|Tribunals, Courts and Enforcement Bill - continued||House of Commons|
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Clause 47: Co-operation in relation to judicial training, guidance and welfare
197. This clause establishes a duty of co-operation between the offices of the Senior President of Tribunals, the Lord Chief Justices and the Lord President in relation to judicial guidance, training and welfare. The Senior President has responsibility for the maintenance of appropriate arrangements for the welfare, training and guidance of tribunal judiciary and members of the First-tier and Upper Tribunals (paragraph 8 of Schedule 2 and paragraph 9 of Schedule 3) and for judiciary and members of the employment tribunals, the EAT and the AIT (paragraphs 40, 44 and 54 of Schedule 8). The Lord Chief Justices of England and Wales and Northern Ireland have the same responsibility for the court judiciary.
198. In carrying out these responsibilities it is desirable for there to be a duty of co-operation between the Senior President and the Lord Chief Justices (and including the Lord President even though he has no statutory responsibility for such provision at the moment). In practical terms, this means the use by tribunals of institutions which report to the Lord Chief Justice of England and Wales (e.g. the Judicial Studies Board for training, the Judicial Communications Office for advice on media and handling, and arrangements for counselling and supporting judges under the contract that was set up by DCA and are now the responsibility of the Judicial Office). The tribunals do not currently plan to set up services separate from the courts if the courts-based services can meet their needs effectively (although this may change over time).
199. Clause 48 gives effect to Schedule 8 (consequential and other amendments) and Schedule 9 (transitional provisions).
200. Paragraph 1 abolishes the office of General Commissioner (styled in legislation as "Commissioner for the general purposes of income tax) and the offices of clerk, and assistant clerk, to any General Commissioner. This paragraph is intended to be brought into force when the functions of the General Commissioners are transferred to the new Tribunals. It is not intended to use the power under clause 31(2) so as to cause persons holding the office of General Commissioners to become office-holders in the new tribunals.
201. Paragraph 6 enables litigants in person to obtain costs and expenses under the Litigation in Persons (Costs and Expenses) Act 1975 in tribunal proceedings where costs are awarded.
202. Paragraph 36 confers the title of Employment Judge on members of a panel of chairmen of employment tribunals.
203. Paragraph 38 requires the Secretary of State to act jointly with the Lord Chancellor when exercising his powers under sections 4(4), 18(8) and 40(1) of the Employment Tribunals Act 1996 (powers to amend).
204. Paragraphs 40 and 44 make the Senior President of Tribunals responsible for training, welfare and guidance of members of employment tribunals and members of the Employment Appeal Tribunal, in the same way that he is for members of the First-tier Tribunal and Upper Tribunal (under paragraph 8 of Schedule 2 and paragraph 9 of Schedule 3).
205. Paragraph 41 confers power to make practice directions in relation to employment tribunals on the Senior President and requires the consent of the Senior President and the Lord Chancellor for practice directions made by Presidents of Employment Tribunals.
206. Paragraph 42 makes provision for mediation in employment tribunals on a similar basis to clause 24.
207. Paragraph 43 amends section 15(1) of the Employment Tribunals Act 1996 (enforcement in England and Wales as an order of a county court) so that an unpaid employment tribunal award does not need to be registered in the county court before enforcement can take place. This mirrors provisions in relation to the First-tier Tribunal and the Upper Tribunal in clause 27.
208. Paragraph 54 gives the Senior President the power to give practice directions in respect of the Asylum and Immigration Tribunal and responsibility to make arrangements for the training welfare and guidance of its members.
209. Paragraph 55 amends section 98 of the Courts Act 2003 (register of judgments and orders etc) so that monetary decisions or awards of the First-tier Tribunal, the Upper Tribunal, an Employment Tribunal, or the Employment Appeal Tribunal may be included on the Register of Judgments and Orders established under the 2003 Act. Inclusion on the register, which is often consulted by banks, building societies, credit companies etc when considering applications for credit, may make it more difficult for defaulters to obtain credit (and thus provides an incentive to pay the sum due).
210. Paragraph 65 has the effect that most (but not all) of the judges and other members of the First-tier Tribunal and Upper Tribunal can be appointed as the "Tribunals" member of the Judicial Appointments Commission.
211. Paragraph 66 adds offices in the new tribunals to Schedule 14 to the CRA 2005 so that judges and other members who are to be appointed under the Bill by the Lord Chancellor (or, in the case of judges of the Upper Tribunal, by Her Majesty on the recommendation of the Lord Chancellor) are selected by the Judicial Appointments Commission. Such selection will not apply to the transfer in of members of existing tribunals under clause 31(2) or to appointments that fall to be made by a senior judge.
212. Schedule 9 sets out a number of transitional provisions, including provisions relating to the retirement dates and pensions for judges and other members of the First-tier Tribunal and Upper Tribunal.
213. This clause sets out the procedure to be followed in respect of the various types of order which can be made under Part 1. These powers are mostly exercisable by the Lord Chancellor. The Scottish Ministers and the Welsh Ministers can make orders in relation to rules for listed tribunals administered by them (Schedule 7, paragraph 25(2)). Under clause 7(9) the Senior President can make an order relating to the jurisdictions assigned to chambers, and subsection (2) provides that this order is to be treated as if it had been made by a Minister of the Crown.
214. Under subsection (6) orders under the following provisions are subject to affirmative resolution:
215. Part 2 of the Bill amends the minimum eligibility requirements for judicial appointments in England and Wales (and for some posts where the office-holders may sit in Scotland and Northern Ireland) with the aim of increasing the diversity of the judiciary. The existing eligibility requirements for judicial office are replaced with the requirement that a person must satisfy the "judicial-appointment eligibility condition". The clauses mean that rather than eligibility for office being based on possession of rights of audience for a specified period, a person who wishes to apply for an office under any of the provisions amended by Schedule 10 to the Bill will have to show that he has possessed a relevant legal qualification for the requisite period and that while holding that qualification he has been gaining legal experience. In respect of many of the offices, the number of years for which a person must have held his qualification before he becomes eligible for judicial office is also reduced.
216. Part 2 also enables the Lord Chancellor, following consultation with the Lord Chief Justice and the JAC, to extend by order the list of relevant qualifications for the purpose of the judicial-appointment eligibility condition. This will enable those with relevant qualifications and legal experience to apply for certain offices, which will also be specified in the order.
217. Part 2 of the Bill also makes provision (clauses 53 and 54) about appointments (in the civil courts in England and Wales) of district judges, deputy district judges and deputy, and temporary, masters and registrars. Clause 55 makes provision about appointments to certain Appeals Commissions and clause 56 relates to the Northern Ireland Judicial Appointments Commission.
218. Eligibility for appointment to professional judicial office in England and Wales is currently dependent upon applicants possessing particular qualifications (within the meaning of the Courts and Legal Services Act 1990), which are based on possession of "rights of audience" for a prescribed number of years. The precise category of rights of audience required, and the length of time for which they must have been held, vary according to the judicial office concerned. However, the practical effect of the current arrangements is to restrict eligibility for almost all judicial posts to persons who have been qualified as barristers or solicitors in England and Wales for at least seven years (or, for some posts, 10 years). (Barristers, advocates and solicitors who have been qualified in Scotland or Northern Ireland for the required number of years are also eligible for some posts, notably in those tribunals which exercise UK-wide jurisdiction).
219. A consultation paper, Increasing Diversity in the Judiciary, published by the Department for Constitutional Affairs in October 2004, invited views as to whether these statutory eligibility requirements constituted an obstacle to greater diversity in the judiciary. Responses to consultation indicated that the eligibility requirements were considered an obstacle to greater diversity in several respects. First, because they depended on possession of rights of audience before the courts, they helped to foster the (inaccurate) perception that advocacy experience was a requirement for judicial appointment, deterring eligible individuals from applying. Second, they excluded entirely members of certain legal professional groups (for example, legal executives) who might possess the skills, knowledge and experience needed to perform well in judicial office, and who also tended to be drawn from a wider range of backgrounds than barristers and solicitors. It was also argued that the existing requirements were unsatisfactory in that someone who qualified as a barrister or a solicitor but who then did no more legal work of any kind still became eligible for judicial appointment on the seventh anniversary of their qualification. Finally, respondents considered that the periods of time for which a qualification must have been held were too long, disadvantaging those who had joined the profession later in life but whose career paths might nevertheless render them fitted for consideration.
220. The provisions in this Part of the Bill seek to address these concerns by removing the existing link between eligibility for judicial appointment and possession of advocacy rights; by providing for the extension of eligibility for some appropriate appointments to holders of legal qualifications other than barristers and solicitors; by introducing a requirement that a person with a relevant qualification must also have gained legal experience to be eligible for office; and by reducing the number of years for which it is necessary to have held the relevant qualification and gained legal experience. It is to be noted that these changes attach to the eligibility threshold for appointment. The aim is to increase the pool of those eligible for office, but the current system of merit-based appointment will remain. These changes apply to offices under provisions amended by Schedule 10 to the Bill, which includes a wide range of judicial offices in both mainstream courts and tribunals.
221. This clause sets out the new basis of eligibility for judicial appointment. In order to satisfy the "judicial-appointment eligibility condition", an individual has to hold a "relevant qualification" (i.e. as a barrister, a solicitor or a holder of another specified legal qualification) for a specified minimum number of years (generally five or seven, in place of the seven or ten specified in existing legislation), and has to have gained experience in law for the specified minimum number of years, while holding a relevant qualification. Activities which count as gaining experience in law are set out in clause 52.
222. The clause removes the anomaly identified under current legislation whereby an individual who qualifies as a barrister or a solicitor becomes eligible for judicial appointment simply through the passage of time, without necessarily ever having engaged in legal practice following qualification.
223. The minimum eligibility requirements for judicial offices are contained in a large number of statutory provisions. This Schedule amends those provisions in two main respects. First, the existing requirement of a qualification within the meaning of section 71 of the Courts and Legal Services Act 1990 is replaced by a requirement to satisfy the judicial-appointment eligibility condition on an N-year basis. Second, the period of time for which a qualification should have been held, and experience in law acquired (N years), is reduced. For those judicial appointments which currently require possession of a ten-year qualification under the 1990 Act, the period is reduced to seven years and for those appointments which currently require a seven-year qualification, the period is reduced to five years. Where those with Scottish or Northern Irish qualifications are eligible for appointment, corresponding reductions are made.
224. This clause empowers the Lord Chancellor (after consultation with the Lord Chief Justice and the JAC) to extend the list of relevant qualifications for the purpose of the judicial-appointment eligibility condition in clause 50. The power is exercisable by order made under the affirmative resolution procedure.
225. Orders made under this clause would say which qualifications - other than being a barrister or a solicitor - would be "relevant qualifications" for the purpose of eligibility for particular judicial offices. The only qualifications which it would be permitted to specify in this way would be those awarded by the Institute of Legal Executives or by other bodies authorised to confer rights of audience or rights to conduct litigation under sections 27 and 28 of the Courts and Legal Services Act 1990. This would provide assurance that the bodies concerned had in place approved training and qualification arrangements for their members. The clause also provides for a qualification to cease to be relevant if the body which awarded it ceases to be an authorised body under the procedure set down in the 1990 Act.
226. It is envisaged that the power given to the Lord Chancellor under this clause would be exercised in the first instance to extend eligibility for specified appointments to Fellows of the Institute of Legal Executives and to registered patents agents and trade mark attorneys. It also provides flexibility to extend eligibility to duly qualified members of other authorised bodies, should that become appropriate as a result of future developments in the legal profession.
227. This clause defines various ways in which an individual may gain post- qualification experience in law so as to satisfy the "qualifying period" element of the judicial-appointment eligibility condition in clause 50. Consistent with the aim of encouraging applications from a wide range of suitably qualified people, these include not only those activities traditionally regarded as part of a lawyer's practice (e.g. legal advice and assistance) but also exercising judicial functions in a court or tribunal, arbitration and teaching or researching law. Broadly similar activities are also included. Such work need not be performed full-time or for remuneration.
228. It should be noted that at the same time as gaining experience by undertaking these activities, an individual must also possess a "relevant qualification" - i.e. as a barrister, a solicitor or as a holder of a qualification awarded by one of the bodies to be specified by order under clause 51.
229. Clause 53 gives effect to Schedule 11.
Schedule 11: District judges and deputy district judges
230. District judges and deputy district judges exercise jurisdiction, in England and Wales, in both the High Court and the county courts. For deputy district judges there are parallel appointment provisions in the Supreme Court Act 1981 (for deputy district judges in the High Court) and the County Courts Act 1984 (for deputy district judges in the county courts).
231. Paragraph 2 enables the Lord Chief Justice to delegate to another judicial office holder his powers to assign district judges to one or more district registries of the High Court and his powers to change assignments. Paragraph 6 makes similar provision about the assignment of district judges to county court districts.
232. Paragraph 3 amends the provisions in the Supreme Court Act 1981 about the appointment of deputy district judges. Currently, the powers to appoint deputy district judges for the High Court are vested in the Lord Chancellor.
233. In future, the Lord Chancellor's powers of appointment will be limited to appointing persons who have never held office as a district judge, and will be subject to the Judicial Appointments Commission selection process. A retirement age of 70 will apply to these post-holders (with the possibility of extension up to age 75).
234. Where a person has previously held the office of district judge, the Lord Chief Justice will in future have powers to appoint the person as a deputy district judge. These appointments will not be subject to selection by the Judicial Appointments Commission, and persons may be appointed up to (but will have to retire by) the age of 75.
235. The Lord Chief Justice is also given powers, after consulting the Lord Chancellor, to assign any deputy district judge (whether appointed by the Lord Chancellor or by the Lord Chief Justice) to one or more district registries of the High Court, and to change the assignment. Deputy district judges appointed under the new powers are given powers to act in district registries to which they have not been assigned, but only in accordance with arrangements made by or on behalf of the Lord Chief Justice.
236. Paragraph 4 makes transitional provision about existing deputy district judges: they continue to be deputy district judges, and are treated as having been assigned to the district registries for which they were appointed. In paragraph 4, the label "the commencement date" is given to the point in time at which paragraph 3 comes into force, not to the entire day at the beginning of which paragraph 3 comes into force.
