This Act received Royal Assent in July 2007 but no date for implementation has been published yet.
In addition to the provisions contained in this Act aimed at improving the working of the tribunals system and increasing judicial diversity, are several sections that will be of interest to financiers and insolvency professionals:
- a unification of the law relating to the seizure and sale of goods,
- the abolition of the common law remedy of distress and the introduction of a new procedure for the recovery of commercial rent arrears,
- a new statutory framework for civil debt recovery, including measures to help creditors enforce judgments and gain access to information about the judgment debtor, and
- changes to the debt management schemes and new measures for relief from enforcement for certain debtors.
Seizure and sale of goods
The Act introduces a new procedure to be followed by enforcement agents when seizing and selling goods pursuant to writs or warrants of execution, delivery and possession containing the powers to seize and sell goods in order to recover sums due under an order of the issuing court. The terminology is changed to rename writs of execution and distress and warrants of ‘fieri facias’ as warrants and writs of control. A walking possession agreement is to be renamed a “controlled goods agreement”.
The Act will replace the numerous, complex procedures contained in various pieces of existing legislation relating to the seizure and sale of goods with a simplified and modernised regime. It is also intended that a licensing system will be introduced to regulate enforcement agencies. As an interim measure a new certification process for such persons not employed by the Crown is contained in the Act.
Schedule 12 to the Act sets out the entire process to be followed by enforcement agents when taking control and selling goods. The procedure covers service of notice, taking control of the goods, powers of entry, which goods may be seized, taking care of and selling seized goods and the distribution of sale proceeds. Subject to a few specific exemptions, all the goods of the debtor may be seized and any interest in the goods assigned whilst they are bound by an enforcement power will be subject to that power unless the interest was acquired in good faith, for value and without notice of the enforcement power.
The Act provides for rights of the debtor to take action against an enforcement agent and recover damages for any breach of the procedure. There are also provisions for a creditor to bring an action against the debtor for causing loss by wrongfully interfering with the goods and the Act creates new offences of intentionally obstructing an enforcement agent in the performance of his duties and interfering with goods seized.
Distress and rent arrears
The Act will abolish the common law right to distrain for arrears of rent. Distrain for rent is a remedy arising from the landlord and tenant relationship that allows the landlord to take goods from the premises and hold them until the arrears are paid or sell the goods. In place of this common law right of all landlords, the Act introduces a limited right for the recovery of rent arrears due under a lease of commercial premises only - Commercial Rent Arrears Recovery.
The Commercial Rent Arrears Recovery procedure will allow landlords of commercial premises to use the new seizure and sale procedure under schedule 12 of the Act to recover rent arrears by taking control of the tenant’s goods. The landlord will have the right to enter the premises in order to take goods belonging to the tenant, sell the goods and discharge the arrears from the sale of the goods. Where the leased premises are the subject of a mortgage, then a mortgagee who has given notice of an intention to repossess the property will acquire the rights of the landlord to recover arrears of rent where the lease was in existence before the creation of the mortgage or is not a lease created by any leasing power of the mortgagee. Any court appointed receiver of leased property will also be able to use the new recovery procedure in the name of the landlord.
The Commercial Rent Arrears Recovery procedure will apply to almost all leases and tenancies of any duration of commercial premises, being premises that do not include any part let or occupied as a dwelling. However a debtor tenant cannot prevent the use of the remedy by occupying the premises, or part, as a dwelling in breach of the terms of the lease. The lease must be in writing and the main terms, including rent payable, must clear and certain to all parties.
There are three conditions that must be satisfied before a landlord may use the new procedure. The tenant must be in arrears of rent before notice of enforcement is served, the amount owed must be certain or capable of calculation with certainty and the “net unpaid rent” (being the amount of unpaid rent, less interest, VAT or any “permitted deductions” that a tenant is entitled to make) must equal or exceed an amount to be prescribed. The net unpaid rent must equal or exceed the prescribed amount both at the time of service of the enforcement notice and immediately before the landlord takes control of the goods. Where the premises are sub-let the landlord may serve notice under the new procedure on the sub-tenant requiring the sub-tenant to pay the rent due to the intermediate tenant directly to the landlord and recover the arrears that way.
