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Is it the end of the road, or can more be done?

Can’t get no satisfaction? Sometimes you can! Would you prefer to have security to cover a debt or the cash in the bank, challenges DWF debt recovery expert Neil Jinks?

I wonder if I am in quite a unique position,having worked for both a leading enforcement agency and a leading law firm, both in the pursuit of debt recovery on behalf of local authorities? I am sure we would all agree that both options can achieve the desired result of recovering debts, albeit by different means and approaches – and both have their pros and cons. In my view, one size or solution certainly doesn’t fit all types of debt or debtor for that matter and the circumstances of each individual case and debtor have to be taken into consideration. In these testing times, local authorities need all the help they can get to fulfil their statutory obligations to recover as much as possible to balance the books and avoid further cutbacks.

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What happens when enforcement agents cannot recover and the debt remains outstanding? There’s also the question of ongoing debt accruing, for example, with council tax debts. Is that the end of the road, or can more be done? Is it lways appropriate to use enforcement agents, or is the option inappropriate in some circumstances? There has been a lot of publicity recently about the over use of enforcement agents and some of the debt advice charities have raised their concerns.

It sounds to me like a good time to explore alternative options. The feedback I received following a joint seminar with the IRRV West Midlands Association shows that revenues professionals are certainly keen to explore all avenues and ensure that their authorities are making the best use of not only their time and resources but also applying various strategies and approaches for debt recovery. 

There are of course a number of options available, depending on the type of debt to be recovered and we are seeing more and more local authorities combining different debt types to maximise their efforts in collecting not only council tax and business rates but also overpayments of housing benefit, social care and sundry debts. Consideration also has to be given to each individual debtor’s propensity and ability to pay and debt segmentation to ensure that the right approach is taken. 

Insolvency proceedings have historically and currently been widely used to collect council tax and business rates. The recent change in the threshold for petitioning for bankruptcy will have had an impact on this strategy. I do believe that bankruptcy can still be a good debt recovery tool – but only when the appropriate cases are selected.

“ Insolvency proceedings have historically and currently been widely used to collect council tax and business rates. The recent change in the threshold for petitioning for bankruptcy will have had an impact on this strategy.

It goes without saying that some revenues professionals are faced with having to find some common ground with their elected members, some of whom will consider bankruptcy proceedings a somewhat draconian measure. But when someone has not paid council tax for several years, surely this has to be taken very seriously and appropriate
measures have to be taken?

An alternative approach, where the council taxpayer is a homeowner, is to register the liability orders in the county court and apply for a charging order to secure the debt against the defendant’s interest in the property. This provides the council with some security – but depending on how this is registered at the Land Registry, it can sometimes be overridden when the property is subsequently sold or repossessed.

It is crucial that the charging order is registered properly in order to protect the council’s security. The hope then is that the debt will be discharged from the proceeds of sale – if... and only if... there is sufficient equity available. What if the debtor never sells the property, or it is never repossessed and the debtor lives into old age? The debt will only potentially be discharged upon the death of the debtor if the executors of the debtor’s estate choose to sell the property in order to realise the proceeds of the estate and there are sufficient funds available.

Well, if it was my money at stake, I’d certainly want it paid back more quickly, to see the cash in my bank sooner rather than later. In the current climate, when local authorities have a need to recover more money than ever, surely it makes sense to consider how such debts can be liquidated more quickly to generate funds to reduce their deficits and
increase revenue collection. 

There are a number of options open to a council when it comes to liquidating charging orders, such as:

Order for sale proceedings

Again, another method of enforcement which should only be used in the right cases – and it pays to do your homework to ensure that the application is likely to succeed and result in payment. In my experience, this option has a very high success rate and a very small number of debtors are actually evicted, as they will do all that they can to avoid that happening. More often than not, payment is received, including all of the legal costs associated with such proceedings.

However, such an application can come up against obstacles, which can be overcome but it is crucial to instruct a specialist in making such applications to avoid the risk of it all going wrong. I am sure that some would think this to be another potentially draconian method of enforcement, but experience shows this not to be the case and any potential reputational risk management issues can usually be overcome in the circumstances.

The bottom line is that this process will generally result in the debt being satisfied, rather than your security potentially gathering dust forever and a day. I cannot stress enough the importance of only applying this solution in the right circumstances. A solicitor experienced in dealing with such applications will know what information needs to be obtained and reviewed in order to make an assessment and advise you as to whether it is appropriate to proceed.

High Court enforcement

Where it is established that it is not appropriate to apply for an Order for Sale, another method of liquidating a charging order would be to transfer up to the High Court to issue a Writ of Control to a High Court Enforcement Officer, who will look to seize the debtor’s goods unless they are in a position to make payment in full or by instalments, which will clear the debt within a reasonable period of time. Again, if this solution is applied to the right cases, it can often mean the difference between having security or some or all of the cash in the bank.

Post enforcement collections

Where all else fails, engagement with the debtor through collections activity – which is firmer via a third party such as a debt collection agency or specialist debt recovery solicitor whether by letter, telephone, text or in person – will often result in them facing up to their liability and doing something about it at last, by either making payment in full or agreeing to pay by instalments in order to avoid further enforcement action.

A similar approach can be taken to a County Court Judgment, which at the end of the day is merely a piece of paper ordering a debtor to pay. More often than not, it’s not until you take steps to enforce it that the debtor will do something about it. In addition, so many people bury their heads in the sand that it’s only by taking enforcement proceedings and engaging with the debtor that you will get some satisfaction.

This article was originally published in the IRVV Insight Magazine, March 2016, pp. 26-27.

This information is intended as a general discussion surrounding the topics covered and is for guidance purposes only. It does not constitute legal advice and should not be regarded as a substitute for taking legal advice. DWF is not responsible for any activity undertaken based on this information.

Neil Jinks

Director

I am a Director within the recoveries team at DWF. I have over 25 years of experience working in law firms, the credit industry and High Court enforcement sector, managing and developing debt recovery operations and client relationships.