237. Paragraphs 7 and 10 make, for deputy district judges appointed under the County Courts Act 1984, provision similar to that made by paragraphs 3 and 4.
238. Paragraphs 8 and 9 make consequential amendments in the County Courts Act 1984. Paragraphs 11 to 13 make consequential amendments in the Judicial Pensions and Retirement Act 1993 to provide for the retirement ages mentioned above. Paragraphs 14 and 15 consequentially amend references to these appointments in other legislation.
239. Clause 54 amends the provisions in section 91 of the Supreme Court Act 1981 for appointing deputies and temporary officers to certain posts, including masters and registrars of the Supreme Court. Section 91 of the Supreme Court Act 1981 was amended by paragraph 139 of Schedule 4 to the Constitutional Reform Act 2005 to enable the Lord Chief Justice, after consulting the Lord Chancellor, to make appointments to these posts. Clause 54 further amends the Supreme Court Act 1981, and the Constitutional Reform Act 2005, to provide that where appointments to these posts are of people who have already held certain judicial offices, power to make those appointments remains with the Lord Chief Justice. Where appointments are made of people who have not previously held any of those judicial offices, those appointments are now to be made by the Lord Chancellor, and will be subject to the Judicial Appointments Commission process. The clause makes consequential amendments in Schedule 5 to the Judicial Pensions and Retirement Act 1993 in order that a retirement age of 70 will apply to deputy and temporary office-holders appointed by the Lord Chancellor under section 91 of the Supreme Court Act 1981 (with the possibility of extension up to age 75).
240. Clause 55 amends Part 3 of Schedule 14 to the Constitutional Reform Act 2005 to remove references to the offices of member, and Chairman, of: the Special Immigration Appeals Commission; the Proscribed Organisations Appeal Commission; and the Pathogens Access Appeal Commission. Candidates for these appointments will no longer be required to go through the Judicial Appointments Commission selection process. In practice, the legally qualified members and the Chairmen of these Commissions are appointed only from among serving senior judges. Once clause 55 is in force, appointments will continue to be made by the Lord Chancellor, but it is intended that he will seek nominations for these posts from the Lord Chief Justice. If the Lord Chancellor wishes to be given assistance in making appointments to these Commissions, it will be possible for him to ask for assistance from the Judicial Appointments Commission under section 98 of the Constitutional Reform Act 2005.
241. Section 5A of the Justice (Northern Ireland) Act 2002 ('the 2002 Act') confers power to disclose information to the Northern Ireland Judicial Appointments Commission for the purposes of selection for appointment to judicial office in Northern Ireland. Section 5A(1) of the 2002 Act provides that information held by 'permitted persons' may be disclosed to the Commission for the purposes of making any such selection. Section 5A(5) of that Act specifies a number of 'permitted persons' for the purpose of section 5A. Section 5A(6), which has yet to be commenced, provides that the Lord Chancellor may by order designate other persons, who exercise functions which he considers are of a public nature, as 'permitted persons'. The order-making power contained in section 5A(6) is not, however, currently subject to any Parliamentary control. Clause 56 remedies this anomaly by subjecting the order-making power contained in section 5A(6) to the negative resolution procedure.
242. Part 3 of the Bill unifies the law governing the activities of enforcement agents when taking control of and selling goods, and requires such agents (with certain exceptions) to hold a valid certificate issued by a county court. It also modernises and unifies most of the terminology used in various pieces of legislation where the new unified procedure will apply.
243. Part 3 also abolishes the common law right to distrain for rent arrears and replaces it with a new, more limited right and a modified 'out of court' regime for recovering rent arrears due under a lease of commercial premises.
244. At present the law relating to enforcement by the seizure and sale of goods is complex and can be unclear and confusing. It is contained in numerous statutes, secondary legislation and common law and its language is old fashioned. There are various terms that describe this enforcement process, for example execution, distress and levy and various different procedures depending on the type of debt which is being recovered. Effective Enforcement recommended the terminology should be modernised and the procedure reformed.
245. Effective Enforcement also identified that persons who currently take control of goods are not subject to any uniform regulatory system and highlighted anecdotal evidence of some enforcement agents threatening and intimidating vulnerable debtors. Effective Enforcement therefore proposed a system to guard against malpractice and to protect debtors. It was initially intended that a licensing regime should be put in place, implemented via a regulatory body. While this is being taken forward independently, as detailed below, as an interim measure the Bill replaces (and extends and modifies) the certification process that currently exists for bailiffs under the Law of Distress Amendment Act 1888. The extended and modified certification process will apply to persons taking control of goods who are not Crown employees or constables (the justification for such an exclusion being that Crown employees and constables, by virtue of their status, are already subject to adequate systems of control). A consultative Partial Regulatory Impact Assessment was issued on 30 January 2007 exploring the costs and impact of a licensing regime via a regulatory body. This sets out the options for the future regulation of enforcement agents who are not Crown employees.
246. Distress for rent is a summary remedy which enables landlords to recover rent arrears without going to court, by taking goods from the let premises and either holding them until the arrears are paid or selling them. It is an ancient common law remedy which, over time, has been extended and modified by successive statutes.
247. The Law Commission's Report concluded that distress for rent has a number of features which make it inherently unjust to tenants, to third parties and to other creditors and recommended its abolition.
248. Following a period of consultation, the Government decided to accept the Law Commission's recommendation. However, the consultation revealed that distress for rent is an effective remedy for recovering rent arrears, particularly for commercial properties. If it were to be abolished without any replacement, the Government concluded that there could be disadvantages both to landlords and to tenants of commercial properties.
249. The Bill therefore abolishes the current law on distress for rent and replaces it with a modified regime (called Commercial Rent Arrears Recovery or CRAR) for recovering rent arrears due under leases of commercial premises.
250. This clause gives effect to Schedules 12 and 13 of the Bill. Certain current powers to seize and sell goods can only be exercised according to the procedure for taking control of and selling goods detailed in Schedule 12.
251. The terminology in the various pieces of primary legislation relating to these powers has been amended, and some of the warrants and writs which give these powers, namely warrants of execution, warrants of distress and writs of fieri facias (except writs of fieri facias de bonis ecclesiasticis), are renamed warrants of control and writs of control.
252. A warrant of execution empowers a district judge to seize and sell a debtor's goods for the purpose of recovering money payable under a county court judgment or order. A warrant of distress may be issued by a magistrates' court for the purpose of recovering a sum adjudged to be paid by a conviction or order of the court. The warrant requires the sum to be recovered by seizure and sale of the debtor's goods. A writ of fieri facias requires a sheriff or enforcement officer to seize and sell a debtor's goods for the purpose of recovering a sum due under a High Court judgment or order. A writ of fieri facias de bonis ecclesiasticis requires the bishop to seize a debtor's ecclesiastical property in order to satisfy a High Court judgment. As writs of fieri facias de bonis ecclesiasticis are unique and because of the special role of the bishop, they are not renamed (nor are they subject to the new unified procedure detailed in Schedule 12).
253. A writ or warrant of delivery is a writ/warrant to enforce an order for the delivery of particular goods that are identified in the writ/warrant. A writ or warrant of possession is a writ/warrant issued to enforce an order for possession of land.
254. Schedule 13 makes amendments to existing primary legislation, which are necessary to give effect to these changes or as a result of them.
255. This Schedule prescribes a new procedure to be followed by enforcement agents when seizing and selling goods pursuant to powers under High Court writs of execution, county court warrants of execution, certain magistrates' court warrants of distress, High Court writs and county court warrants of delivery and possession which contain a power to seize and sell goods and the following enactments as amended by Schedule 13:
256. The Schedule prescribes the entire process to be followed by enforcement agents when taking control of and selling goods under the above mentioned powers, from the serving of a notice, to taking control of goods (including which goods may be taken), powers of entry, goods which may be seized, care of goods seized, the sale of goods seized and the distribution of the sale proceeds.
257. On the issue of which goods may be taken, the Schedule provides that all goods of the debtor may be seized other than those which are exempt (as prescribed in regulations) or protected under any other enactment. Examples of protection from seizure are:
258. The Schedule also enables regulations to specify fees, charges and expenses that can be charged by a person in connection with taking control of goods (by way of example, the fees charged by an enforcement agent for taking control of goods). Such regulations will specify when and how such fees, charges and expenses will be recoverable from the debtor, to include when such amounts can be deducted from the proceeds of sale of any goods. The regulations may also specify that any disputed amount of such fees, costs and expenses is to be assessed in accordance with rules of court.
259. In addition, the Schedule sets out the remedial action and the level of damages available to a debtor against an enforcement agent who breaches the procedure. The Schedule does not make any provision for the debtor's right to bring a claim against an enforcement agent whose actions were not authorised at the outset because this is already covered by the existing law of tort. The Schedule also specifies the circumstances when a creditor can bring a claim against the debtor and it creates an offence if a person intentionally obstructs an enforcement agent in the lawful exercise of his power or if he interferes with goods seized.
260. This Schedule amends the existing legislation referred to in paragraph 255 under which the unified procedure in Schedule 12 will be used. It also contains amendments that are consequential as a result of the introduction of the new procedure and terminology. So, where appropriate, references to warrants of execution and warrants of distress are amended to warrants of control, references to writs of fieri facias are amended to writs of control, references to distrain and distraint are amended to taking control of goods and references to walking possession agreements are amended to controlled goods agreements.
261. A walking possession agreement is an agreement between the person who has the power to seize the goods ("the distrainor") and the debtor. The distrainor agrees that the debtor can retain possession of the goods without anyone being left on the premises to guard them. In return, the debtor agrees not to remove the goods until he makes payment for the debt and that the distrainor may return to the premises at a later date to remove the goods for sale if payment is not made.
262. In addition, where a power to distrain is not currently set out on the face of an Act, but provision is instead made for secondary legislation to authorise distraint, the Schedule will amend the Act so that the power to distrain is on the face of the Act rather than in secondary legislation.
263. The clause specifies the criteria to be met for an individual to act as an enforcement agent. This includes acting under a certificate under clause 59. The clause also creates an offence where an individual acts as an enforcement agent and does not meet the specified criteria.
264. This clause specifies who may issue a certificate under which an enforcement agent can act. The clause also provides that provision about the certificates must be made by regulations. The provision that may be made includes, for example, conditions that may apply to issued certificates, provision about the suspension and cancellation of certificates, and provision for reasonable fees to be charged for applications for certificates.
265. Subsection (4) enables enforcement agents who currently hold a certificate issued under section 7 of the Law of Distress Amendment Act 1888 to continue to operate under that certificate. After the certificate expires, regulations will specify that a certificate will need to be issued in accordance with the new certification provisions under this clause.
266. This clause provides for the replacement of the common law rules about how the powers to take control of and sell goods are exercised. The provisions in Chapter 1, in particular Schedule 12, replace these common law rules. The replacement of the common law rules includes those that relate to remedies that are currently available to debtors (including replevin) and offences by debtors (such as rescuing goods seized). Replevin is a process by which the owner can recover goods seized in return for an undertaking to bring proceedings to determine the right to seize the goods and for tendering sufficient security for the debt and the proceedings. Rescuing goods is where a person interferes with goods seized.
267. Under clause 61 these common law rules will continue to apply in relation to those goods that have been distrained before the new procedure comes into force.
268. This clause provides that the new procedure for taking control of and selling goods does not affect any power to distrain where the goods were distrained against or made subject to a walking possession agreement before the new procedure comes into force.
269. This clause transfers the district judge's responsibility for the execution of warrants of control issued by a county court to any person authorised by or on behalf of the Lord Chancellor. (Section 85(2) of the County Courts Act 1984 refers to the "registrar" but, by virtue of section 74 of the Courts and Legal Services Act 1990, the office of "registrar" is now abolished and replaced by "district judge".) In practice, the warrants will be executed by county court bailiffs.
270. This clause creates a new section 125ZA of the Magistrates' Courts Act 1980 so as to provide for the endorsement of warrants of control issued by the magistrates' court in line with the endorsement process for High Court writs under Schedule 7 to the Courts Act 2003 (and in line with clause 64 regarding county court warrants). The new section is referred to in paragraph 4 of Schedule 12.
271. This clause replaces the existing section 99 of the County Courts Act 1984. It applies to warrants of control issued by a county court and warrants of delivery and warrants of possession which include a power to take control of goods and sell them. It details the procedure for endorsing county court warrants in line with High Court writs. So, the order of priority in execution is dictated by the date and time of endorsement. The new section is referred to in paragraph 4 of Schedule 12.
272. This clause provides the High Court with the power to stay execution of a writ of control for such period of time and on such conditions as the court determines in line with the county court's power to stay execution. The power may only be exercised where the court is satisfied that the debtor is unable to pay any sum or instalment of any sum recovered against him.
273. This clause abolishes the common law right to distrain for arrears of rent. Statutory repeals are dealt with in Schedule 14 and Part 4 of Schedule 22. Taken together, these provisions will sweep away the existing law on distress for rent.
274. Distress for rent is a summary remedy which enables landlords to recover rent arrears, without going to court, by taking goods from the demised premises and either holding them until the arrears are paid or selling them. At common law, the right of distress for rent arises automatically by virtue of the landlord and tenant relationship. So the remedy is almost always available to the landlord of premises, whether residential or commercial premises, when rent is in arrears. Distress for rent is an ancient common law remedy which, over time, has been extended and modified by statute.
275. The right to distrain has applied to different kinds of rent, including rentcharges. This clause and the statutory repeals will abolish distress for all forms of rent (see, for example, the repeal of section 121(1) of the Law of Property Act 1925, which confers statutory power to distrain for a rent charge).
276. This clause creates a new statutory right for a landlord of commercial premises to recover rent arrears by using the procedure in Schedule 12 for taking control of the tenant's goods. This allows the landlord to enter the let premises in order to take goods belonging to the tenant, then sell those goods and recover the rent arrears from the proceeds of sale. The right, which is called CRAR (commercial rent arrears recovery), replaces the existing right of distress for rent. But in contrast to distress, CRAR is available only to landlords of commercial premises.
277. This clause defines "landlord" for the purposes of CRAR and accordingly identifies the person to whom CRAR is available. The definition in this clause reflects the position in the current law of distress for rent as to who can distrain for rent arrears.
278. Subsection (1) sets out the general rule that the landlord is the person entitled to the immediate reversion in the property comprised in the lease. This is the person to whom the property will revert at the end of the lease.
