The OFT’s Debt Collection Guidance…Really?!
by Lucy Tarrant, February 24th, 2012
Sometimes a document is published that makes me despair. The Office of Fair Trading’s Debt Collection Guidance (for all businesses engaged in the recovery of consumer credit debts), originally published in July 2003 and updated in October 2011, is one such document.
Not, as you may assume from my jaundiced tone, because it is badly drafted or superfluous. On the contrary, because it seemingly has to say what it does.
It is, in fact, well penned. It practises what it preaches and uses plain English throughout. It does not contain any surprises and it contains only what you think it ought. It is easy to read and well set out.
It is aimed at licenced businesses collecting debts from consumers. The Guidance sets out the standards expected of all parties engaged in the collection process.
It brings itself up to date, crucially by cross reference to the 2009 Mental Health Guidelines, actively promoting the protection of vulnerable debtors.
It specifically prohibits posting messages on social networking sites which may cause public embarrassment for a debtor, reflecting S.40 of the Administration of Justice Act which addresses the unlawful harassment of debtors. I applaud the reference to sites such as Facebook and Twitter, which are apt to be poorly regulated mediums for conveying messages.
It’s not a ban on use of social media – that is emotive, alarmist media hype. What the Guidance does is echo the statutory prevention of harassment by the frequency, manner or publicity of a demand for payment which can case alarm, distress or humiliation and brings it right up to date by specifically stating that unfair or improper practise includes “posting messages on social networking sites in a way that might potentially reveal that an identifiable person is being pursued for the repayment of a debt”.
The sanction for breaching that guideline, and so many others such as “inappropriately disclosing or threatening to disclose debt details to a 3rd party” is the revocation of the debt collectors licence. And so it should be. So far, so good.
But what saddens me in the extreme is that it has to say that Debt Collectors must not lie to, be deceitful toward, cause distress to or harass debtors or their family members. Has society degenerated to such an extent that they would behave in that manner were it not for a Guidance document issued by the Office of Fair Trading?
To be honest I thought I had more faith in society. I don’t buy into alarmist hype or media witch hunts. I like to think that I can exercise my own standards to the good of others around me. And I have not doubt that all of you reading this will be as similarly professional to not need to be told how to behave.
But doesn’t it worry you that there are those out there that do?
Pre Action Protocols
by Neil Sorrell, November 7th, 2011
There are various essential points to remember before commencing any sort of legal proceedings. Although the overall outcome of the case may still be decided on the bare facts available, by ignoring the pre action protocols, then the costs that you have incurred in the proceedings may be lost.
Always show a real willing to settle a case without the need to use the Court. It is accepted that if a settlement cannot be reached, then at that stage legal proceedings can be issued, but giving the debtor an opportunity to pay after a stern warning must happen.
Set out the reason why the debt is due and owing. Don’t be afraid to set out your case as early as possible. In fact, the “cards of the table” approach to litigation is something that a Judge would want to see. It is not appropriate to go before a Judge and produce information that has not been previously served. I say, the sooner your case is presented to the other side, then the greater your chance of receiving all of your costs.
Show a willing to meet and discuss the potential disputes. Always consider, and show willing, for a round the table meeting if one is requested.
Remember that pre action protocols are often considered the most important aspect of litigation and should never be avoided.
Settle Settle Settle
by Neil Sorrell, September 16th, 2011
I want to sue someone out of principal even though I know they will probably pay?
Be very careful. The only people that benefit when the word “principle” is used are the lawyers. You should always be seen to be trying every possible avenue to avoid litigation rather than to just sue. Bear in mind that if you sue someone then you could be putting yourself in front a Judge and you would have to justify/substantiate everything that you have done. If you are not able to show that you did not try everything possible prior to the issue of legal proceedings, a Judge may not look kindly on your actions and penalise you in terms of the recovery of your legal costs. Bearing in mind that Judges are often lowering the costs awarded to the winning party from the total amount sought, you could simply be reducing your net gain of the successful litigation.
Also, understand that the Court Service is being squeezed and the funding being cut. The end result, as we are seeing now, is that the service being provided is not as it used to be. It is taking longer for each stage to happen, so you may actually find yourself in a situation whereby you are not able to seek payment as you are in Court limbo. An opportunist Defendant may know this and simply put your debt to the bottom of the pile.
So, be careful with a brash approach to the issue of legal proceedings, as I would say that your best option would be to attempt pre issue settlement pretty much all of the time.
