judgment debt and the creditor’s costs of the application (rule 72.2(1)).

Why Was My Bank Account Frozen Without Warning?

The creditor can apply without notice to you (rule 72.3(1)(a)), and a judge first deals with the application without a hearing (rule 72.4(1)). The interim order binds the bank as soon as it is served on the bank (rule 72.4(4)). The papers then reach you later: rule 72.5(1)(b) requires service on you not less than 7 days after the bank was served and not less than 7 days before the hearing. A declined payment may therefore be the first sign you have.

The creditor cannot guess which bank you use. Practice Direction 72, paragraph 1.3, says the court will not grant speculative applications and will only make an interim order against a bank if the application contains evidence to substantiate the creditor’s belief that you hold an account there. Read that evidence when your copy arrives, because it shows what the creditor already knows about your accounts, and our guide to HMRC enforcement action explains how the same pressure builds when the creditor is a tax authority.

What the Interim Order Requires the Bank to Hold

The interim order must specify the amount the bank retains, which is the total of the sum remaining due under the judgment and the creditor’s fixed costs of the application (rule 72.4(3)). Until the hearing, the bank must not make a payment that reduces what it owes you to less than that figure (rule 72.4(2)(b)). The order therefore protects only the specified sum, and money in the account above it is not caught. Ask your bank in writing which figure it is retaining, because some banks restrict the whole account while they work out the position.

The bank has its own duties. Under rule 72.6(1) and (2) it must search for all accounts you hold with it and, within 7 days of being served, tell the court and the creditor whether each account is in credit and whether the bank claims any right of set-off over the money. An overdrawn account, or a bank that asserts a right to the balance, can leave the creditor with much less than the order suggests. Paragraph 3 of Practice Direction 72 also says a bank is not required to retain money in an account in the joint names of the debtor and another person, so a joint account may not be caught, and the bank’s letter should tell you what it has done about it.

Third Party Debt Order, Validation Order or Account Freezing Order: Which One Is It?

Searches for a frozen account lead to three different procedures. A third party debt order follows a civil judgment and holds a specific sum. A company whose bank freezes its accounts after a winding-up petition is presented or advertised usually needs a validation order, because a disposition of company property after the petition is presented is void under section 127 of the Insolvency Act 1986 if a winding-up order is then made, unless the court validates it. We explain the route in our guide to unfreezing company bank accounts and on the validation order page of our winding up petition site. The freeze itself is bank practice, not statute.

An interim third party debt order is issued, in most cases, in the court that made the creditor’s judgment (rule 72.3(1)(b)), so the order should refer to the claim in which the creditor won. An account freezing order is different again. It is made by a magistrates’ court under section 303Z1 of the Proceeds of Crime Act 2002 on the application of an enforcement officer who has reasonable grounds for suspecting that money in the account is recoverable property or is intended by any person for use in unlawful conduct, and it does not depend on a civil judgment. Our guide to account freezing orders deals with that route, and a freezing injunction is a separate tool again, used to stop assets being moved while a claim is pending.

How to Apply for a Hardship Payment Order to Release Frozen Money

If you are an individual, the interim order prevents you withdrawing money from your bank or building society account, and you or your family are suffering hardship in meeting ordinary living expenses as a result, rule 72.7(1) lets the court make a hardship payment order permitting the bank to pay money out of the account. The rule applies only to individuals, so a company cannot use it. The court can permit one or more payments and can specify to whom they may be paid (rule 72.7(6)). The GOV.UK guidance says you can make the application at any court.

The application must include detailed evidence explaining why you need the amount requested and be verified by a statement of truth (rule 72.7(4)). Paragraph 5.6 of Practice Direction 72 says the evidence should include documents such as bank statements, wage slips and mortgage statements. The application must be served on the creditor at least 2 days before the court deals with it, unless the court orders otherwise (rule 72.7(3) and paragraph 5.4), and in cases of exceptional urgency it may be made without notice.