279. In most cases it will be clear who is entitled to the immediate reversion of the property. However, subsections (3) to (7) clarify the position in four particular circumstances, each reflecting the current law on distress for rent. The circumstances are:
280. In the case of a tenancy by estoppel, the landlord may not have a legal estate in the land comprised in the lease, in which case he will not be entitled to the immediate reversion in that property. Subsection (3) makes it clear that such a person will nevertheless be a "landlord" for the purposes of CRAR and may therefore use CRAR to recover rent arrears from his tenant, provided that all the other conditions are satisfied.
281. Subsection (4) provides that if the premises are let under a joint tenancy, then any one of the persons who hold the legal estate will be the "landlord" for the purposes of CRAR. This means that any one of them may exercise CRAR and may do so to recover the rent due to all of them.
282. Subsections (5) and (6) deal with mortgaged properties. If the premises are let by a person who has taken out a mortgage on the property, then that person (who is the "mortgagor" or borrower) will normally be the "landlord" who is entitled to use CRAR to recover rent due under that lease. But if, at any time, the mortgagee (the lender) gives notice of his intention to repossess the property, then he will become the landlord thereafter in relation to that existing lease.
283. However, similar to the current law on distress for rent, a mortgagee who becomes the landlord in this way will not be able to use CRAR to recover rent due under the existing lease if that lease is not binding on the mortgagee. This is because there will be no relationship of landlord and tenant between the mortgagee and the tenant under the existing lease. A lease will not be binding on the mortgagee if it is made after the mortgage was created, and if it is not made under either:
284. By virtue of subsection (7), a receiver who has been appointed by the court in relation to the property that is subject to the lease may exercise CRAR in the name of the landlord.
285. Subsection (8) provides that a landlord who has a right to CRAR will need to authorise a certificated enforcement agent to carry out the procedure for CRAR on his behalf (unless he himself is a certificated enforcement agent; see paragraph 2 of Schedule 12). The landlord will need to instruct the enforcement agent in writing. The form, content, and other requirements in relation to the written instructions from the landlord to the enforcement agent will be prescribed by way of secondary legislation.
286. Subsection (9) provides that any person who has a statutory right under any other legislation to use CRAR, is to be treated as "the landlord" for the purposes of CRAR.
287. This clause defines the term "lease". A lease means any lease that may exist in law or in equity. This clause makes it clear that a "lease" includes a tenancy at will, but does not include a tenancy at sufferance. So, for the purposes of CRAR, a "lease" includes all forms of lease, including long leases, short tenancies, tenancies by estoppel and other equitable leases.
288. A lease must, however, be evidenced in writing. The intention is to ensure that CRAR can only be used in circumstances where the main terms of the lease
(particularly the rent) are clear and certain to the parties concerned.
289. This clause defines what is meant by "a lease of commercial premises". A lease (lease A) will not be "a lease of commercial premises" if any part of the let premises is let under lease A (or let under any sublease B) as a dwelling, or occupied as a dwelling. So, for example, a lease of property comprising a shop and a flat will not be a lease of commercial premises if the flat is used, or is required by the lease to be used, as a dwelling. But if that lease does not impose any requirements as to the use of the flat, and the tenant chooses to use it either as a storeroom or office for the shop, then the lease will be one of commercial premises because no part of the demised premises is let or occupied as a dwelling.
290. This clause makes it clear that any occupation as a dwelling will not count if it is in breach of the terms of lease A or any lease that is superior to lease A. Similarly if the property has been sublet then any sub-letting as a dwelling will not count if it is in breach of the terms of a lease that is superior to lease B. The purpose of these provisions is to ensure that a commercial tenant cannot seek to prevent his landlord from using CRAR against him by, for example, allowing a third party to occupy part of the premises as a dwelling. So the landlord can still use CRAR against his tenant in those circumstances, even though there are residential occupiers present. But the provisions are also designed to ensure that a landlord (who is himself a commercial tenant under lease A) cannot rely on his own breach of lease A to use CRAR against the tenants to whom he has sublet the property as a dwelling under lease B. So in those circumstances, the landlord cannot use CRAR because lease B will not be a lease of commercial premises.
291. This clause defines rent for the purposes of its recovery by CRAR, as the sum payable by the tenant for the possession and use of the premises under the lease, including any interest payable on that sum and any VAT chargeable on the sum or the interest.
292. Any amounts not directly attributable to the tenant's possession and use of the premises do not qualify e.g. council tax. This is the case even if the lease defines them as rent.
293. The rent may be merged with other sums so that it is payable as a combined figure, the individual figure not being known or able to be ascertained. In this situation, the rent will be considered to be that portion of the total sum as reasonably reflects the amount payable for the possession and use of the premises.
294. Rent which is payable under or by virtue of Part 2 of the Landlord and Tenant Act 1954 (c. 56) is deemed to be rent as defined by the clause, and is therefore recoverable by CRAR. Part 2 of the 1954 Act gives security of tenure to business leases, so that they are not ended by the expiry of the contractual term, but continue until terminated in accordance with the provisions of Part 2.
295. The definition of rent given by this clause, however, is not congruent with the meaning of rent at clause 66 (abolition of common law right) because clause 66 relates to a wider range of rents for which the right to the old remedy of distress for rent exists. For that reason, the interpretation of "rent" in this clause does not apply to clause 66 (see clause 82). The definition also does not apply to clause 80 which defines "rent" for its own purposes.
296. This clause sets out the conditions that must be met for the right to CRAR to become exercisable. The conditions are:
297. The requirement that the net unpaid rent must equal or exceed the prescribed minimum is a condition that must be satisfied at two stages: first, before the landlord gives notice of enforcement and, second, before he takes control of goods under Schedule 12. This means that the landlord will need to recalculate the "net unpaid rent" immediately before he takes control of goods. If the recalculated figure is lower than the prescribed minimum, it will not be permissible for the landlord to proceed to take control of goods.
298. The "net unpaid rent" is the amount of unpaid rent less any interest or VAT that may be payable on that amount and less any "permitted deductions". Permitted deductions from rent are deductions that a tenant is presently entitled to make from his rent under statute, at common law and in equity. Examples include sums that may be deducted or recouped from, or set off against, rent:
299. The amount of rent that a landlord is entitled to recover by CRAR is the amount of unpaid rent less any permitted deductions that the tenant is entitled to make against that rent.
300. This clause sets out the powers of the High Court or a county court, as rules of court may provide, to intervene in the exercise of CRAR. The court's power arises only where the following conditions are met: firstly, notice of enforcement has been served on the tenant; secondly, the tenant has made an application to the court to intervene; and thirdly, the court is satisfied that the circumstances meet the prescribed grounds for intervening.
301. The court then has two options available to it. It may make an order to set aside the notice of enforcement, which effectively cancels that notice and prevents the landlord from taking any further steps under CRAR in relation to that notice. This would occur for example if the court considered that the preconditions for exercising CRAR had not been met.
302. Alternatively, the court may suspend the use of CRAR, by making an order that no further steps may be taken in exercise of CRAR without further order by the court. This might occur, for example, if there is a genuine dispute about the amount of rent in arrears or the calculation of the net unpaid rent. In those circumstances, the court may suspend the use of CRAR until that dispute is resolved.
303. This clause deals with the use of CRAR after a lease has ended. The provisions of this clause are intended broadly to reflect the current law governing the availability of distress for rent after a lease has ended. Subsection (1) sets out the general rule that, when the lease ends, CRAR will cease to be available. But that is subject to two exceptions.
304. The first exception is set out in subsection (2). This ensures that a landlord who has taken control of goods under CRAR before the lease comes to an end (or under the second exception, below), is not prevented from completing the process by selling those goods.
305. The second exception is set out in subsections (3) and (4) and this is intended to preserve the effect of sections 6 and 7 of the Landlord and Tenant Act 1709 after those provisions are repealed by this Bill (see Schedule 14). This exception applies where the tenant remains in occupation after the lease comes to an end. It allows the landlord to use CRAR for no more than six months after the lease has come to an end, provided that the lease was not ended by forfeiture, the landlord and tenant remain the same and, if a new lease has been granted to the tenant, it must be a lease of commercial premises. For this purpose it does not matter whether the new lease of commercial premises is in writing or not because the clause only permits the landlord to recover rent due under the expired lease of commercial premises, which must be in writing.
306. Subsection (7) defines when a lease ends for the purposes of this clause.
307. The clause makes a couple of special provisions in relation to the exercise of CRAR where the let premises is an agricultural holding. It is intended to preserve the effect of sections 16 and 17 of the Agricultural Holdings Act 1986 for the purposes of CRAR. (Sections 16 to 19 of that Act will be repealed by this Bill; see Schedule 14).
308. First, there is a limitation on the rent that can be recovered by a landlord of an agricultural holding because CRAR cannot be used to recover rent that became due more than one year before the notice of enforcement is given. Second, any compensation that is due to the tenant under the Agricultural Holdings Act 1986 will be a "permitted deduction" for the purposes of CRAR, provided that the amount of compensation has been ascertained (for the meaning of "permitted deductions", see clause 72(7)).
309. This clause makes provision for a landlord who is entitled to use CRAR against his immediate tenant to instead serve a notice on any sub-tenant requiring that sub-tenant to pay his rent directly to him, instead of paying it to his own landlord in the usual way. Its purpose is to allow the landlord to recover, from a sub-tenant, arrears of rent that are due to him from the immediate tenant.
310. The clause is intended to preserve the effect of sections 3 and 6 of the Law of Distress Amendment Act 1908 (which will be repealed by this Bill, see Schedule 14) in a form that is consistent with the other provisions of CRAR.
311. Where a notice is given to a sub-tenant under this clause, it must set out the amount of the arrears owed to the landlord (the superior landlord) by the immediate tenant. The notice must also require the sub-tenant to pay his rent directly to the superior landlord instead of paying it to his own landlord, until the amount of arrears specified in the notice have been paid off, or rent ceases to be payable by the sub-tenant (for example, if he moves on), or the notice is replaced or withdrawn by the superior landlord.
312. Subsection (5) enables regulations to determine when a notice given by the landlord on a sub-tenant under this clause takes effect.
313. For as long as the notice has effect, the superior landlord will effectively stand in place of the sub-tenant's landlord for the purpose of recovering, receiving or discharging any rent payable by the sub-tenant under the notice, but only for that purpose. This means that the superior landlord can recover from the sub-tenant the amount stated in the notice by using CRAR. But the superior landlord cannot recover that sum from the sub-tenant by serving another section 76 notice on an inferior sub- tenant (see clause 79).
314. The superior landlord may serve more than one notice under this clause, but any later notice replaces an earlier one and where the landlord serves a later notice on a different sub-tenant he must withdraw the earlier one (see clause 78). This ensures that only one notice has effect at any one time.
315. This clause applies where a landlord has given notice to a sub-tenant under clause 77.
316. Any sums that the sub-tenant pays under the notice to the superior landlord will be deductible from the amount of rent he would otherwise have had to pay to his own landlord. So, if the sub-tenant is required to pay £250 a month to the superior landlord under a notice (i.e., until the stated arrears are paid off), then he is entitled to deduct £250 a month from his own rent for as long as he is required to continue making payments under that notice. If there is a hierarchy of sub-leases and the landlord serves notice on an inferior sub-tenant, then this diversion of rent may be passed up the hierarchy of superior sub-tenants until ultimately it is deducted from rent payable to the (defaulting) immediate tenant. For example, where the notice is served on sub- tenant C, he may deduct any sums paid to the superior landlord from rent due to his own landlord (sub-tenant B). Sub-tenant B may then deduct an equivalent amount from his landlord (sub-tenant A) and sub-tenant A may deduct an equivalent amount from his landlord (the immediate tenant).
317. Payments under a section 76 notice will continue to be deductible from rent in this way, even after the arrears stated in the notice have been paid or the notice has been replaced by one served on another sub-tenant, unless the subtenant is aware of those facts. So a payment under a section 76 notice will not be deductible from rent if, at the time it is made:
318. Similarly, part of a payment under a section 76 notice will not be deductible from rent if, at the time it was made, that part of the payment, when added together with earlier payments made by the sub-tenant, at least equal the arrears stated in the notice.
319. If a landlord gives a section 76 notice to a sub-tenant, but subsequently gives another section 76 notice to the same or another sub-tenant for the same amount of arrears (or an amount including all or part of it) then the later notice will automatically replace the earlier notice. This ensures that, for any amount of arrears, there is no more than one notice in force at any one time. (There is an exception to this rule as explained in the next paragraph).
320. There may be cases where, for instance, a landlord (A) lets premises to tenant (B) and tenant (B) geographically divides the premises by letting, say, the ground floor to sub-tenant (C) and the first floor to sub-tenant (D). The rent owed to B in respect of the premises is, therefore, shared between C and D. Under the provisions of this Clause, were B to default on rent owed to A, A will be able to serve notices on both C and D since they are not inferior or superior to one another (see sub-clause 78(2)(b)) in the hierarchy of tenancies. However, in the scenario described above, if C and D were superior or inferior to one another in the hierarchy of sub-tenancies, A would have to decide whether to serve a notice either on C or on D but not on both of them.
321. A section 76 notice will cease to have effect when the amount of arrears stated in the notice has been paid off, or when the notice is replaced by a subsequent notice (see clause 76). A paying sub-tenant will always know that a section 76 notice has ceased to have effect when he himself pays an amount equal to the stated amount of arrears. But he may not necessarily know, for example, that the immediate tenant has paid off the arrears, or that the landlord has served a replacement notice on another sub-tenant. For that reason, this clause requires the landlord to withdraw a section 76 notice when that notice is replaced by another one, and when the amount in arrears is paid (unless it is paid wholly by the paying sub-tenant). This will ensure that the paying sub-tenant is fully informed about the status of the notice that has been given to him.
322. Subsections (1) and (2) deal with the recovery of sums due from a sub-tenant under a section 76 notice. If a notice has been given to a sub-tenant, but that sub-tenant fails to pay the amount of arrears stated in the notice, then the superior landlord can recover that amount from him and he may use CRAR to do so. But the superior landlord cannot recover that sum from the paying sub-tenant by giving another section 76 notice to an inferior sub-tenant (see clause 79).