By Neil Sorrell
MANAGING THE CLIENT PAYMENT RELATIONSHIP
by Lucy Tarrant, September 7th, 2011
One of my many useless sayings is that the only type of good client is a paying client.
So often I hear clients that come to me to recover an unpaid invoice say that the customer who hasn’t paid them is a good client. Well they’re not. My client’s worry about preserving an ongoing business relationship. But if they’re not paying, do you really want to keep doing business with them?
Managing a client or customer’s expectations at the outset is critical to maintaining good working relationships and ensuring that you are paid on time. If we examine our personal financial relationships, best practise can be seen there. We don’t go to Tesco without expecting to pay for whatever is in our trolley before we leave. We don’t expect to leave a utility bill unpaid without that service being cut off. We don’t pop into M&S, try their sandwiches, decide we don’t like them after all and simply leave. We know exactly what is expected of us and rarely do we act to the contrary. Yet so many people run their businesses in a way that they would never be allowed to get away with on a personal level.
By outlining what you expect of your client at the outset, you are managing everbody’s expectations. Undoubtedly you will tell your client what you will do for them. But are you saying what you expect of them? Too often we are terribly “British” about asking to be paid. We ask someone if they would mind terribly, if it’s not too much trouble, when they get the chance, to pay our bill. Doesn’t that give out the message that your services are less worthy of payment?
Make sure that your Terms of Business are set out in writing, and clearly state what payment is to be made by when. Make it clear what will happen if you are not paid. Surely you aren’t going to keep working for someone who doesn’t value you highly enough to pay you? We all need to know what is expected of us and act in accordance with those expectations, and your clients are no different.
Include a provision to charge interest for late payment. Your bank would do it to you. I am sure I am not alone in ensuring that a credit card payment is made on time to prevent being hit with a £12 charge.
Sometimes, however, mistakes are made. We are only human and performance can fall short of that which we promised to deliver. Does that give your client adequate reason not to pay? Sometimes, but if your Terms of Business contain a transparent complaints procedure you will be able to address the problem head on and preserve the relationship.
It really is all in the management of the client relationship from the outset. So don’t delay. Set out clearly what you expect in return, and it will reap dividends.
By Lucy Tarrant
Statutory demands: Advice from a gamekeeper turned poacher
by Lucy Tarrant, August 26th, 2011
Would you know what to do if you were served with a Statutory Demand? I’m sure it won’t happen to you, but would you know what to do if it did?
Don’t bury your head in the sand, the clock is ticking. If you don’t apply to set it aside within 18 days of it being served on you, or pay it within 21 days, whoever served it on you can petition for your bankruptcy.
The first question you should ask yourself is if you owe the money. Even if you do, there are 4 more questions you should consider:
- Have you given security for it?
- Do you have a counterclaim, set-off or cross demand?
- Do you genuinely dispute the debt?
- Are there any procedural flaws in the Statutory Demand that would satisfy a court that it should be set aside?
If you can not answer positively to any of those questions, the best advice must be to contact whoever served it on you to discuss repayment. But if you can, I would strongly advise you to apply to set it aside. Otherwise your personal insolvency is at risk.
Unfortunately the inability to pay is not sufficient reason to apply to set it aside. The very nature of an undisputed Statutory Demand is to establish if you are able to pay the debt. If you are not, that is sufficient to enable a Bankruptcy Petition to be served on you because that is deemed to show that you are fundamentally insolvent.
However, applying to set aside a Statutory Demand is more straightforward than you might think. It is one of the only Court applications that I can think of that doesn’t require an application fee. And believe me, a free Court application is a rare beast.
There is a standard form to use, making it clear what information the Court needs to be told. There is even a standard supporting Witness Statement template. For once the Court makes it as easy as possible. Once those have been completed three copies must be given to the Court within the 18 days, and a hearing date will be set – usually for a few weeks time.
Quite often the Judge will deal with the application at that hearing. If there is a genuine issue why the debt is disputed, the Statutory Demand will usually be set aside. The actual issue won’t be decided, all the Judge will need to have proved is that there is one.
If the application is not straightforward the Court will give directions for whoever served the Statutory Demand on you to serve evidence in response to yours, and then re-list the matter for a longer hearing in order to make a decision. The Court is only really interested in whether there is an undisputed debt. Realistically there are only two outcomes – the Statutory Demand will be set aside, or your application will be dismissed. If it is dismissed, whoever served it on you will most likely be able to present a petition for your bankruptcy.
