Memorandum submitted by Jeremy Sutcliffe (TRI 15)
I wish to take the opportunity to provide evidence to the House of Commons Scrutiny Unit on Parts 3 to 5 of the Tribunals Courts and Enforcement Bill (the Bill), and I will also copy this Submission to the Bill Team, pursuant to the invitation of Dominic Smales in his email of 28th February 2007.
The views I express are my own, but after discussing these sections of the Bill with my colleagues in the Civil Court Users Association (CCUA), which I have chaired for the past 12 years, and whose Members issue 85% of all civil proceedings in England and Wales, I am aware from active discussion and feedback that most, if not all, share my views.
PART 3 - BAILIFFS:
1. I sat on the Advisory Group on Enforcement Service Delivery under the Chairmanship of Lord Desai, and we produced a number of papers concerning regulation by the Security Industry Authority. This is now re-proposed, on the basis that the SIA has come of age, within the January 2007 Consultation Paper Regulation of Enforcement Agents, but regulation is proposed only to apply to the private sector, with Crown employees not included "when performing the activities required of them in their professional capacity"
2. High Court Enforcement Officers (HCEOs) and County Court (CC) bailiffs are far and away the most important bailiffs for court users. The devil will undoubtedly be in the detail, and CCUA Members need to understand both about the practical effect of regulation where it applies, and whether the decision to exclude crown employees is justifiable, before giving the proposals our blessing or not. CC bailiffs will already be excluded from regulation, and possibly HCEOs should be in view of their position as court officers, and their analogous relationship with CC bailiffs.
3. I have no hesitation in repeating one of my long term gripes about civil bailiffs in this submission. Since the High Court and County Courts Jurisdiction Order 1991 (SI 1991/724) HCEOs have been unable to enforce judgments based on regulated agreements, which must be enforced by CC bailiffs. I have never understood why the rule came about, and I believe it should be scrapped forthwith.
PART 4 - ENFORCEMENT:
1. ATTACHMENTS: I am greatly in favour of fixed deductions, having seen them work effectively for my Scottish Clients Clydesdale Bank. I am thus pleased to see the idea of fixed deductions remains intact in the Bill. However I continue to be dismayed that the deductions are destined to be smaller than for other areas - i.e. criminal, family, Scottish and local authority procedures, and I am not fully convinced that this position is fair to civil creditors. I am also pessimistic about the potential (lack of) priority likely to be given to civil attachments when the decision is taken.
2. I appreciate that the meetings of the DCA Attachments Expert Group, on which I am privileged to sit, have been discontinued because of the perceived slow process of the Bill. Nevertheless I think we could have been allowed to agree to one or more draft rate(s) of deduction before we were 'mothballed', as the resulting pause could then have provided a period in which to test the proposed procedure and rate(s).
3. CHARGING ORDERS: I am delighted that the creditor right to obtain a charging order without a default in 'agreed' payments has survived into the Bill, and am also content with the additional caution to be exercised by district judges. Nevertheless, I do have a number of concerns about charging orders:
4. First A recent rumour suggested that a minimum debt limit of £1,000 would be set to commence this remedy, and this has now been reinforced by the Detailed Policy Statement on Delegated Powers of the Tribunals, Courts and Enforcement Bill (the Statement), which introduces regulations under which the Lord Chancellor can impose minimum financial thresholds below which a creditor will not be able to issue a charging order, or apply for an order for sale. The Statement reveals that there is to be research to establish what such limits should be, but this will inhibit the well established discretion of district judges, who can presently react to the exact circumstances of each case. Such a limit would also work against the interests of non business creditors pursuing a single debt, who would often be left with no remedy.
5. Second, numbers of repossessions based on charging orders are not amongst the present Judicial Statistics, and although I have made particular representations to DCA on the point, I have heard nothing to suggest they are to appear in future. Creditors are certain that the numbers are tiny, but the lack of clear fact has enabled debt advisers to magnify alleged abuses. It should also have been regarded as vital for DCA to publish 2006 charging orders alongside the proposed changes.