323. Subsections (3) and (4) deal with overpayments to the superior landlord under a section 76 notice which has ceased to have effect, for example, because the stated amount of arrears have been paid off or the landlord has given a replacement notice. These provisions ensure that any amount paid to the superior landlord under a section 76 notice will always count as if it were rent paid by the defaulting tenant (the immediate tenant). So any payment towards the stated amount of arrears will reduce those arrears and any overpayment (i.e. in excess of the stated amount of arrears) will constitute a credit against future rent due from the immediate tenant. If the immediate tenant has moved on, such that no future rent is due from him, then any overpayment under the notice will be treated as if it had been paid by him by mistake so that he may recover that payment from the superior landlord. But this does not affect any claim that the paying sub-tenant may have under the general law to recover or set-off the amount that he overpaid.
324. This clause ensures that any contractual provision which gives a landlord a power to recover rent (or other similar types of payment) by taking control of, or selling, goods or which modifies a landlord's right to commercial rent arrears recovery (CRAR), will be void, i.e., have no legal effect. A contractual provision that seeks to do any of these things will accordingly be unenforceable. But contracts will be valid and enforceable to the extent that they prevent or restrict the use of CRAR. For example, a contract may provide that:
325. This clause is accordingly intended to prevent a landlord from making contracts to enlarge his power to take control of goods by CRAR or side-step the abolition of rent distress. For example, it will prevent a landlord from including any of the following provisions in a contract:
326. This clause introduces the minor and consequential amendments relating to this Chapter that are contained in Schedule 14. These include amendments to abolish statutory powers to distrain for rentcharges (conferred by, for example, section 121(2) of the Law of Property Act 1925).
327. It is not considered necessary to make any amendment to the Lodgers' Goods Protection Act 1871. Although there has been some doubt as to the extent of its repeal under section 8 of the Law of Distress Amendment 1908, it is considered that the Act is now wholly repealed by virtue of that enactment and section 132 of, and Schedule 6 to, the Judgements (Enforcement) Act (Northern Ireland) 1969. In any event, if not wholly repealed, the Lodgers' Goods Protection Act 1871 would now be superseded by the abolition of the common law to distrain for rent arrears under clause 66.
328. This clause abolishes the rule that distraint for debts owed to the Crown takes priority over enforcement of other debts by seizure and sale of goods. This builds upon previous similar changes abolishing priority being given to debts owed to the Crown above other debts in matters of bankruptcy and insolvency.
329. This clause provides that Part 3 of the Bill applies to the Crown (so that the Crown is able to recover debts due to it by using the new procedure under Part 3, and may not use the old law of distress where Part 3 abolishes it) but that the enforcement powers created by Part 3 cannot be used to recover debts due from the Crown, to take control of or sell Crown goods or to enter premises which the Crown occupies.
330. This clause contains definitions for "prescribed" and "regulations", under which powers to make regulations under Part 3 are exercisable by the Lord Chancellor. It sets out the parliamentary scrutiny applying to regulations under this Part, and provides for the power to make regulations to include power to make supplementary, consequential or transitional provision. Parliamentary scrutiny will be by way of the negative resolution procedure, other than for those powers contained at paragraphs 24(2) and 31(5) of Schedule 12, which will be by way of the affirmative resolution procedure.
331. Part 4 of the Bill makes a number of changes to existing court-based methods of enforcing debts in the civil courts. Part 4 also contains new provisions, including powers to obtain information about debtors.
332. An attachment of earnings order (AEO) is a means of securing payment of certain debts by requiring an employer to make deductions direct from an employed debtor's earnings. Currently, the rate of deductions under an AEO made to secure payment of a judgment debt is calculated by a county court using information provided by the debtor.
333. Effective Enforcement identified weaknesses in the current system and in particular the fact that information provided by debtors is often unreliable. The Bill tackles this by making provision for a new method of calculation of deductions from earnings based on fixed rates, similar to the system used for council tax AEOs. Another weakness of the AEO system is that if a debtor changes job and does not inform the court of his new employer's details, the AEO lapses. The Bill therefore enables the High Court, county courts, magistrates' courts and fines officers to request the name and address of the debtor's new employer from Her Majesty's Revenue and Customs ("HMRC"), for the purpose of redirecting the AEO.
334. A charging order is a means of securing payment of a sum of money ordered to be paid under a judgment or order of the High Court or a county court by placing a charge onto the debtor's property (usually a house or land or securities such as shares). A charging order can be made absolute or subject to conditions. Once an order is in place, a creditor can subsequently apply to court seeking an order for sale of the charged property.
335. At present, the court cannot make a charging order when payments due under an instalment order made to secure that same sum are not in arrears. In certain instances this can prejudice the creditor, allowing for example a debtor with large judgment debts, who is meeting his regular instalments, to benefit from the sale of a property without paying off the debt.
336. The Bill removes this restriction and enables access to charging orders in circumstances where a debtor is not yet in arrears with an instalment order. As a safeguard, the Bill allows the Lord Chancellor to set financial thresholds beneath which a court cannot make a charging order or order for sale, in order to ensure that charging orders are not used to secure payment of disproportionately small judgment debts.
337. Currently, the only means of creditors to obtain information to assist them in determining how to enforce a civil judgment debt is by way of an Order to Obtain Information. This requires the debtor to attend court, which is problematic if the debtor is not co-operating with the court. The Bill enables the High Court and the county courts to request information from the DWP and Commissioners for HMRC, other government departments and/or prescribed third parties (including banks and credit reference agencies) on a judgment debtor who has failed to respond to the judgment or comply with court-based methods of enforcement to assist with the enforcement of a judgment debt. Such information will include name, address, date of birth, National Insurance number and the name and address of the debtor's employer.
338. This clause and Schedule 15 amend the Attachment of Earnings Act 1971 (the AEA 1971), by making provision for a fixed deductions scheme to introduce deductions from earnings at fixed rates for AEOs made by a county court to secure the payment of a judgment debt.
339. This Schedule is in two parts. Part 1 contains the main amendments to the AEA 1971 and inserts new sections and a new Schedule to enable a fixed deductions scheme to operate and to allow for a change in the basis upon which deductions from earnings are made under county court AEOs to secure payment of judgment debts. Part 2 sets out consequential amendments to the AEA 1971.
340. Paragraph 2 amends section 6 of the AEA 1971 (effect and contents of order) by setting out the basis of deductions from earnings under different AEOs, and specifying that where an AEO is made by a county court to secure payment of a judgment debt, the AEO must specify that deductions under the order should be made in accordance with the fixed deductions scheme.
341. Paragraph 3 inserts a new section 6A into the AEA 1971 (the fixed deductions scheme) which defines the fixed deductions scheme and provides for the Lord Chancellor to set out the detail of the scheme in regulations, subject to the affirmative resolution procedure in the first instance. It is intended that such regulations will set out the scheme of deductions in tabular format, in a similar way as is presently used for deductions from earnings for the collection of council tax.
342. Paragraph 4 amends section 9 of the AEA 1971 (variation, lapse and discharge of orders) by specifying that the power of a court to vary an AEO is subject to Schedule 3A inserted by paragraph 7, which specifies circumstances in which a county court may, and circumstances in which a county court must vary an AEO made to secure the payment of a judgment debt.
343. Paragraph 5 inserts a new section 9A into the AEA 1971 (suspension of fixed deductions orders), and obliges a county court, in certain circumstances, to suspend an AEO made under the fixed deductions scheme (a fixed deductions order). Where such a suspension order is made, the employer will not have to make deductions from the debtor's earnings and the debtor will make payments directly to the creditor in the manner specified by the court in the suspension order. Where a county court considers that a fixed deductions order is not appropriate (by way of example, because a county court considers that deductions should be more or less than the deductions specified in the fixed deductions scheme because of the personal circumstances of the debtor), it must make a suspension order. The aim of the suspension provisions is to simplify the position for employers (who should only ever have to make deductions from earnings for county court AEOs made to secure a judgment debt in accordance with the fixed deductions scheme). Such a suspension order will specify the rate and timings of repayments by the debtor to the creditor, and might specify other terms. If any of the terms of the suspension order are broken (by way of example, if the debtor fails to make payments to the creditor), then the court must revoke the suspension order and reinstate the AEO (requiring the employer to make deductions from the debtor's earnings). Even where the terms of the suspension order have not been broken, the court may revoke the suspension order if it considers it appropriate to do so, and rules of court may specify the circumstances in which a court may make or revoke a suspension order of its own motion.
344. Paragraph 7 inserts a new Schedule 3A into the AEA 1971 (changing the basis of deductions). Part 1 of Schedule 3A provides for variations to the basis of deductions under an AEO made to secure a county court judgment debt, such a variation to be changing the basis of deductions from deductions made in accordance with Schedule 3 of the AEA 1971 (a Schedule 3 judgment debt order), to deductions made in accordance with the fixed deductions scheme (a fixed deductions order), therefore, varying an AEO so that the scheme of deductions changes from the current scheme to the new fixed tables scheme. Part 2 of Schedule 3A provides for an AEO made to secure a county court judgment debt to be changed from a fixed deductions order to a Schedule 3 judgment debt order.
345. Part 1 of Schedule 3A provides that a Schedule 3 judgment debt order can be varied to become a fixed deductions order, either on an application to the county court or of the court's own motion. The court must vary a Schedule 3 judgment debt order by way of changing it to a fixed deductions order if a Schedule 3 judgment debt order lapses (because the debtor has changed employment) and is then re-directed to the debtor's new employer (such a variation to take effect at the time of re-direction). Paragraph 6 of Schedule 3A enables the Lord Chancellor to specify by order a "changeover date" when all existing Schedule 3 judgment debt orders should become fixed deductions orders. Paragraph 7 of Schedule 3A provides that where an AEO is varied pursuant to Part 1 of Schedule 3A, the employer must comply with the varied order (but will not incur liability for non-compliance until 7 days have elapsed since service of the order as varied).
346. Part 2 of Schedule 3A deals with changing the basis of deductions under an AEO from a fixed deductions order to a Schedule 3 judgment debt order. Paragraph 10 provides that such a variation can only be made in accordance with Part 2 of Schedule 3A. Paragraph 11 of Schedule 3A specifies that where a county court directs that an existing fixed deductions order should take effect to secure payments under an administration order in accordance with section 5 of the AEA 1971, the AEO must be varied at the same time to specify that deductions under the AEO should be made in accordance with Schedule 3 to the AEA 1971. This is because, for an AEO made to secure payments under an administration order, the county court should retain the flexibility to specify different levels of deductions, and deductions at fixed rates are insufficiently flexible. Paragraph 8 of the Schedule makes a consequential amendment to section 5 of the AEA 1971 to this effect.
347. Part 2 of the Schedule makes consequential amendments to the AEA 1971 to enable operation of the fixed deductions scheme.
348. Paragraphs 9 to 15 amend section 14 of the AEA 1971, (power of the court to order the debtor and employer to provide specified information), in connection with the operation of fixed deductions orders to specify that unlike the position in connection with Schedule 3 deductions orders, the court will not need to order the debtor and/or the employer to provide particulars of the debtor's earnings and anticipated earnings, and as to his resources and needs (as the court will not need to be made aware of such facts when it is not setting the level of deductions under the AEO as deductions are to be made in accordance with the fixed deductions scheme). Similarly, paragraph 16 amends section 15 of the AEA 1971 (obligation of debtor and employer to notify changes) to specify that for fixed deductions orders, the debtor and/or the employer are not obliged to notify the court of particulars of earnings or anticipated earnings.
349. Paragraph 17 makes various consequential amendments in connection with the operation of consolidated attachment orders and paragraph 18 specifies that the fixed deductions scheme should apply to a consolidated attachment order where, before the consolidated order is made, one or more of the AEOs to be consolidated is a Schedule 3 judgment debt order.
350. This clause inserts sections 15A to 15D into the AEA 1971 to enable HMRC information to be provided to the courts for the purpose of re-directing a lapsed AEO.
351. Section 15A enables the High Court, county courts, magistrates' courts and fines officers, where an AEO has lapsed (where the debtor has changed employment but has failed to notify the court in accordance with his obligations in section 15(a) of the AEA 1971), to request HMRC to provide the name and address of the debtor's current employer for the purpose of re-directing the AEO. However, no request may be made under this section unless regulations governing the use and supply of debtor information are in force, having been made under section 15B(5) and (8). Section 15A enables HMRC to provide information to comply with a request, disapplies any legal restrictions that might otherwise apply in relation to the disclosure and also enables contractors who hold information on behalf of HMRC to disclose information pursuant to such a request.
352. Section 15B creates an offence where information obtained pursuant to section 15A is used or disclosed other than for a purpose connected with enforcement of the relevant AEO. Section 15C enables the Lord Chancellor to make regulations under section 15B, with the agreement of the Commissioners and subject to the affirmative resolution procedure. Section 15D sets out various definitions of terms used in sections 15A to 15C.
353. This clause amends the Charging Orders Act 1979 ("the COA 1979") enabling the High Court and county courts to make a charging order in cases where the debtor is not in default under an instalments order made in relation to the sum to be secured by the charging order.
354. Subsection (3) prevents the court from making an order for sale unless the debtor has defaulted in making any payment due under an instalments order. It also enables rules of court to specify limitations upon enforcement of a charging order after there has been default under an instalments order.
355. Subsection (5) provides that any restrictions on enforcement of a charge set out in the inserted subsections 3(4A) to (4E) of the COA 1979 will not apply to any charge put on a bankrupt's home under section 313 of the Insolvency Act 1986.
356. This clause inserts a new section 3A into the COA 1979 to provide a power for the Lord Chancellor to specify financial thresholds below which a court cannot make i) a charging order and/or ii) an order for sale. The first of such regulations is to be subject to the affirmative resolution procedure, and any subsequent regulations are to be subject to the negative resolution procedure.
357. This clause enables a judgment creditor to apply to the High Court or a county court for information about what type of court based action it would be appropriate to take to recover his debt (an information application), such court-based methods being, for example, a warrant of control, a third party debt order or an AEO.