By Lucy Tarrant
DISPELLING THE MYTHS OF STATUTORY DEMANDS
by Lucy Tarrant, August 25th, 2011
Neither the Courts nor the Insolvency Rules uphold them as a method of Debt Recovery, but the efficacy of Statutory Demands is undeniable when used properly.
Many urban myths surround personal insolvency, one of which being that is quick, easy and immediately fruitful to make someone bankrupt. Not true. Procedures must be followed, but when they are the threat of being made bankrupt is sometimes greater than the end result.
In most situations, a Statutory Demand must be personally served on an individual from whom you are owed money before you can even consider applying for their bankruptcy. This is for good reason, as it would be little short of anarchic to be able to bankrupt people at will.
The criteria are pretty tight too. Not only must the debt exceed £750, but there can be no argument that it is due and payable, and no security for it can have already been given. Contrary to popular belief it is not permitted to add costs or statutory interest to a debt demanded this way. Certain (unliquidated) debts fall outside those permitted too, such as un-assessed solicitors’ bills.
The form itself is reasonably user friendly but it must be filled in correctly, and full details of the debt including how it arose clearly set out. The Court does not serve (or issue) a Statutory Demand, that is the Creditor’s responsibility, but it sure will go against you at a later date if it picks up that the content is wrong.
Bizarrely there is no statutory requirement to personally serve a Statutory Demand. But there is a statutory requirement that to issue a Bankruptcy Petition a Statutory Demand must (in most cases) have been personally served previously. Proof of personal service will be required by the Court in the form of a Witness Statement. Of course there is nothing to stop you simply sending a Statutory Demand to someone from whom you are owed money, however if they are wise they will know you can not take their insolvency any further and may simply ignore it.
Once served the Debtor has 18 days to apply to set the Statutory Demand aside, or 21 days to pay the debt. If they do neither, only then can a Petition for their Bankruptcy be issued.
A Statutory Demand has a pretty short shelf-life too. If a Bankruptcy Petition is not issued within 4 months of service, the Statutory Demand expires.
That said, if a Debtor simply refuses to pay a debt which is undisputedly due, Statutory Demands work. The mere threat of personal insolvency still strikes fear into the heart of most people. Many professionals, such as solicitors and accountants, can not practise their careers if they are bankrupt. In cash strapped times, when he who shouts loudest gets paid first, service of a Statutory Demand is high up the decibel level of debt recovery. If you need to strong arm money you are owed out of a Debtor, and you know they can find the cash, Statutory Demands should be your first weapon of choice.
By Lucy Tarrant
TO SUE OR NOT TO SUE…?
by Lucy Tarrant, August 23rd, 2011
Not a highly philosophical discussion topic, but a crucial one for anyone owed money. With the level of commercial debt rising but court recovery reducing, the decision whether to sue is more critical than ever.
With the right legal advice, litigation can maximise recovery and is a vital tool in the debt recovery armoury. Instigating court proceedings to recover money rightfully owing need not be a bad experience. Indeed it can be a positive one, a trail-blazing message that you will not accept late payment.
The fear factor usually comes down to how much it will cost. Will you be throwing good money after bad? The answer comes in the form of fixed fees.
Fixed fees mean that legal costs can be budgeted. Some costs can be recovered. Spending a little to recoup a lot still nets a return.
Another huge concern can centre on how to recover a Judgment once it’s been obtained.
As with most things in life, fashions change. Charging orders used to be very popular but are now on the wane. Courts are viewing them as too aggressive. And anyway, equity in property is largely diminished these days.
Conversely, Attachments of Earnings for individual debtors are on the rise in popularity, up 30% over the last year. They are increasingly viewed as safe, no-aggressive and easy to use, gradually achieving repayment albeit over a prolonged period of time.
3rd Party Debt Orders remain under-used. They are not considered straightforward or swift to obtain. I can’t remember the last time I applied for one.
And what about sending round the bailiff? If I’m honest, don’t bother. The recent increase in the application fee is in no way commensurate with the level of service delivered, which remains dire. Their instructions have dropped by 54% over the last year and frankly I am not surprised.