6. This omission may have been due to Land Registry sloth, but my suspicion is that it owes more to DCA, which has constantly failed to gear up to quarterly statistics, except in insolvency, no doubt encouraged by DTI peer-pressure. Malcolm Hurlston, Chairman of the Registry Trust, has promised me he will look at the possibility of producing quarterly statistics in the course of the information available to, and produced by, the Trust.
7. Third, at a recent DCA stakeholder Workshop a strong suggestion was raised that charging orders would be considered as part of qualifying debts within the proposed procedures in Part 5 of the Bill. I am informed that this revolves around Section112AB (1) (a) of the Bill, which states that "All debts are qualifying debts except .....any debt secured against an asset", and that DCA lawyers have concluded that it is the order that is secured, rather than the debt! This amounts to semantics of the worst kind, particularly bearing in mind the sole intention of a charging order is to secure the debt. The potential effect of this will be that the balance of the charging order (the majority in most cases, on present evidence) will be snipped off beyond the agreed payments, and lost to the creditor.
8. The Insolvency Service view, by comparison, is that a charging order is a secured debt. DCA informs me that this is merely a difference of opinion between departments, that there may be some room for discussion and that the District judge will still have discretion not to include the charging order in the list of qualifying debts, and/or decide that the balance remaining at the end of the period should be retained rather than written off. In my submission this will remove the certainty of the remedy, and will put creditors off using it, which will be the opposite of the stated intention of the Government.
9. DCA's Report of the First Phase of the Enforcement Review in 2000 concluded that charging orders were fair, and recommended their availability in cases not in arrears "to close a loophole which allows debtors with large debts, paying small instalments, to benefit from the sale of a property without paying off the debt."
10. INFORMATION: I am delighted to see some flesh finally put on the bones of the information debate in the Bill, and strongly feel that the provision of information should be a priority, as it separates won't pays from can't pays. I wish to make three points. First the information as presently envisaged would only be available in default of the debtor giving the information and/or when attending court. This would certainly encourage many more debtors to attend, specifically to avoid objective information being made available, and in those cases creditors and the courts would be limited to the present second class information from the debtor, many of whom provide no 'hard' information, and some of whom deliberately misinform.
11. I have always made clear that I am happy for the court alone to have information, rather than it being rendered unavailable because the creditor might misuse it, and I see that this approach is now specifically reflected in the Statement. For credibility the court must be able to check information offered by the debtor, not necessarily in every case, but to the extent necessary to persuade debtors to provide credible information and to tell the truth.
12. Second nothing has been mentioned about the cost of information, and I have misgivings about this, since the original suggestion was that orders would cost £100 or £150 each, which would be counterproductive. DCA has informed me that nothing has been finalised yet, but that the cost may well be based on the estimates offered by potential information suppliers, including the British Bankers Association and the utilities. If the level of charges is to be of the above order, I would like to see some proof of the genuine cost of producing it.
13. Further, these entities require information about their own debtors, and there is a large measure of self interest for them to provide information cheaply, and equally receive it cheaply from others. It seems more than possible that senior officers providing the cost quotations have not been in touch with their collection colleagues who will understand this correlation!
14. I had the privilege of meeting Baroness Ashton (the Minister) immediately before the Second reading of the Bill in the House of Lords, in order to discuss CCUA's views. The Minister told me she did not envisage Government departments invoicing each other, although she and her advisers acknowledged the substantial effort required for them to actually provide information to each other. The Minister also commented that the judiciary shared this view and wanted the process to begin as soon as possible.
15. DEBT MANAGEMENT SCHEMES: I feel no great rush of adrenalin in myself or my CCUA colleagues about the regulation of schemes. Debt advisers come in a wide spectrum of size, shape, credibility and efficiency, and creditors tend to treat them accordingly. One general feeling is that regulated advisers might tend to be more expensive without being any better organised or qualified.
16. I have had considerable personal experience of debt advisers and debt advice companies both in respect of my professional career - particularly in the past 20 years, first as a Partner of Eversheds, and in the most recent ten years with my in house legal firm at National Australia Group - but also as Chairman of CCUA. This experience was enhanced when I was invited to join The Debt Advice Gateway Trust (DAGT) in May 2005. This was a DTI initiative, designed to form an additional charitable gateway for debtors confused by the best way to obtain free objective debt advice. DAGT duly obtained charitable status, at which stage I was elected Chairman. However, a 6 month pilot in two counties did not reach the agreed call criteria, and the trustees reluctantly agreed to wind up the Trust.
