Distraint is the taking of assets or property in order to repay a debt. For example, if you owe your landlord rent, he has powers of distraint, so he can enter the premises and take your goods to reclaim some of the money which you owe. Fortunately, only a few organisations and individuals have powers of distraint:
Landlords of commercial property can seize goods and sell them to recoup overdue rent. A commercial landlord does not need the courts permission to do this, but there are rules in place. The lease must not have expired or been terminated and they are not allowed to seize ‘tools of the trade’.
Distraint is a common way for the local council to gain repayment of unpaid business rates. The council will need to begin court proceedings first and obtain a liability order, but once this has been granted, they can access your premises through an open door or window and list your business assets in an inventory; this is known as “walk-in possession”. You will be given five days to pay the outstanding amount of business rates, plus any Court costs, before Distraint Officers return to take away the goods. Distraint for business rates can occur even after a winding up petition has been presented to a company.
As with business rates, not paying a debt which has gone through the Court system and acquired a County Court Judgement (CCJ) could result in the use of bailiffs to remove assets.
HMRC are now recouping more of their debt through distraint than ever before and even using it’s powers of distraint instead of issuing winding up orders. If HMRC thinks that a struggling company is likely to go into liquidation in the near future, it knows that it can recoup more of it’s own debt by seizing business assets before winding up occurs and HMRC are placed in the pot along with the rest of the creditors. Distraint by HMRC also makes it more likely that a company will be pushed into liquidation, as it has lost stock, equipment or other essential assets.