A personal favourite therefore remains the good old Sheriff, or the High Court Enforcement Officer to give them their correct contemporary title. Their use has dropped recently, but that’s probably because Judgments against commercial debtors have reduced in number. In my opinion they remain one of the most incentivised and efficient means of collecting a Judgment, particularly against a company.
So why not take the plunge? Sometimes you will have little to lose.
By Lucy Tarrant
THE PROMPT PAYMENT CODE
by Lucy Tarrant, August 23rd, 2011
I am willing to wager that a lot of you did not even know there was such a thing. Well there is, and with a staggering £24 billion owed to SMEs inBritain, isn’t it time you signed up to it?
The Prompt Payment Code was developed by Bacs and the Institute of Credit Management (ICM), and launched in July 2009.
It is supported by the Department for Business Innovation and Skills, sponsored by high street Banks such as Barclays, RBS, Santander, HSBC and Nat West and endorsed by Lord Sugar.
So what is it? Firstly it is about signing your commitment to paying your suppliers on time. Specifically you agree that you will pay within the terms of the contract, without attempting to change those payment terms and without unreasonably changing payment practice.
Secondly, it acts as a guide to aiding cashflow and achieving savings through the reliable and swift debt collection methods of automated payment methods.
Thirdly, the Prompt Payment Code promotes best payment practice. That means payment without delay, uncertainty and inconvenience.
Surely that is worth signing up for, and encouraging those with whom you do business to do the same.
According to Experian the current signatories to the Code represent over 60% of the UK supply chain. With added payment security companies can grow, even in difficult financial times such as these. Now that you know it exists, can you afford not to be part of it?
By Lucy Tarrant
Ask our Experts
by Neil Sorrell, August 3rd, 2011
How can I improve my chances of being paid?
Whether it is a business debt or personal arrangement, the first step is to make sure that you know who you are dealing with. Is the person you are negotiating with a sole trader or is he a director of a company? If he is a sole trader than gain the trading name and his home address. Ask for proof of residence. If you are dealing with a director, ask for proof of the correct company name and registered office address. All these questions are more likely to be answered during the negotiation period.
Confirm to the sole trader that he is personally liable for any credit given.
A free on-line search via Companies House will confirm the details provided by a director.
Make sure you are fully aware who you are contracting with.
Make it clear that you will chase the debtor the first day that payment is late and that you will take action to recover the debt if need be. Informing a debtor at that early stage will make it very clear that you mean to be taken seriously.
Such information presented at the beginning of a contract is more likely to be taken seriously.
By Neil Sorrell
The Equality Act 2010 – what it means for landlords – 8 months on
by Helen Bell, July 6th, 2011
The Equality Act 2010 came into force on 1st October 2010. I’m still watching with caution how this may impact cases where a landlord is trying to obtain possession from a tenant when they are in default of their tenancy agreement or, perhaps more significantly, when they are not but the landlord wants the property back for any number of reasons.
Prior to The Equality Act, I would confidently advise a landlord client that there was no defence to a claim for possession once a valid Notice under s21 of The Housing Act 1988 had been served, provided good service was effected, but this is no longer the case.
Section 15 of The Equality Act creates a fairly wide concept of disability discrimination in that a person is said to have discriminated against a disabled person if he treats that person unfavourably ‘… because of something arising in consequence of…’ that person’s disability and the person doing the discriminating cannot show ‘..that the treatment is a proportionate means of achieving a legitimate aim.’
How on earth might this impact on a landlord’s right to terminate an assured shorthold tenancy by using the statutory notice procedure regardless of whether the occupant is disabled? Well, seeing as you ask.
Let’s say the tenant develops a mental illness such that they lack capacity to manage their affairs. If a landlord is aware of this but does nothing to ensure that the tenant understands the nature of the s21 notice, is the landlord discriminating against this tenant in accordance with the Equality Act? Possibly, and that’s why I wait with baited breath for judgments on cases where section 15 is raised as a defence to possession proceedings.
The saving grace for landlords is that the above will not apply if the landlord had no knowledge of the tenant’s disability. Furthermore, if the landlord can show that their actions were a proportionate means to a legitimate end they may be safe.
Whilst the position may not be clear, what I do know is that one of the questions I will now ask any landlord requiring advice on possession is are they aware if the tenant has a disability? If the answer is yes, then we may need to tread a little more carefully to pre empt any section 15 defence. As far as advising landlords who are about to let their property is concerned, I’d suggest that they don’t ask any questions that might make them aware of any disability…hear no evil, see no evil….