How to Oppose the Final Third Party Debt Order

If you object to a final order, rule 72.8(1) requires you to file and serve written evidence stating your grounds. Under rule 72.8(4), that evidence must be filed and served on each other party as soon as possible and in any event not less than 3 days before the hearing. The official guidance says you will be expected to attend the hearing and may have to pay a court fee. If the creditor issued the application in a court far from where you live or work, paragraph 4 of the Practice Direction lets you apply to transfer it to the court serving the address where you reside or carry on business.

What Happens at the Final Hearing, and Who Pays the Costs?

At the hearing the court may make a final order, discharge the interim order and dismiss the application, decide any issues in dispute, or direct a trial of those issues (rule 72.8(6)). A final order is enforceable as an order to pay money (rule 72.9(1)). Once the bank pays the creditor, it is discharged from its debt to you to the extent of the payment, even if the order or the original judgment is later set aside (rule 72.9(2) and (3)), which is a further reason to challenge the judgment before the hearing rather than after it.

Costs come out of your money. If the creditor is awarded the costs of the application, rule 72.11 says the creditor retains them out of the money recovered, in priority to the judgment debt, and the amount held under the interim order already includes fixed costs (rule 72.4(3)(b)). A creditor cannot take more than the judgment debt and its costs, because the final order is limited to the amount sufficient to satisfy them (rule 72.2(1)(b)).

Deadlines After a Frozen Account: The Dates That Matter

The timetable is short. The hearing must be at least 28 days after the interim order is made (rule 72.4(5)), the bank must report to the court and the creditor within 7 days of service (rule 72.6(2)), you must be served at least 7 days before the hearing (rule 72.5(1)(b)), and your written evidence must be in not less than 3 days before it (rule 72.8(4)). Because the creditor may serve you only 7 days before the hearing, the notice you actually get can be far shorter than 28 days.

Every day without access to your account counts, so apply for a hardship payment as soon as you can prove the need (see the official guidance). Any application to set aside a default judgment must be made promptly under rule 13.3(2). If your company has instead been served with a winding-up petition, a different timetable applies and our guide to winding-up petition procedure sets it out.

Settlement, Instalments and What Enforcement Can Follow

Many applications end by agreement. If you can pay the judgment debt, or propose instalments the creditor accepts, put the agreement in writing and ask the creditor to withdraw the application or to ask the court to discharge the interim order, because the bank stays bound until the order is released (rule 72.8(6)(b)). If the difficulty is the rate at which a County Court judgment must be paid, CPR 40.9A lets a debtor apply to vary the date or rate of payment on a prescribed form with a statement of means. Our page on mediation explains how a neutral facilitator can help both sides settle, and our article on directors’ personal guarantees covers personal exposure.

If you run a company, an unpaid judgment can lead to a statutory demand and then a winding-up petition. A statutory demand for at least £750 that stays unpaid for three weeks can be evidence that a company cannot pay its debts under section 123 of the Insolvency Act 1986. Our winding up petition solicitors explain the risks for directors, and a creditor may also seek a charging order over property.

How LEXLAW Can Help

We act for people and businesses facing third party debt orders, and for creditors enforcing judgments. For a debtor that means reviewing the judgment and the order, advising on whether to oppose the final order, applying to set aside a default judgment where the grounds exist, preparing the written evidence, negotiating with the creditor and representing you at the hearing, as our pages on interim remedies and enforcement of judgment debt describe. We do not offer free legal advice or legal aid, and we generally take on substantial matters.

We are dual qualified solicitors and barristers with chambers in Middle Temple, next to the Royal Courts of Justice. We offer a fixed fee advice conference with both a solicitor and a barrister, and the quickest way to start is to complete our legal case assessment form with a copy of the interim order, so that we can see the hearing date before the evidence deadline arrives.

This article is general information for England and Wales, and is not legal advice.