Seizure of receivables – the role and obligations of the third-party debtor. Key issues

In addition to the creditor (the party in whose favour enforcement proceedings are being conducted) and the debtor (the party against whom enforcement is being carried out), enforcement proceedings conducted by a bailiff or an administrative enforcement authority may also involve other parties – the debtors of the seized receivable, i.e. the so-called third-party debtors.

This results from the fact that the debtor against whom enforcement proceedings are being conducted may have their own claims against their own debtors, and these claims may be subject to seizure.

Categories of claims subject to seizure

In the course of enforcement proceedings, the following may be subject to seizure:

• receivables arising from an employment contract (Articles 880–888 of the Code of Civil Procedure);
• receivables arising from bank accounts (Articles 889–894 of the Code of Civil Procedure);
• other receivables (Articles 895–908 of the Code of Civil Procedure), e.g. arising from contracts; relating to tax overpayments and refunds; or concerning the surrender of movable or immovable property.

Consequently, a third-party debtor may be a natural person, a legal person or another organisational entity, e.g. an employer, a business partner, the Tax Office or a bank.

Enforcement against other receivables (Articles 895–908 of the Code of Civil Procedure)

The seizure of receivables regulated in Articles 895–908 of the Code of Civil Procedure applies to those receivables to which the provisions on enforcement against wages and enforcement against receivables from a bank account do not apply. The receivables of this kind may arise, for example, from a contract, a tort, unjust enrichment, an administrative decision or a court judgement.

The following receivables, which relate to a monetary payment, may, amongst others, be subject to seizure:

• for payment of the price under a contract of sale or supply;
• for payment of remuneration under contracts for specific work, service contracts or construction contracts;
• for payment of rent or lease payments;
• for the payment of dividends by a company limited by shares;
• for payment of damages, a contractual penalty or the return of a deposit.

Seizure of a receivable pursuant to Article 896 of the Code of Civil Procedure covers not only the receivable itself but also any security associated with that receivable.

It is also worth noting that the receivable need not be due and payable at the time of seizure.

Seizure of a receivable

In accordance with Article 896 of the Code of Civil Procedure, a bailiff proceeds with enforcement against a claim by seizing it.

To this end, the bailiff:

• notifies the debtor that they are not permitted to receive any payment or dispose of the seized claim or the security established in respect of it;
• notifies the third-party debtor of the nature of the payments being enforced, if the enforcement relates to maintenance payments, pension payments or other recurring payments, or a monetary payment in a foreign currency;
• instructs the third-party debtor not to pay the sum due to the debtor, but to pay it to the bailiff or into the Minister of Finance’s escrow account;
• instructs the third-party debtor that, in the event of concurrent judicial and administrative enforcement proceedings, where the amount paid is insufficient to cover all the debts being enforced, to pay such amounts to:

o    the judicial or administrative enforcement authority which first carried out the seizure, and where it is impossible to determine this order of priority – to the authority which carried out the seizure in respect of the claim for the higher amount, or

o    the judicial enforcement authority – if the enforcement relates to maintenance payments, pension payments or other recurring payments, or a monetary payment in a foreign currency.

In the event of concurrent enforcement proceedings, the bailiff shall also require the third-party debtor to notify the competent enforcement authorities without delay of the concurrent enforcement proceedings, specifying the date of service of the notices of attachment issued by those authorities and the amount of the debt against which the attachments were made, and, in the case of maintenance payments, pension payments or other recurring payments, or a monetary payment in a foreign currency, also the nature of the payments being enforced.

The seizure of a receivable does not authorise the third-party debtor to transfer the payment directly to the creditor. Not only does such action fail to discharge the third-party debtor from the debt, but it may also give rise to liability on their part.

The third-party debtor’s reporting obligations

At the same time as attaching the claim, the bailiff shall require the third-party debtor to submit a statement within one week:

• whether the debtor is entitled to the attached claim, and if so, in what amount; or whether the third-party debtor refuses to pay and on what grounds (e.g. refusal to pay on the grounds of prior payment, prior waiver of the claim, or the limitation period having expired);
• whether other persons are asserting rights to the claim; whether, and in which court or before which authority, proceedings concerning the attached claim are or have been pending; and whether, and in respect of what claim, enforcement proceedings have been brought against seized receivable by other creditors.

In all cases, the third-party debtor is obliged to submit a statement in accordance with the bailiff’s summons and within the specified one-week time limit.

The moment of seizure of the receivable

Pursuant to Article 900(1) and (2) of the Code of Civil Procedure, seizure takes effect upon service of the summons on the debtor of the seized claim; however, the seizure of sums payable periodically (e.g. such as rent) also covers future payments.

The moment of attachment of a claim is crucial, as from that moment the third-party debtor is obliged to make payments to the bailiff rather than to their own creditor. It is also significant in cases where there is a concurrence of enforcement proceedings.

Consequences of seizure of the receivable

It follows from Article 902 of the Code of Civil Procedure that Articles 885, 887 and 888 of the Code of Civil Procedure apply mutatis mutandis to the consequences of the attachment, whilst Article 886 of the Code of Civil Procedure applies to the consequences of failure to comply with the bailiff’s orders and to the obligations arising from the seizure.

In practice, this means that:

• any disposal of the claim (e.g. a sale or encumbrance effected after its seizure) is ineffective vis-à-vis the enforcing creditor – Article 885 of the Code of Civil Procedure applies mutatis mutandis;
• The creditor is entitled, by virtue of the seizure itself, to exercise all the debtor’s rights and claims relating to the seized claim, which are aimed at enforcing it in or out of court (i.e. the creditor may take both judicial and extrajudicial actions, including those of a substantive nature) – Article 887 of the Code of Civil Procedure applies mutatis mutandis;
• the creditor is entitled to request the bailiff to collect documents constituting evidence of the existence of the claim for the purpose of depositing them with the court – Article 888 of the Code of Civil Procedure applies mutatis mutandis.

Liability of the third-party debtor

Pursuant to Article 902 of the Code of Civil Procedure in conjunction with Article 886 § 1 of the Code of Civil Procedure, the bailiff may impose a fine of up to 5,000 PLN on the third-party debtor, if the third-party debtor fails to submit, within the prescribed time limit, the statement referred to in Article 896 § 2(1) and (2) of the Code of Civil Procedure, or fails to comply with any other order issued by the bailiff aimed at removing an obstacle to the enforcement proceedings. The fine may be imposed again if the third-party debtor continues to evade fulfilment of their obligations.

A third-party debtor may also be liable under the provisions governing liability for tort, i.e. Article 361(1) and Article 415 of the Civil Code. This applies, amongst other things, to cases where the third-party debtor fails to transfer the attached claim despite a demand from the bailiff, or unreasonably refuses to provide the bailiff with the requested information, thereby preventing the effective enforcement of the attached claim and, consequently, causing damage to the creditor.

Summary

Whenever correspondence is received containing information about the attachment of a claim, it is therefore necessary to analyse the legal relationship between the addressee of the attachment and the counterparty who acts as the debtor in the enforcement proceedings.

First and foremost, one should verify the status of settlements and identify any claims to which the counterparty may be entitled; subsequently, one should provide the information requested by the bailiff and comply with the consequences of the seizure.

Careless actions in this regard, in particular making a payment to the counterparty despite the seizure, may have negative consequences, which can be prevented by understanding the issues relating to the seizure of receivables and the associated obligations.