What it means
When someone sues for money, a judgment in their favour is only useful if the debtor still has assets to pay. A creditor who suspects that assets are about to disappear can ask the court for a writ of attachment.
If the court agrees, the property is placed under the court's control, either by being seized or by being made subject to a legal charge. Courts treat this as an exceptional step because it interferes with a person's property before guilt or liability has been decided.
The creditor usually has to show that the claim is likely to succeed and that there is a real risk the debtor will dispose of assets. Many courts also require the creditor to post a bond, which compensates the debtor if the attachment turns out to be wrongful.
Attached property can include bank accounts, inventory, equipment, vehicles or real estate, depending on local rules. Once attached, the debtor generally cannot sell or move the property without the court's permission.
If the creditor wins, the attached assets can be sold and the proceeds applied to the judgment. For finance teams, there are two views.
A creditor weighs the cost of a bond and legal fees against the chance of recovering a large unpaid debt. A debtor facing an attachment may find its operating accounts frozen, its suppliers nervous and its lenders alarmed, so it needs urgent legal advice and may ask the court to release the attachment in exchange for a bond.
The nuance is that attachment is meant to preserve assets, not to punish. Courts set tight limits, and the creditor can be held liable for damages if the order was obtained on weak or misleading grounds.
The rules vary by country and by region, and in some places similar results are reached through different orders, such as freezing injunctions.
In practice
Real-world examples.
Example
A wholesaler sues a distributor for $150,000 and learns that the distributor is moving stock to a warehouse abroad. The wholesaler obtains a writ of attachment over the remaining inventory before it leaves.
Example
A lender is pursuing a borrower for a defaulted loan of $500,000. It asks the court to attach a commercial property owned by the borrower, offering a bond to cover any damage if the claim fails.
Example
A business whose accounts are frozen by a writ of attachment contacts its lawyer at once. Its finance manager prepares evidence of the company's normal operating needs to ask the court for access to funds for wages.
Formula
Calculation
Maximum attachment = amount of claim + estimated interest + estimated costs
Suppose a creditor claims $200,000 for unpaid goods. The court estimates interest at $12,000 and legal costs at $18,000. Maximum attachment = 200,000 + 12,000 + 18,000 = $230,000. If the debtor holds $260,000 in an account, the court would normally limit the attachment to $230,000 and leave the remaining $30,000 free for the debtor's use.Case study
Seen in the real world.
Redwood Imports is an illustrative, fictional trading company that shipped $320,000 of goods to a buyer who stopped answering calls. The finance director learned that the buyer was selling its warehouse stock below cost and transferring the cash elsewhere.
On legal advice, Redwood asked the court for a writ of attachment over the buyer's remaining inventory and bank balance. The court asked for evidence of the debt and of the risk of dissipation, and required a bond of $25,000. The writ was granted and about $290,000 of assets were frozen.
Faced with frozen assets, the buyer negotiated and agreed a payment plan for the full amount. In this illustrative case, the speed of the action saved Redwood from chasing an empty company, although the $25,000 bond and legal fees were real costs that had to be weighed.
Watch out
Common mistakes.
- Assuming a creditor can attach assets just because a debt is unpaid, when the court normally requires evidence of the claim and of a risk to the assets.
- Forgetting the cost of a bond and legal fees when deciding whether the action is worthwhile.
- Debtors ignoring an attachment and moving frozen assets, which can lead to contempt of court findings.
Questions
People also ask.
What is the difference between attachment and garnishment?
Attachment secures property before or during a case, while garnishment usually collects money from a third party, such as a bank or employer, after judgment.
Can the debtor challenge the writ?
Yes, the debtor can ask the court to cancel or reduce it, often by showing the claim is weak or by offering other security.
What happens if the creditor loses the case?
The attachment is released, and the creditor may owe damages to the debtor if the writ was wrongly obtained.
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