358. This clause enables the High Court or a county court, where the creditor has made an information application, to either make a departmental information request or an information order, requesting or ordering a person to provide information to the court to assist with the creditor's information application. The debtor will be notified that the court intends to make an information request or order to give him an opportunity to object. However, the court may not make a departmental information request to HMRC unless regulations made under clause 97(4) and (7) are in force. They must relate to the use or disclosure of debtor information disclosed by HMRC. Subsection (6) enables the court to disclose information about the debtor to a recipient of an information order or request to enable that recipient to identify the debtor in his records (such information being, for example, the known name and address of the debtor). Subsection (7) disapplies any legal restrictions that might otherwise apply in relation to a disclosure under subsection (6).
359. This clause specifies the information that may be requested by the court from government departments. Subsection (3) specifies information that may be requested from "the designated Secretary of State" (the Secretary of State for Work and Pensions will be designated for this purpose) and subsection (4) specifies the information that may be requested from HMRC. Subsection (5) enables the court to request prescribed information from other government departments. Such government departments will be requested rather than ordered to provide information and non-legislative agreements will set out arrangements for the respective government departments to deal with such requests.
360. This clause enables the court to make information orders requiring prescribed third parties to provide prescribed information about the debtor. It is envisaged that credit reference agencies and banks are likely to be recipients of such information orders.
361. This clause enables a government department in receipt of an information request to disclose information that it considers is necessary to comply with the request and also enables disclosure of information where such information is held by a government contractor. The clause disapplies any legal restrictions that might otherwise apply to such a disclosure. Arrangements concerning compliance with such requests will be set out in non-legislative agreements between DCA and the respective departments.
362. This clause enables a recipient of an information order (the "information discloser") to avoid liability for failure to comply with the order where the information discloser:
363. The information discloser is required to comply with the information order, but may produce a certificate to the relevant court showing that one of the three bullet-points above applies.
364. This clause specifies how information obtained via an information order or departmental information request can be used by the court. Such information can be used by the court:
365. Regulations will further restrict how information obtained via an information order or request can be further used or disclosed by the court to ensure protection of the debtor's rights and to prevent the unlawful use of information.
366. This clause creates an offence where information obtained pursuant to an information order or request is used or disclosed otherwise than in accordance with the purposes intended.
367. This clause creates a power for the Lord Chancellor to make regulations relating to sections 90 to 97, with some requirement to seek the agreement of HMRC in relation to any regulations governing the use and disclosure of information disclosed by that Department.
368. This clause defines terms used in sections 90 to 98.
369. This clause establishes the application of the provisions and sets out the transitional provision.
370. Part 5 of the Bill makes changes to two statutory debt-management schemes, Administration Orders (Chapter 1) and Enforcement Restriction Orders (Chapter 2).
371. Part 5, Chapter 3, also amends the Insolvency Act 1986 to allow for the introduction of a new form of personal insolvency procedure that entails the making, administratively by the official receiver, of a debt relief order (DRO) on the application of an individual debtor who meets specified criteria as regards his assets, income and liabilities. The effect of the order is to stay enforcement of the debts by creditors, the debts being discharged after a period of one year. While the order is in force, the debtor will be subject to similar restrictions and obligations as if he had been adjudged bankrupt.
372. Chapter 4 of Part 5 of the Bill empowers the Lord Chancellor (or his delegate) to approve Debt Management Schemes ("DMSs") operated by any body of persons. Approved schemes will be able to arrange Debt Repayment Plans ("DRPs") for individual debtors. Subject to prescribed restrictions, schemes will in effect be able to compel creditor participation and plans will be able to compose (i.e. reduce or partially write off) debts. These schemes could be operated by a variety of service providers. Existing providers of debt management advice and assistance do not have the power of compulsion and composition. In future, they will be able to choose whether to offer an 'approved scheme' as part of their service.
373. It is intended that DRPs will sit alongside and complement statutory schemes, such as Administration Orders ("AOs"), DROs and Individual Voluntary Arrangements ("IVAs"). The intention is to provide a range of options giving more choice and flexibility to assist the rehabilitation of over-indebted people. The most appropriate scheme to use will depend on the particular circumstances.
374. Administration Orders ("AOs") are a court-administered debt management scheme for those with multiple debts totalling no more than £5,000, one of which must be a judgment debt. The provisions governing AOs are set out in sections 112-117 of the County Courts Act 1984.
375. The 1985 Civil Justice Review recommended a number of changes to the AO scheme and these were taken forward in section 13 of the Courts and Legal Services Act 1990 ("the CLSA 1990"). The changes included removal of the need for a judgment debt, an increase in the debt limit and the introduction of a strict three-year limit to the order. Section 13 also included, for the first time, an explicit power for the court to grant an order restricting enforcement where it considered that this would be more appropriate than an AO. Such an order, once made, would provide temporary relief from enforcement for those unable to meet their commitments for a period to be defined by each order. However, as concerns were raised about the viability of section 13, it has never been brought into force.
376. So, in July 2004 the Government consulted on a range of targeted options to offer better assistance to people with multiple debts (the Choice of Paths Consultation), including reform to the existing AO scheme and a revised and targeted Enforcement Restriction Order ("ERO") scheme. The Government's response paper on the consultation, published in March 2005, committed to a number of changes to the AO scheme including an increase in the debt ceiling and a time limit to orders. The paper also committed to a revised and more workable version of the ERO to address the deficiencies identified in section 13 of the CLSA 1990. Part 5 of the Bill takes forward these changes.
377. At present if an individual encounters difficulty paying his debts, the remedies that are available to him either require him to have assets or funds available to distribute to his creditors on a regular basis (for example IVA, county court AO or a non statutory debt management plan) or, as with bankruptcy, there is a fee to access the remedy. This means that the procedures that are currently available are inaccessible to some people, since they do not have the financial means to use them.
378. Such people often have relatively low levels of liabilities, no assets over and above a nominal amount and no surplus income with which to come to an arrangement with their creditors.
379. The DRO has been devised following the Choice of Paths consultation,
which determined that there was a perceived need for a remedy for people who are financially excluded from the current debt solution procedures, and a further consultation by The Insolvency Service in 2005 ("Relief for the Indebted - an Alternative to Bankruptcy?") on the detail of how it might operate. It is a procedure that will enable some individuals, who meet specified criteria as regards liabilities, assets and income, to seek relief from certain debts.
380. The DRO will be made administratively by official receivers (who will operate the scheme) and will not routinely require any judicial or other court intervention. The effect of the order will be to prevent creditors from enforcing their debts and the debtor will be discharged from the debts after a period of one year. Creditors will be notified of the making of an order and will have a right to make objections on certain grounds if they believe the order should not have been made.
381. The debtor will need to pay an up front entry fee to cover the administration costs but this will be significantly less than the deposit required for bankruptcy proceedings to be initiated. In order to keep costs to as low a level as possible, approved intermediaries from the debt advice sector will help an applicant decide if the DRO procedure is right for him before he applies to the official receiver, and assist the debtor in making his application. Again to maintain a low level of administrative costs (and therefore entry fee) the facility to apply for a DRO will be available only online.
382. To be eligible for an order the debtor will need to meet criteria as regards the level of liabilities, the level of assets and the level of surplus income, and these levels will be set in secondary legislation to enable them to be updated when necessary.
383. While the order is in force the debtor will be subject to the same restrictions and obligations as in bankruptcy, and will be subject to a similar regime of restrictions orders or prosecution if his conduct in relation to the insolvency is found to be culpable. There will be a right of appeal to the court for both the debtor and creditors who are dissatisfied with the way the official receiver has dealt with the case.
384. There is a facility to account for windfalls and increases in income during the period when the order is in force.
385. Many organisations currently offer advice and assistance to debtors. This can include negotiation with creditors to agree an acceptable schedule of repayments and drawing up plans to help debtors manage their finances and make those repayments. It is estimated that over 25,000 such debt repayment plans were arranged in 2004 and there are currently around 70,000 active plans.
386. Such schemes depend on the voluntary participation of the debtor and creditors, and operate without any form of regulation. There is currently no power to compel creditors to adhere to the terms of a debt repayment plan (that is to accept the planned repayments without taking enforcement action). Therefore a single uncooperative creditor can effectively block the creation of a repayment plan that would benefit the debtor and all the other creditors in the long run. Nor is there any power to compose debts that cannot be repaid within a reasonable period as an incentive for the debtor to maintain the required repayments.
387. Measures in Part 5 of the Bill make it clear that business and secured debts cannot be included in these schemes. The measures also enable scheme operators to exercise powers to compel creditor participation, by preventing enforcement action, and to write off a proportion of the debts where a debtor complies with a DRP but simply cannot repay the full amount in a reasonable timescale. Additionally, the measures give the Lord Chancellor power to prescribe in regulations the circumstances in and the extent to which these powers may be exercised. For example, regulations might define the minimum and total repayments for which plans must provide, thereby defining the maximum proportion of the total debts that could be written off. Within these limits, individual schemes could make greater or lesser use of such powers.
388. The Bill also provides creditors with a right of appeal to a county court against the making, their inclusion and terms of a DRP.
389. Before making regulations to bring this Chapter into effect, the Government intends to undertake further research into existing statutory and non-statutory schemes for assisting the over-indebted and those in multiple debt situations (including the working of the reformed AO scheme). This would inform detailed proposals that would then be subject to a full public consultation exercise and regulatory impact assessment to confirm their benefits and cost effectiveness.
390. The Choice of Paths consultation sought views on whether it would be desirable in principle for a scheme similar to the court-based AO scheme to be operated in the private and voluntary sectors. A majority of respondents thought that a non-court scheme could offer advantages over the AO scheme. The paper did not discuss the details of such a scheme. The provisions in this Chapter are intended to take powers to give effect to such a scheme or schemes through regulations, subject to further consultation on the details.
391. Subsection (1) of this clause replaces the existing Part 6 of the County Court Act 1984 ("CCA 1984").
Section 112A - Administration orders
392. Section 112A provides that an administration order ("AO") is an order to which certain debts are scheduled, which imposes a requirement on the debtor and which imposes requirements on certain creditors. Debts are to be scheduled to the order in accordance with the provisions in sections 112C, 112D, 112Y(3) and 112Y(4). The requirement which must be imposed on the debtor is set out in section 112E and this is a requirement to make repayments towards scheduled debts whilst the AO is in force. The requirements which must be imposed on certain creditors are set out in sections 112F to 112I and these are all requirements which restrict the ability of those creditors to take enforcement action whilst an AO is in force.
Section 112B - Power to make order
393. This section sets out the conditions that must be met before the court can make an AO in relation to a debtor. This is a new test for making AOs which introduces the concept of "qualifying debts" together with other new requirements that must be met before an AO can be obtained. Section 112AB provides that a "qualifying debt" is any debt, except for a debt that is secured against an asset, such as a mortgage, or a debt that falls within a description specified in regulations. The conditions which must be met before an AO can be made are:
394. Section 112AE sets out how "surplus income" is to be calculated. It is to be calculated in accordance with regulations. Before making an AO, the court must have regard to any objections. The Civil Procedure Rules 1998 will govern the procedure for making the order.
Section 112C - Scheduling declared debts
395. Debtors will be required to declare all qualifying debts, including those which are not due at the time of applying for an order, to ensure that the court has a true picture of their indebtedness. This section provides that when making an AO, the court must schedule to the order all declared debts already due. Declared debts that become due after an AO is made must be scheduled to the order following an application by the debtor or creditor and after considering any objections made to the debt being scheduled (in accordance with section 112AG(5)).
Section 112D - Scheduling new debts
396. This section gives the court the power to schedule to an existing AO qualifying debts arising after an order is made and becoming due during the life of the order, on the application of the debtor or a qualifying creditor. A "qualifying creditor" is a creditor under a qualifying debt (see section 112AA(1)). However, this power is dependent on the total debt figure (including the new debt) not exceeding the prescribed maximum.
Section 112E - Repayment Requirement
397. This section imposes a requirement on the debtor to make repayments towards scheduled debts during the life of an AO. Debts may either be repaid in full or to the extent decided by the court and different debts may be repaid to different extents.
398. Subsection (5) provides the court with the option to order that repayments are not to be made on debts arising after an order is made and scheduled to the order under section 112D, until all of the repayments required in respect of previously declared debts have been made. This provision is designed to discourage irresponsible lending and borrowing.
399. The section also provides that repayments must be made by instalments and the amount of instalments must be determined in accordance with regulations. The regulations must make provision for instalments to be determined by reference to the debtor's surplus income. The section also allows the court to order repayments to be made by other means, such as by lump sums, in addition to the regular instalments, for example, where the debtor disposes of property.
Section 112F - Presentation of bankruptcy petition
400. Sections 112F to 112I set out the requirements that must be imposed by an AO on certain creditors for as long as the AO is in force.
401. The first requirement, in section 112F, provides that any qualifying creditor of the debtor is to be prohibited from presenting a bankruptcy petition against that debtor, unless he has the court's permission. This is similar to the current provision under section 112(4) of the CCA 1984. However, unlike section 112(4), this new section does not include a prohibition on a creditor joining in a bankruptcy petition that has been presented by another creditor. So, if a qualifying creditor obtains the court's permission to present a bankruptcy petition (or if a non-qualifying creditor presents a petition without the court's permission), then all of the debtor's creditors will be able to join in those bankruptcy proceedings. If this leads to the making of a bankruptcy order against the debtor, then the court which made the AO will be required to revoke that AO (see section 112U(4)(b)).
Section 112G - Remedies other than bankruptcy
402. This section sets out the second requirement that must be imposed by an AO on certain creditors. This is similar to the current provision under section 114 of the CCA 1984. It prohibits qualifying creditors from seeking to recover their debt by pursuing any other remedy (that is, other than bankruptcy) without the court's permission. However, regulations may be made under this section to exempt certain creditors from this requirement in appropriate circumstances. For example, exemptions will apply in respect of debts that are a criminal fine, a student loan or that are due under an order made in family proceedings or maintenance assessments made under the Child Support Act 1991. In relation to these particular types of debt, it is appropriate that the creditor should be free to recover the debt from the debtor, even though an AO is in force. These exceptions will be in line with those categories of debt which are non provable in bankruptcy proceedings. The revised ERO scheme and the new DRO and DRP schemes will have similar exemptions. This ensures a consistent approach, which is essential to facilitate movement between these schemes for those debtors who need it.
Section 112H - Charging of interest etc.