Although Commercial Rent Arrears Recovery is an out of court procedure, there are circumstances where the tenant may make an application to the court for it to intervene. If the prescribed conditions for its intervention have been met, the court may set aside the enforcement notice preventing the landlord from taking any further action because the preconditions for exercising the remedy have not been met, or suspend the enforcement where there is a dispute, such as to amount due, whilst the dispute is resolved.
The Commercial Rent Arrears Recovery remedy will not survive the end of the lease, save that the landlord may complete the sale of goods in respect of which he took control before the expiry of the lease or may continue to use the remedy for up to six months after the expiry of the lease (other than by forfeiture) where the tenant remains in occupation.
Debt recovery, enforcement and information
The Act makes a number of changes to existing courtbased methods for enforcing debts in the civil courts, in particular attachment of earnings orders and charging orders and will introduce some new powers for the court, including obtaining information about debtors. In relation to attachment of earnings order, the main changes are to the basis of calculation of deductions from earnings based on fixed rates and to give powers to the courts making the order to request details of any change to the name and address of a debtor’s employer from HMRC to ensure that a debtor cannot evade the order by changing jobs.
The main change to be introduced in respect of charging orders is the removal of the current restriction against the making of a charging order where payments under an instalment order relating to the same sum are not in arrears. This will mean that a creditor will no longer be prejudiced where a debtor with large judgment debts, who is meeting his instalment payments, is able to sell his property without being required to pay off the debt. There will be a certain minimum threshold to prevent charging orders being used to secure payment of disproportionately small sums.
Creditors are also to be given new powers to apply to the court for information about what type of court based action it would be most appropriate for them to take to recover their debt. In connection with this ‘information application’ the court will be able to request information from the Department of Works and Pensions, HMRC, other government agencies and prescribed third parties, including banks and credit agencies, for information about a debtor who has failed to respond to a judgment or comply with the court-based methods of enforcement. The purpose of obtaining this information is to assist the court and creditor with the enforcement of the judgment debt and supplements the existing Order to Obtain Information, which can be of limited use where a debtor is not co-operating and fails to attend court to provide the information. Through the new information orders, creditors will be able to obtain such information as the debtor’s name, address, date of birth, National Insurance number and the name and address of the debtor’s employer.
The Act makes some reforms to the main debt management schemes of Administration Orders and Enforcement Restriction Orders to make better provisions for people with low-value, multiple debts and introduces a new remedy, the Debt Relief Order, for those people who are unable to provide the fee to access the existing debt remedies of bankruptcy or individual voluntary arrangements. The precise criteria for eligibility are to be published in secondary legislation.
A Debt Relief Order may be made administratively by an official receiver, on payment of an entry fee by the debtor, without the need for court involvement. Applications are to be made online and a debtor will be able to obtain advice about making applications from debt advisory agencies. When granted the DBO will prevent creditors from enforcing their debts and the debtor will be discharged from all debts after one year, although creditors on receipt of notice of the order will have the right to object to the order on certain grounds. During the year the DBO is in place the debtor will be subject to the same restrictions and obligations as under a bankruptcy order and the same penalties that exist in the bankruptcy regime will apply where the debtor’s conduct in relation to his insolvency is found to be culpable. The debtor will be required to account for any windfalls or increase in income that occur during the period of the DBO.
The final change in this part of the Act is the introduction of a power to enable the operator of debt management schemes, such as debt repayment plans, to compel better participation from creditors in the schemes by preventing enforcement action and to write off parts of debts where there has been compliance by the debtor with the terms of the scheme but he is unable to repay the full debt in the time frame agreed. The details of when and to what extent these powers may be exercised are to be prescribed in secondary legislation.