17. I remain far from convinced that debtors are clear in their minds about free debt advice. They may have heard of certain organisations, but there is a danger they will be advised on a particular course of action which suits their adviser, rather than being given a true choice or a full comparison.
PART 5 - INSOLVENCY:
1. Government methodology in respect of personal insolvency is evidently to keep introducing new insolvency and over indebtedness 'products' until every eventuality is covered, but the result is confusion, with neither creditors nor debtors having any real understanding of the available choices without a huge amount of time and effort, and the worst of it is that the entire system is based on the fallacy of 'entrepreneurship'. The fact that insolvency falls between two departments - DCA and DTI is an aggravating factor.
2. Academic contributors to the first Insolvency Service Research Conference in September 2006 arrived at a common and most telling point: First In his 200+ page Final Report on the Bankruptcy Courts Survey 2005 - A pilot Study, John Tribe said "If one takes the totality of the new insolvency provisions ......... one can see that the new provisions are about much more than just discharge. Unfortunately the vehicle used to bring them onto the statute book appears to have given the public (and bankrupts) the impression that the discharge provisions, intended for entrepreneurial recovery, are open to use (and abuse) by all."
3. Second, in their paper Consumer Bankruptcy Law Reform in Scotland, England and Wales, Donna McKenzie Skene and Adrian Walters pointed out that " both jurisdictions have committed to reforms that seek to customise bankruptcy and sequestration as 'fresh start' regimes for failed entrepreneurs. Given that the main users of these regimes are consumer debtors, the emphasis on business seems thoroughly misplaced. "
4. One must look at the quarterly personal insolvency statistics of both DTI and DCA to calculate how many debtors have declared themselves insolvent, which is gratuitously unhelpful. DCA doesn't mention IVAs, and DTI doesn't split creditor and debtor induced Bankruptcies.
5. IVAs and debtor bankruptcies were running neck and neck in the third quarter of 2006 - 12,923 debtor bankruptcies and 12,228 IVAs, respectively 16% and 9.8% up since the previous quarter - giving a combined figure of 25,151. But it is the annual position which shows the true trend. Debtor bankruptcies were up 37% year on year, but IVAs are nearly 118% up in the same period. The fourth quarter figures have risen relatively little - IVAs up 482 to 12,741, and debtor bankruptcies a mere 129, to 13,074, but in annual terms the combined figure has shot up 70%, from 57,172 in calendar year 2005 to 97,048 in 2006.
6. It is hardly surprising that, given a free choice of the options, those advising debtors are plumping as often as they can for an IVA, which will pay them on average £8,000 of the creditor's money! What is surprising is the time taken by creditors to notice, and the result may be a savage backlash. A better choice would be for creditors collectively to step back from their IVA myopia, and look at the whole personal insolvency picture.
7. There is little discussion about bankruptcy, yet the fees charged by Government are swingeing, haphazard and archaic, to which insolvency practitioners add substantial additional costs for dealing with them, largely unseen and unchallenged. And the position is about to be made substantially more confusing by the Bill's mass introduction of 'simple' IVAs, new form County Court administration orders, debt relief orders, enforcement restriction orders and regulated debt management schemes.
8. It is undoubtedly a good thing that both the '100,000 bankruptcies' and 'IVA factory' stories have moved beyond the credit press and into the general consciousness, but there is little sign of this persuading Government to find a better way forward for personal debt. I am convinced that once creditors see the bigger picture, they will rise up and demand a much simpler, fairer and cohesive system.
9. Six years ago I suggested such an approach in an article in Credit Management magazine, following discussions with Walker Morris Insolvency Partner David Hinchliffe, involving the use of Insolvency Service staff, and this would still be perfectly feasible. I will be happy to provide a copy of my article to anyone interested, and to discuss this or any other aspect of parts 3 to 5 of the Bill.