403. This section sets out the third requirement that must be imposed by an AO on certain creditors. Any creditor under a scheduled debt is prevented from charging any interest, fee or charge in respect of the scheduled debt during the life of an order.
Section 112I - Stopping supplies of gas or electricity
404. This section sets out the fourth requirement that must be imposed by an AO on certain creditors - in this case, creditors who are domestic utility suppliers. This largely replicates what would have been section 112A of the CCA 1984, had section 13(5) of the CLSA 1990 been commenced. However, these provisions are limited to imposing restrictions on electricity and gas suppliers because the Water Industry Act 1991 already restricts the powers of water suppliers in relation to domestic supply of water.
Section 112J - Application for an order
405. Unlike the current provisions, which allow the court to make an order on its own initiative, this new section provides that an AO can only be made on the application of the debtor. It also removes the current need for the debtor to have at least one court judgment in respect of any of his debts. This will ensure that a debtor who needs the protection of an AO is able to obtain an AO without first having to wait for one of his creditors to take him to court.
Section 112K - Duration
406. This section differs from the current legislation by setting a maximum overall limit of 5 years on the duration of an AO. At present, AOs are not time limited. Section 112(9) of the CCA 1984, which was to be inserted into that Act by section 13(4) of the CLSA 1990 had it been commenced, limited AOs to a maximum period of 3 years. An order will cease to have effect 5 years after the date on which it was made, unless the court has specified an earlier date in the order. If the court specifies an earlier date when it makes the AO, then it may subsequently extend the length of that order under section 112S (variation of duration), provided that the overall length remains within the 5 year time limit from the making of the order. The court may also revoke an AO before it is due to expire, under section 112U or section 112V (duty and power to revoke order), and in those cases the order will cease to have effect in accordance with the revocation.
407. The intention is to make the AO scheme more effective by providing certainty about the length of the order, as well as an opportunity for a debtor's rehabilitation (because of the fixed term), a reasonable return to creditors and an incentive to maintain the repayments.
Section 112L - Effect on other debt management arrangements
408. This new section defines the relationship between an AO and the other debt management arrangements set out in subsection (6), which are EROs, DROs and DRPs. It provides that when an AO is made, any other debt management arrangement which had effect in relation to the same debtor immediately before it was made will cease to have effect automatically when the AO is made. Provision is also made for the court to notify the provider of the other arrangements as soon as practicable, or as soon as it becomes aware of their existence, of the making of the AO. Similar provisions are incorporated into the revised ERO scheme and the new DRO and DRP schemes This will ensure that no more than one debt management arrangement has effect in respect of the same debtor at the same time.
Section 112M - Duty to provide information
409. This new section applies as long as an AO is in force and requires a debtor, who is the subject of an AO, to supply information about his earnings and income (including, for example, any cash that he might win or receive as a gift) and his assets and expenditure at intervals to be specified in regulations. The information to be provided must include details of any anticipated changes that are likely to occur before the next statement is due, for example if the debtor knows that he is due to receive a bonus in his next pay. Additionally, debtors will be required to notify the court within a period, again to be specified in regulations (probably 7 - 14 days), before he disposes of any property (including cash) that is above a set value, to be specified in regulations.
410. This new provision is intended to facilitate the court's role in actively managing an AO, for example by exercising its powers to vary or revoke the order where appropriate.
Section 112N - Offence if information not provided
411. This section provides that any failure to provide information, as required under section 112M, is an offence which is punishable by a county court judge who may impose a fine of not more than £250 or imprisonment for not more than 14 days. This offence is not a criminal offence; instead it is treated as if it were a contempt of court. The penalty is equivalent to that which applies to a debtor who fails to provide the information required by section 15 of the Attachment of Earnings Act 1971 (see section 23 of that Act).
Section 112O - Existing county court proceedings to be stayed
412. This section provides that any county court proceedings that were pending against the debtor when the AO was made, must be stayed if the following conditions apply:
413. Where proceedings are stayed under this section, the county court has discretion to allow the creditor any costs incurred in the stayed proceedings. Those costs may be added to the qualifying debt or, if the debt is scheduled to the AO, to the amount scheduled in respect of the debt but only if the court is not under a duty to revoke the order because the total qualifying debts, including the costs, exceeds the prescribed maximum (see section 112U(6)(b)).
Section 112P - Appropriation of money paid
414. This section provides that monies paid by a debtor under an AO will first be appropriated towards court fees and then towards the debts scheduled to the order. So, a debtor need not pay the court fees up front; instead, they can be paid from the monies the debtor pays to the court under the AO.
Section 112Q - Discharge from debts
415. This section places a duty on the court to discharge the debtor from a scheduled debt and to de-schedule the debt where the debt is repaid to the extent provided in the order, even if the debt is not repaid to its full extent. Once all of the scheduled debts have been repaid to the extent required by the order, then the court must revoke that order.
Section 112R - Variation
416. This section provides that the court may vary an AO on its own initiative or on the application of either the debtor or a qualifying creditor. This provision allows the court to take a more pro-active role in the management of the order by being able to react to information received from the debtor under section 112M.
Section 112S - Variation of duration
417. This section makes provision to allow the court to vary the duration of an AO. So, for example, an AO that was due to come to an end after 5 years from the day it was made can be shortened so that instead it comes to an end after 4 years from the day it was made. Similarly, an AO that was due to come to an end after 3 years, can be extended so that it continues to have effect for a further 2 years. But the overall duration of an AO (including any extensions under this section) must not exceed a period of 5 years from the day it was made.
Section 112T - De-scheduling debts
418. This new section enables the court to use its power of variation under section 112R to vary an administration order by de-scheduling the debt, if it appears to the court that it is just and equitable to do so. This will normally be when debts have been incorrectly scheduled to an order.
Section 112U - Duty to revoke order
419. This section makes provision for the revocation of an order on specified Grounds. It places a duty on the court to revoke an AO if it becomes apparent that at the time the order was made, or subsequently, the entry criteria in section 112B were not or are no longer met. That is where the debtor:
Section 112V - Power to revoke order
420. This section gives the court, on its own motion or on the application of either the debtor or a qualifying creditor, a general power to revoke an AO in circumstances where it does not have a duty to do so. This power may be used particularly where a debtor fails to make two payments (whether consecutive or not) required by the order under section 112E or fails to provide information required under section 112M.
Section 112W - Effect of Revocation
421. This section confirms that if an order is revoked under a duty or power in this Part, then it ceases to have effect in accordance with the terms of the revocation.
Section 112X - Notice when order made, varied, revoked etc
422. This section imposes a duty on the court to send notice to all creditors with scheduled debts if and when the following things happen:
Section 112Y - Failure to take account of all qualifying debts
423. This section places a duty on the court to schedule an undeclared debt to an AO if the following conditions apply:
424. If the undeclared debt is not yet due, the court must schedule the debt to the order when it becomes due. Where the inclusion of the debt would result in the total debt exceeding the prescribed maximum, the court must instead revoke the order.
425. Under this section, the court must take account of any representations (including representations about why a debt should not be scheduled) in accordance with section 112AG(5)).
Section 112AA - Main definitions
426. This section explains the meaning of key expressions used in this Part. In particular, it confirms that the terms "administration order" and "debtor" have the meanings given to them in new sections 112A and 112B, respectively. It also defines "qualifying creditor" as a creditor under a qualifying debt and confirms that, subject to the normal rules of court, "proper county court" refers to the court that made the order.
Section 112AB - Expressions relating to debts
427. This section defines a "qualifying debt" as any debt that is not secured against an asset or specified in regulations. A "business debt" is defined as a debt incurred in the course of a business. This section confirms that references to debts include only those debts that have arisen and therefore contingent debts are not included.
Section 112AC - Inability to pay debts
428. This section specifies that a debtor is considered to be unable to repay a debt if, when the debt is due, he fails to pay it (if the debt is repayable by a single payment) or, he fails to make one or more payments (if the debt is repayable by a number of instalments) and is unable to pay the single payment or all of the missed payments.
Section 112AD - Calculating the debtor's qualifying debts
429. This section requires the court to calculate the total amount of a debtor's qualifying debts by taking into account all qualifying debts that have arisen before the calculation, including those which are not due to be paid at the time of the calculation (that is, where payment is deferred). This ensures that the court is aware of the true extent of a debtor's indebtedness. In addition, the section requires regulations to make further provision about how the total amount of a debtor's qualifying debts is to be calculated and enables regulations to make provision about how the amount of any particular qualifying debt is to be calculated.
Section 112AE - Calculating the debtor's surplus income
430. This section requires the debtor's surplus income to be calculated in accordance with regulations which must make provision about what is surplus income (this is likely to be the difference between average income, over a specific period, and justifiable expenditure) and the period by reference to which the debtor's surplus income is to be calculated. The regulations may allow the court to take into account the debtor's assets, such as his savings, when calculating his surplus income.
Section 112AF - Debts becoming due
431. This section specifies when a debt, which is repayable by a single repayment or by a number of payments, becomes due. The debt becomes due when the time for making the single payment or the first of the payments is reached.
Section 112AG - Scheduling and de-scheduling debts
432. This section explains when a debt is scheduled to and de-scheduled from an AO. If the amount of the debt and the name of the creditor under the debt is included in a schedule to the order, the debt is scheduled to the order. The debt is de-scheduled when this information is removed from the schedule. The court must not schedule or de-schedule a debt without having regard to any representations from any person about why the debt should not be scheduled or de-scheduled. However, where an undeclared debt is scheduled under section 112Y, the court need not have regard to any representations made by a debtor about the scheduling of that debt. Also, where a debt is de-scheduled because a debtor is discharged from his debt under section 112Q, the court need not have regard to any representations made by any person.
Section 112AH - The AO, voluntary arrangement and bankruptcy exclusions
433. This section defines the AO, voluntary arrangement and bankruptcy exclusions, which are relevant to the court's power to make an AO (see section 112B(4)). It specifies that a debtor is excluded under the:
Section 112AI - Regulations under this Part
434. This section provides the Lord Chancellor with powers to make regulations under this Part.
435. Subsection (2) of this clause enacts Schedule 16.
436. This Schedule contains a number of amendments to numerous Acts which are consequential as result of the new provisions in Part 6 of the CCA 1984.
437. Subsection (3) of this clause specifies that the application of the new provisions do not apply where an AO was made or an application for an AO was made before the day on which the new provisions come into force.
438. Subsection (1) of this clause inserts a new Part 6A into the CCA 1984.
Section 117A - Enforcement Restriction Orders
439. Section 117A provides that an enforcement restriction order ("ERO") is an order which imposes requirements on certain creditors and which may also impose a requirement on the debtor. The requirements which must be imposed on certain creditors are set out in sections 117C to 117E and these are all requirements which restrict the ability of those creditors to take enforcement action whilst an ERO is in force. The requirement which may be imposed on the debtor is set out in section 117F and this is a requirement to make repayments towards certain debts whilst the ERO is in force.
Section 117B - Power to make order
440. This section sets out the conditions that must be met before the court can make an enforcement restriction order in relation to a debtor. This is a new test for making EROs, which introduces the concept of "qualifying debts" together with other new requirements that must be met before an ERO can be obtained. Section 117T provides that a "qualifying debt" is any debt, except for a debt that is secured against an asset, such as a mortgage, or a debt that falls within a description specified in regulations. The conditions which must be met before an ERO can be made are:
441. The Civil Procedure Rules 1998 ("CPR") will govern the procedure for making the order. It is intended that the court should be able to make the order without first giving notice to the creditors. For that reason, section 117B(10) allows the CPR to disapply the requirement for the court to consider any objections before making an order. However, the court will be required to have regard to any objections that a creditor may have after the order has been made and may vary or revoke the order if appropriate, in the light of those objections.
Section 117C - Presentation of bankruptcy petition
442. Sections 117C to 117E set out the requirements that must be imposed by an ERO on certain creditors for as long as the ERO is in force. The first requirement, in section 117C, provides that any qualifying creditor of the debtor is to be prohibited from presenting a bankruptcy petition against that debtor, unless he has the court's permission. This is similar to the current provision under section 112(4) of the CCA 1984 which applies to administration orders ("AOs"). However, unlike section 112(4), this new section does not include a prohibition on a creditor joining in a bankruptcy petition that has been presented by another creditor. So if a qualifying creditor obtains the court's permission to present a bankruptcy petition (or if a non-qualifying creditor presents a petition without the court's permission), then all of the debtor's creditors will be able to join in those bankruptcy proceedings. If this leads to the making of a bankruptcy order against the debtor, then the court which made the ERO will be required to revoke that ERO (see section 117O(4)(b)). A "qualifying creditor" is a creditor under a qualifying debt (see section 117T(1)).
Section 117D - Remedies other than bankruptcy
443. This section sets out the second requirement that must be imposed by an ERO on certain creditors. It re-enacts in part what would have been section 112A(2) of the CCA 1984, which was to be inserted by section 13(5) of the CLSA 1990 had it been commenced. This second requirement prohibits qualifying creditors from seeking to recover their debt by pursuing any other remedy (that is, other than bankruptcy) without the court's permission. However, in contrast to section 112(4) of the CCA 1984, regulations may be made under this section to exempt certain creditors from this requirement in appropriate circumstances. For example, exemptions will apply in respect of debts that are a criminal fine, a student loan or that are due under an order made in family proceedings or maintenance assessments made under the Child Support Act 1991. In relation to these particular types of debt, it is appropriate that the creditor should be free to recover the debt from the debtor, even though an ERO is in force. These exceptions will be in line with those categories of debt which are non provable in bankruptcy proceedings. The revised AO scheme and the new DRO and DRP schemes will have similar exemptions. This ensures a consistent approach, which is essential to facilitate movement between these schemes for those debtors who need it.
Section 117E - Stopping supplies of gas or electricity
444. This section sets out the third requirement that must be imposed by an ERO on certain creditors, in this case creditors who are domestic utility suppliers. Again this largely replicates what would have been section 112A of the County Court Act 1984, had section 13(5) of the CLSA 1990 been commenced. However, these provisions are limited to imposing restrictions on electricity and gas suppliers because the Water Industry Act 1991 already restricts the powers of water suppliers in relation to domestic supply of water.
