What is a Stay of Execution for a limited company?

A Stay of Execution prevents planned enforcement action from taking place against a company if it is unable to pay a County Court Judgement.

When a limited company fails to pay a County Court Judgment (CCJ), the creditor can seek enforcement assistance from High Court Enforcement Officers (HCEOs), a type of bailiff authorised by the High Court to enforce a writ.

Although this is generally an expensive process for the creditor, it can be the most effective way to recoup their money. Bailiffs are appointed to seize business assets from the company’s premises, with a view to selling them at auction so that the proceeds can be used to repay the debts owed.

Under certain circumstances, however, the limited company may seek a ‘stay of execution’. 

What is a stay of execution?

A stay of execution provides vital time for a limited company to reorganise its financial affairs if it cannot afford to pay a County Court Judgment, or is unable to come to an agreement with the High Court Enforcement Officers. 

If a petition has been made to wind up the company because it is officially insolvent, the court will place the interests of creditors as a whole first, so an individual creditor does not receive preferential treatment when the business is liquidated.

But there are also other circumstances in which a limited company may be successful in obtaining a stay of execution.

• Stay of execution pending an appeal

If the debt is in dispute, a stay of execution provides the debtor company with more time to prove that the debt either does not exist, that it is inaccurate, or that the creditor did not follow the correct procedures.

It is important for the company to act quickly under these circumstances, however, as until the stay has been formally granted by the court, bailiffs can continue their enforcement action.   

• Stay of execution to consider a repayment plan

In some cases, an informal repayment arrangement will bring the desired outcome for both parties - the debtor company has a longer period of time in which to pay, and the creditor receives their money in full.

But if the negotiated repayment plan cannot be sustained by the company, or if the creditor changes their mind and tries to recover the money at a faster rate than was originally agreed, applying for a stay of execution can be an invaluable measure for the debtor.

So what is the application process regarding a stay of execution, and what might influence the court’s decision?

• Applying for a stay of execution

Two forms can be used to apply for a stay of execution, depending on the reason for the application. One relates to debts in dispute (Form N244), and in this case the company must provide documentary evidence to support their claims about the debt.  A court hearing is then arranged for both sides to present their cases.

Form N245 is used when the debtor wishes to agree a repayment plan. An income and expenditure statement must accompany the application, which illustrates the company’s financial situation and its ability to repay the proposed amounts.

In both cases, it is advisable for the debtor company to apply for an interim stay of execution. This protects the business from enforcement action whilst the court makes their decision.

Begbies Traynor are insolvency specialists, and can provide further advice on stays of execution. We offer free same-day consultations, and operate from more than 70 offices nationwide.