Section 117F - Repayment requirement
445. This section sets out the requirement that may be imposed by an ERO on the debtor. This gives the court discretion to order the debtor to make payments towards one or more of his qualifying debts, whilst the ERO is in force, provided that the debtor has sufficient surplus income. Regulations will make provision about what is surplus income (which is likely to be the difference between average income and justifiable expenditure, in common with the AO provisions) and specifies that assets, such as the debtor's savings, may be taken into account when making this calculation. It also allows the court to vary the repayment requirement of its own initiative or on the application of the debtor or a qualifying creditor.
Section 117G - Application for an order
446. This section specifies that only a debtor can apply for an ERO and that a debtor can make an application regardless of whether any of his creditors has obtained a court judgment in respect of any of his debts. (Under the current provisions in the CCA 1984, a judgment debt is a precondition to the court making an AO or ERO). This will ensure that a debtor who needs the protection of an ERO is able to obtain an ERO without first having to wait for one of his creditors to take him to court.
Section 117H - Duration
447. This section provides for a maximum overall time limit of 12 months on the duration of an ERO. An order will cease to have effect 12 months after the date on which it was made, unless the court has specified an earlier date in the order. If the court specifies an earlier date when it makes the ERO, then it may subsequently extend the length of that order under section 117N (variation of duration), provided that the overall length remains within the 12 month time limit from the making of the order. The court may also revoke an ERO before it was due to expire, under section 117O or section 117P (duty and power to revoke order), and in those cases the order will cease to have effect in accordance with the revocation.
Section 117I - Effect on other debt management arrangements
448. This new section defines the relationship between an ERO and the other debt management arrangements set out in subsection (6), which are AOs, DROs and DRPs. It provides that, when an ERO is made, any other debt management arrangement which had effect in relation to the same debtor immediately before it was made will cease to have effect automatically when the ERO is made. Provision is also made for the court to notify the provider of the other arrangements as soon as practicable, or as soon as it becomes aware of their existence, of the making of the ERO. Similar provisions are incorporated into the revised AO scheme and the new DRO and DRP schemes. This will ensure that no more than one debt management arrangement has effect in respect of the same debtor at the same time.
Section 117J - Duty to provide information
449. This new section applies as long as an ERO is in force and requires a debtor, who is the subject of an ERO, to supply information about his earnings and income (including, for example, any cash that he might win or receive as a gift) and his assets and expenditure at intervals to be specified in regulations. The information to be provided must include details of any anticipated changes that are likely to occur before the next statement is due, for example if the debtor knows that he is due to receive a bonus in his next pay. Additionally, debtors will be required to notify the court within a period, again to be specified in regulations (probably 7 - 14 days), before he disposes of any property (including cash) that is above a set value, to be specified in regulations.
450. This new provision is intended to facilitate the court's role in actively managing an ERO, for example by exercising its powers to vary or revoke the order where appropriate.
Section 117K Offence if information not provided
451. This section provides that any failure to provide information, as required under section 117J, is an offence which is punishable by a county court judge who may impose a fine of not more than £250 or imprisonment for not more than 14 days. This offence is not a criminal offence; instead it is treated as if it were a contempt of court. The penalty is equivalent to that which applies to a debtor who fails to provide the information required by section 15 of the Attachment of Earnings Act 1971 (see section 23 of that Act).
Section 117L - Existing county court proceedings to be stayed
452. This section provides that any county court proceedings, that were pending against the debtor when the ERO was made, must be stayed if the following conditions apply:
453. Where proceedings are stayed under this section, the county court has discretion to allow the creditor any costs incurred in the stayed proceedings and those costs may be added to the qualifying debt.
Section 117M - Charges
454. This new provision prohibits qualifying creditors from making any charge, other than interest or charges relating to issues before an ERO came into existence, for the period while an ERO is or was in force. So the prohibition remains in place even after the ERO has ceased to have effect. This provision is designed to prevent creditors, who are prohibited from enforcing their debts whilst an ERO has effect, from penalising the debtor under the ERO by imposing additional penalty charges or interest for his late payment of the relevant debt. If the creditor tries to impose any such charge, in breach of this section, then that charge will be unenforceable.
Section 117N - Variation of duration
455. This section makes provision to allow the court, on its own initiative or on the application of the debtor or a qualifying creditor, to vary the duration of an ERO. So, for example, an ERO that was due to come to an end after 12 months can be shortened so that instead it comes to an end after 8 months from the day it was made. Similarly, an ERO that was due to come to an end after 6 months, can be extended so that it continues to have effect for a further 3 months. But the overall duration of an ERO (including any extensions under this section) must not exceed a period of 12 months from the day it was made.
Section 117O - Duty to revoke order
456. This section makes provision for the revocation of an order on specified grounds. It places a duty on the court to revoke an ERO if it becomes apparent that at the time that the order was made, or subsequently, the entry criteria in section 117B were not or are no longer met. That is where the debtor:
? had/has a business debt and in either case he is still a debtor under that debt;
457. Additionally, the court must revoke an ERO if it becomes apparent that at the time the order was made it was not in fact fair and equitable to make the order or where it is not now fair and equitable for the order to continue to have effect.
Section 117P - Power to revoke order
458. This section gives the court, on its own motion or on the application of either the debtor or a qualifying creditor, a general power to revoke an ERO in circumstances where it does not have a duty to do so. This power may be used particularly where a debtor fails to comply with a repayment requirement that is (or was) included in the order under section 117F or fails to provide information required under section 117J.
Section 117Q - Effect of revocation
459. This section confirms that if an order is revoked under a duty or power in this Part, then it ceases to have effect in accordance with the terms of the revocation.
Section 117R - Notice of order
460. This section imposes a duty on the court to send notice to all qualifying creditors if and when the following things happen:
Section 117T - Main definitions
461. This section explains the meaning of key expressions used in this Part. In particular, it confirms that the terms "enforcement restriction order" and "debtor" have the meanings given to them in new sections 117A and 117B, respectively. It also defines "qualifying creditor" as a creditor under a qualifying debt and confirms that, subject to the normal rules of court, "proper county court" refers to the court that made the order.
Section 117U - Expressions relating to debts
462. This section defines a "qualifying debt" as any debt that is not secured against an asset or specified in regulations. A "business debt" is defined as a debt incurred in the course of a business. This section confirms that references to debts include only those debts that have arisen and therefore contingent debts are not included.
Section 117V - Inability to pay debts
463. This section specifies that a debtor is considered to be unable to repay a debt if, when the debt is due, he fails to pay it (if the debt is repayable by a single payment) or, he fails to make one or more payments (if the debt is repayable by a number of instalments) and is unable to pay the single payment or all of the missed payments.
Section 117W - The ERO, voluntary arrangement and bankruptcy exclusions
464. This section defines the ERO, voluntary arrangement and bankruptcy exclusions, which are relevant to the court's power to make an ERO (see section 117B(4)). It specifies that a debtor is excluded under the:
Section 117X - Power to make regulations
465. This section empowers the Lord Chancellor to make regulations under this Part.
466. Clause 103 gives effect to Schedules 17, 18 and 19 and makes provision for the addition of a new Part 7A of the Insolvency Act 1986 and additional Schedules (Schedule 4ZA on the conditions to be met for a DRO and Schedule 4ZB relating to debt relief restrictions orders) to that Act. These provisions relate to the operation of a new individual insolvency procedure, the debt relief order ("DRO").
467. Schedule 17 contains the text of new Part 7A to be inserted into the Insolvency Act 1986.
Section 251A: Debt Relief Orders
468. Only individuals who are unable to pay their debts may apply for a debt relief order. The section also identifies the debts to which a DRO may apply - which are called "qualifying debts" in the Bill. The debts must be for an identifiable amount of money and must not be secured or within any description of debt that may be prescribed by order as being excluded from being a qualifying debt.
Section 251B: Making of application
469. Section 251B provides for the way in which the debtor must apply to the official receiver for an order. The application must be made through an approved intermediary. The term "approved intermediary" is defined later in section 251U. The section sets out some of the detail about the individual's affairs that must be included in an application for a DRO, and makes provision for the individual insolvency rules made under section 412 to prescribe the form and manner in which the application should be made and the information that must be supplied in support of the application.
Section 251C: Duty of official receiver to consider and determine application
470. Once an application has been made the official receiver must decide whether to make, refuse or stay the application pending further enquiries. This section describes the steps the official receiver should take when an application for a DRO has been made. It allows the official receiver to stay his consideration of the application until he receives answers to any queries raised by him with the debtor.
471. The section sets out the circumstances in which the official receiver must refuse the application (if he is not satisfied that the debtor meets the criteria for a DRO) and also that he may refuse it if the application does not satisfy the requirements imposed by section 251B or if queries raised with the debtor have not been answered to the official receiver's satisfaction. If the official receiver refuses the application he must give reasons to the debtor. If he does not refuse the application then he must make the order.
Section 251D: Presumptions applicable to the determination of an application
472. In order to ensure that there is a uniform approach to the order making process and that the great majority of applications can be decided quickly, the official receiver must apply certain presumptions when determining an application for a DRO. This section requires him to presume that the debtor meets the requirements for a DRO if it appears to be the case from information supplied in the application and he has no reason to believe that the information supplied is inaccurate or that the debtor's circumstances have changed since the application date.
473. The official receiver must also presume that the debtor meets the conditions as to eligibility as set out in Schedule 4ZA providing he has no reason to believe that incomplete or inaccurate information has been supplied in the application or in support of it. The official receiver may also presume that the debts specified at the date of the application are qualifying debts unless he has reason to believe otherwise.
It is expected that the involvement of authorised intermediaries in filling in and submitting application forms means that most applications are well-founded. This section allows the official receiver to make orders where the application appears to be in order without considering the case in any more detail. However, where an objection is made to the order or for any reason the official receiver discovers that the order arguably should not have been made, the official receiver will be expected to look into the case in far more detail. That is thought to provide adequate protection for creditors and will ensure that the administrative costs, and hence the application fees, can be kept as low as possible.
Section 251E: Making of debt relief orders
474. This section makes provision for the form of the DRO, including some of the matters that must be included in the order, for example a list of the debtor's qualifying debts and entry of its details on the individual insolvency register provided for by the Insolvency Act 1986. It also makes provision for the steps that the official receiver must take once the order has been made, including providing a copy of the order to the debtor, and allows for rules to prescribe other steps he must take in particular with regard to notifying creditors and informing them of the grounds on which they may object.
Section 251F: Effect of debt relief order on other debt management arrangements
475. This section provides that where a DRO is made, any debt management arrangements, as defined, that were in place at the time will cease to be in force.
Section 251G: Moratorium from qualifying debts
476. Section 251G further sets out the effect of a DRO. Once the order is entered onto the register, a moratorium in respect of the debts specified in the order takes effect. During the moratorium creditors specified in the order are prohibited from taking proceedings to enforce the debt or present a bankruptcy petition in relation to that debt, except with leave of the court.
Section 251H: The moratorium period
477. In most cases, the moratorium period is one year from the date of entry on the register. However, the order may be terminated early for example if the debtor's financial circumstances change such that he can make arrangements to pay his creditors, or if he has been found to have provided misleading information on his application.
478. The section makes provision for the moratorium period to be extended by the official receiver or the court and the circumstances in which an extension is permitted. Such circumstances include carrying out or completing an investigation into the debtor's affairs (only with the permission of the court) or providing the debtor with the opportunity to make arrangements to pay his creditors before revoking the order.
Section 251I Discharge from qualifying debts
479. Section 251I provides for the debtor to be discharged from his qualifying debts specified in the order at the end of the moratorium period, and the circumstances in which the debtor will not be discharged from the debts - in particular if the moratorium period is terminated early. The debtor will not be discharged from any debts listed in the order that were incurred through fraud. The section also specifies that discharge of the debtor from the debts does not release any other person from their liability for the debts.
Section 251J providing assistance to official receiver etc
480. This section sets out the requirements imposed on the debtor with regard to assisting the official receiver in carrying out his functions. It requires the debtor to provide the official receiver with information about his affairs and attend on the official receiver. The requirement extends so far as the official receiver may reasonably require in order to carry out his functions in relation to the application or the debt relief order made as a result of it. The debtor is also under a duty to notify the official receiver of changes in his circumstances during and before the moratorium period. He must also notify the official receiver if he becomes aware of any errors or omissions in his application.
Section 251K Objections and Investigations
481. Creditors are permitted to object to the making of the order on specified grounds and this section makes provision for that. In particular, the section makes provision for any person specified in the order as a creditor to object to the making of the order or his inclusion in the order or to details of the debt specified. It also gives details of how the objection must be made and requires the official receiver to consider the objection. It allows the official receiver to carry out an investigation if it seems appropriate and gives a power to the official receiver to require any person to give him information and assistance.
Section 251L Power of official receiver to revoke or amend a Debt Relief Order
482. This section sets out the circumstances in which the official receiver may revoke the order and gives him a power to amend the order during the moratorium period to correct errors and omissions. Revocation may take place when information provided by the debtor to the official receiver turns out to be incomplete or misleading, or where the debtor fails to comply with his duties to provide information or attend on the official receiver. The order may also be revoked if the official receiver ought not have made the order because he ought not have been satisfied the criteria were met and also if the debtor's income and property levels change (for example following a windfall) after the order has been made and the debtor would no longer meet the criteria for obtaining an order.
Section 251M Powers of court in relation to debt relief orders
483. This section enables persons who are dissatisfied with the actions of the official receiver to apply to the court and for the court to give directions or make any order it thinks fit. It also enables the official receiver to make an application for directions or an order in relation to any matter arising in connection with the DRO or an application for a DRO. An application to the court may, subject to anything contained in the rules, be made at any time.
Section 251N: Inquiry into debtor's dealings and property
484. This section enables the court, on the application of the official receiver, to require the debtor, the debtor's spouse, former spouse, civil partner or former civil partner or any person appearing to be able to give information or assistance to the court to appear before the court. There are sanctions for failure to appear without reasonable excuse - the court may issue a warrant for the person's arrest or order the seizure of books, papers and other items. It is not expected that there will be a frequent use of this power, which is aimed at a very small number of cases where misconduct - for example the hiding of assets - is suspected and the debtor has refused to provide information to the official receiver.
Section 251O: False representations and omissions
485. In order that the official receiver can determine whether a DRO should be made, the debtor must provide complete and accurate information about his affairs. Similarly, the debtor remains under an obligation to provide information to the Official Receiver once the DRO is made. This section provides that a debtor who deliberately provides false information or omits pertinent information commits an offence.
Section 251P: Concealment or falsification of documents
486. This section provides that a failure to produce books, papers or other documents to the official receiver is an offence. Similarly, preventing such records being produced, or their concealment, destruction or falsification will also be an offence. The offence may be committed before the application for the DRO has been made, and during both the application process and the moratorium period, and it is irrelevant that the order may have been revoked subsequent to an offence being committed.
Section 251Q: Fraudulent disposal of property
487. In order to meet the eligibility criteria for a DRO, the debtor must meet various conditions including a limit on the value of property he owns. A debtor who disposes of property, whether in an attempt to meet the eligibility criteria or to deny creditors access to that property, is clearly acting in an inappropriate manner. The section ensures that a debtor, who fraudulently disposes of property, commits an offence. The offence may be committed before the application for the DRO has been made, and during both the application process and the moratorium period, and it is irrelevant that the order may have been revoked subsequent to an offence being committed.
Section 251R: Fraudulent dealing with property obtained on credit
488. This section makes it an offence if the debtor disposes of property obtained on credit for which he has not paid, and similarly penalises the knowing recipient of such property. No offence is committed if the disposal or acquisition was in the ordinary course of the debtor's business, but particular attention will be paid to the price paid for the property. The offence may be committed before the application for the DRO has been made, and during the application process.
Section 251S: Obtaining credit or engaging in business
489. This section makes it an offence for the debtor to obtain credit (either alone or jointly with another person) to the extent of a prescribed amount, or to trade in a name other than that which the DRO was made, without disclosing his status. His status is that there is a moratorium in force in relation to a DRO or that there is a debt relief restrictions order in force. The section also includes an explanation of the expression "obtaining credit".
Section 251T: Offences: supplementary
490. This section sets out who may institute proceedings for an offence under this Part and the penalties imposed on a person who commits such an offence. The section also makes it clear it is not a defence that the conduct complained of was done outside England and Wales.
Section 251U: Approved intermediaries
491. In order to obtain a debt relief order, the debtor must make his application to the official receiver through an approved intermediary. This section defines an approved intermediary and makes provision for rules to specify the types of activities that should be undertaken by an intermediary.
492. It also states that authorisation will be granted by a competent authority designated by the Secretary of State to grant authorisations, and allows for regulations to make provision as to the procedure for designating persons to be competent authorities, the types of persons who may not be authorised to act as approved intermediaries, the procedure for dealing with applications to competent authorities for authorisation and the withdrawal of designation to act as a competent authority.
Section 251V Debt relief restrictions orders and undertakings
493. This section gives effect to Schedule 4ZB, which makes provision about debt relief restrictions orders. Such orders will be very similar in operation and effect as the existing bankruptcy restriction orders.
Section 251W Register of debt relief orders etc
494. Section 251W requires the Secretary of State to establish and maintain a register of DROs, debt relief restrictions orders and debt relief restriction undertakings.
Section 251X Interpretation
495. This section defines the meaning of various expressions used in this Part of the Insolvency Act 1986.
496. Schedule 18 contains the text of new Schedule 4ZA to be inserted into the Insolvency Act 1986. Schedule 4ZA sets out the conditions for making a debt relief order.
Part 1 Conditions which must be met
497. This part of the schedule sets out conditions that the debtor must meet in order to obtain a DRO. The debtor must be domiciled in England and Wales on the application date or at any time during the period of three years ending with that date have been ordinarily resident or carried on business in England and Wales. He must not be an undischarged bankrupt, subject to an individual voluntary arrangement or a bankruptcy restrictions order. Neither must he be subject to a debt relief restrictions order or have had a debt relief order made within the 6 years prior to the determination date. If the debtor is subject to a bankruptcy petition that petition must be disposed of before a debt relief order can be made. The schedule imposes limits on the permitted level of overall indebtedness (the amount of which is prescribed in an order), a limit on the debtor's permitted surplus monthly income (also prescribed in an order) and a limit on the value of the debtor's property (also to be prescribed in an order).
Part 2 Other grounds for refusing an application
498. This part of the schedule sets out other conditions which the debtor must meet in order to obtain a DRO, specifically that he must not have entered into a transaction at an undervalue or given a preference to another person within the two years prior to the application date, and the determination date. This is in order to avoid a situation where the debtor has disposed of his assets in order to meet the permitted criteria for obtaining a debt relief order, and to protect the position of creditors.
499. Debtors who are guilty of misconduct that has in some way contributed to their insolvency will be subject to an enforcement regime that encompasses restrictions orders in the same way as bankruptcy. Schedule 19 sets out who may apply for a debt relief restrictions order or undertaking, possible grounds for obtaining one and gives details as to the timing of an application, the duration of the order or undertaking. Such orders may last from 2-15 years and will serve to protect the public from the culpable debtor. Whilst subject to a restrictions order, the debtor will remain subject the same disabilities as those imposed by the original order - for example he will not be able to obtain credit beyond the prescribed amount without disclosing his status.
500. This clause defines "debt management scheme" as used in this Chapter.
501. Subsections (2-4) set out conditions that must be met by all schemes that are seeking approval. Schemes must apply only to individual debtors (i.e. not companies or partnerships) who do not have any debts incurred in the course of business. Schemes may be open to all such individuals or to particular categories (as defined by the particular scheme). Schemes must also allow any debtor to whom the scheme applies to ask that a DRP be arranged. Where such a request is made, the scheme operator, (or an authorised person under the scheme), must decide whether a DRP is appropriate for the debtor (in accordance with the terms of the scheme, some of which may be prescribed under clause 106), and if so, arrange the plan.
502. Subsection (5) specifies that the operator of an approved scheme must be a body of persons, (for example, a company or a partnership rather than an individual). Therefore it would be possible for a body such as Citizens Advice, or an existing repayment scheme provider such as the Consumer Credit Counselling Service or Payplan, or for a private company, to operate an approved scheme. But it would not be possible for an individual to do so.
503. This clause defines "debt repayment plan" as used in this Chapter. Subsections (2) to (4) outline conditions that must be satisfied by a plan.
504. Subsection (2) introduces the concept of "qualifying debts" and provides that the plan must specify all of the debtors "qualifying debts". Clause 127 provides that a "qualifying debt" is any debt, except for a debt that is secured against an asset, such as a mortgage, or which cannot, by virtue of the terms of the DMS (i.e. terms set by the scheme operator), be included in the plan. (Regulations under clause 106 could have the effect of prescribing other classes of debt that may not be included by any scheme, by making such terms a condition of approval).
505. Subsection (3) requires the plan to provide for full or partial payment of the debts specified in accordance with the plan.
506. Subsection (4) makes it clear that it does not matter if a plan requires different amounts to be paid in respect of a specified debt at different times or the payments are insufficient to satisfy the debt in full. (Clause 109 provides that in these circumstances the remainder of the debt would be written off provided that the debtor had complied with the terms of the plan).
507. This clause enables a supervising authority, (see clause 124) to approve DMSs. It also permits the Lord Chancellor to make regulations prescribing both the conditions that must be satisfied for a scheme to be approved and any considerations that the authority must or must not take into account when considering a request for approval. These conditions and considerations may, in particular, relate to any of the matters listed in Schedule 21. These include the constitution, governance, size and financial standing of the scheme operator, and the terms and operation of the DMS. Regulations could, for example, specify minimum levels or periods of repayment.
508. This Schedule specifies provisions that may be made in regulations as to conditions or considerations about the approval of a scheme under clause 106, and as to the terms of approval of a DMS under clause 108.
509. This clause allows the Lord Chancellor to make regulations specifying an application procedure for the approval of DMSs, and provides that such regulations may enable a fee to be charged for an approval application.
510. This clause provides that an approval will be subject to terms that may be specified in regulations or in the terms of the approval itself. Such terms might include the duration of the approval, (which could be given for a defined period, for example, for 5 years). Different types of schemes might be approved for different periods. On the expiry of an approval, a fresh approval could be sought. Such regulations might also make provision as to termination of an approval other than by expiry, (for example, termination of an approval if terms of the approval are breached). Other terms to be specified in regulations could include particular requirements that may be imposed on the scheme operator covering such matters as the continued operation of the scheme, and the provision of reports relating to the operation of a scheme.
511. This clause specifies that a debtor is discharged from the debts specified in the plan only when all of the payments required under the plan have been made. This allows debts to be partially written off, providing the terms of the plan have been complied with and all the necessary repayments made.
512. Clauses 110 to 113 impose requirements on certain creditors during the currency of a DRP or during a period of protection. (Period of protection is defined at clause 128). These clauses are based on similar provisions for AOs and EROs (set out at Chapters 1 and 2 of Part 5 of the Bill respectively).
513. The first requirement, in clause 110, provides that any qualifying creditor of the debtor (clause 126 defines "qualifying creditor") is to be prohibited from presenting a bankruptcy petition against that debtor, during the currency of a DRP, unless regulations provide otherwise or he has the permission of a county court to do so. This clause also defines the currency of the plan as beginning when the plan first has effect and ending when the plan ceases to have effect.
514. This clause sets out the second requirement. It prohibits, during a period of protection, qualifying creditors from seeking to recover their debt by pursuing any other remedy (that is, other than bankruptcy), unless regulations provide otherwise or the creditor has permission of a county court.
515. This clause sets out the third requirement; during a period of protection, qualifying creditors are prohibited from charging any interest, fee or other charge in respect of a qualifying debt unless regulations provide otherwise or the creditor has permission of a county court.
516. This clause sets out the fourth requirement. In this case, during a period of protection, domestic utility creditors (as defined in subsection (2)) must not stop the supply of gas or electricity or the supply of any associated services other than where the exemptions set out in subsections (4) to (7) apply.
517. This clause provides that any county court proceedings that were pending against the debtor when the DRP was arranged, must be stayed if the following conditions are met:
? the proceedings relate to a qualifying debt of the debtor's and they are not bankruptcy proceedings;
? the creditor under the debt is unable to enforce it because of the prohibition referred to in clause 111 (remedies other than bankruptcy); and
? the county court, in the proceedings which are to be stayed) has notice of the DRP.
518. Where proceedings are stayed under this clause, the county court has discretion to allow the creditor any costs incurred in the stayed proceedings. A scheme operator may, if asked to do so by the debtor or creditor, add those costs to the amount specified in the plan in respect of that debt so long as the operator is not under a duty to terminate the plan (for example, because the new total debt exceeds the scheme's maximum).
519. This permits regulations to provide for the registration of either an application for a plan to be made or a plan coming into existence in the register of judgments, orders and fines, and enables section 98 of the Courts Act 2003 to be amended by such regulations for this purpose. Registration would provide a mechanism by which potential lenders could check whether a person had applied for a DRP or was currently subject to a DRP.
520. This clause defines the relationship between DRPs and the other debt management arrangements set out in subsection (7), which are AOs, EROs and DROs. It provides that when a DRP is arranged, it cannot come into effect unless any other debt management arrangement which had effect in relation to the same debtor immediately before the plan was arranged ceases to have effect.
521. Subsection (3) provides that any provision (whether in the plan or elsewhere) about when the plan is to come into effect is subject to the provisions of this clause.
522. Provision is also made for the scheme operator to notify the provider of the other arrangements as soon as practicable, or as soon as it becomes aware of their existence, of the approval of the plan. Similar provisions are incorporated in the revised AO and ERO schemes and in the new DRO scheme. This will ensure that no more than one debt management arrangement has effect in respect of the same debtor at the same time.
523. This clause introduces the term "affected creditor" which is defined in clause 126(1) as the creditor with a debt that has been included in the DRP.
524. Subsection (2) allows affected creditors to appeal to a county court against the fact that a plan has been arranged, that their debt has been included in the plan or the terms of the plan but subsection (3) makes it clear that affected creditors may not appeal against the inclusion, in a DRP, of a debt owed to another creditor.
525. This clause applies if an appeal is made to a county court under clause 117. It provides that the court may order the scheme operator to:
? reconsider the decision to arrange a plan;
? reconsider the terms of the plan;
? modify the plan; or
? revoke the plan.
526. Additionally, this clause allows the court to make interim provisions in respect of the period before the appeal is determined.
527. This clause allows the operator of an approved scheme to recover its costs from either debtors or affected creditors (defined in clause 126(1)) or both. The definition of "costs" in subsection (2) will ensure that only reasonable costs are charged.
528. This clause allows regulations to specify a procedure for terminating the approval of a scheme. This procedure may require the supervising authority to give notice and reasons, conditions that must be met and a period that must elapse before the termination takes effect.
529. This clause provides that a scheme may only be terminated in accordance with the following:
? any terms which the approval is subject to under clause 108;
? any provisions made in regulations under clause 120; or
? any other provisions made under this Chapter.
530. This clause allows regulations to provide for alternatives to termination of an approval. Such regulations may provide for the transfer of the operation of a scheme to another body, (to include transfer of the scheme from the scheme operator to the supervising authority itself). Such a transfer might be appropriate in order to protect debtors and creditors where, for example, the operator of the scheme no longer meets the terms of approval, but the scheme itself does comply with any relevant terms.
531. Where the approval of a scheme comes to an end, (for whatever reason), this clause enables regulations to specify what effect this will have on existing DRPs under that scheme. The clause provides an important safeguard for debtors by allowing such regulations to specify that plans can continue to operate, where appropriate, as though the scheme is still approved or as though the plan had been made under a different approved scheme.
532. This clause defines the "supervising authority", (the person who approves DMSs), and specifies that that the supervising authority can be either the Lord Chancellor or a person authorised by the Lord Chancellor. This clause therefore enables the Lord Chancellor to delegate his approval powers (for example, such powers might be delegated to a judicial or existing national advice body).
533. This clause empowers the Lord Chancellor to make regulations under this Chapter. Regulations will be subject to the affirmative resolution parliamentary procedure on the first occasion they are made under any section or thereafter if regulations are made under clause 113(6), if regulations under clause 115 amend primary legislation or if regulations amend clauses 117 or 118). Otherwise they will be subject to the negative procedure.
|© Parliamentary copyright 2007||Prepared: 23 February 2007|