INTRODUCTION
» Purpose of this consultation paper
» CHAPTER 1: ATTACHMENT OF EARNINGS ORDERS
» CHAPTER 2: CHARGING ORDERS
» CHAPTER 3: GARNISHEE ORDERS
» CHAPTER 4: SUMMARY OF QUESTIONS
» ANNEX A - Membership of Panel
» ANNEX B - Analysis of responses to Consultation Paper 1
Responses should be sent by 3 December 1999 to:
E-Mail responses can be sent to: enforce response
Hard copies of this consultation paper may be obtained from David Goss at the above address or by calling 0171-210 8863.
The Department will be unable to guarantee to take account of any responses received after the deadline.
In the course of the Review, the Department may wish to publish responses received. Please ensure you state clearly in your response if you wish us to keep your name, and the contents of your response, confidential. Otherwise, your name and the general contents of your response may be made public, under the provisions of Open Government. Confidential responses will only be included in general statistical summaries of the number of responses received and views expressed.
Purpose of this consultation paper
This is the third in a series of consultation papers issued during the course
of the Review of Enforcement of civil court judgments. It is the first paper
to concentrate on specific methods of enforcement, putting forward for discussion
some suggestions on measures to improve the efficiency and effectiveness
of the procedures.
The paper invites views on a number of options for changes to attachment of earnings orders, charging orders and garnishee orders. The paper is based largely on the conclusions reached by the panel of experts convened by the Department to look at these procedures. Membership of the panel is set out in Annex A. The panel took account of the responses received to the first consultation which posed general questions about how current arrangements for enforcement could be made more effective. The responses to the first consultation paper are briefly summarised within each chapter of this paper and a more comprehensive analysis, in so far as they relate to the procedures examined in this paper, is provided at Annex B.
Although this paper concentrates on three particular enforcement procedures, it does inevitably touch on broader themes that were explored in the second consultation paper ('Key principles for a new system of enforcement in the civil courts'). The effectiveness of any enforcement procedure relies, to some extent, on the overall environment in which those procedures operate.
In particular, the issues that were explored in the second consultation paper surrounding information are relevant. All enforcement relies on adequate information and these procedures are no different. We have previously made it clear that we regard information as a key element in any consideration of how the enforcement system might be improved and are currently investigating the details of how better information might be provided. That will involve answering questions about the range of information that can be made available and who should have access to the information.
The answers to such questions will inevitably have some effect on the shape of any final proposals regarding the individual enforcement procedures. Whilst we acknowledge this linkage, it did not seem desirable to discuss in detail, in this paper, the wider issues about information provision that remain to be settled. The focus of the paper is on the procedures themselves and how they might be made to work more effectively. Information is discussed in so far as it has a direct effect on the operation of a procedure, but not in any wider context.
1.1 An attachment of earnings order (AEO) allows a creditor to secure payment of a debt by applying for a court order telling an employer to make regular deductions from a debtor's salary, until the debt is paid in full. The outstanding debt must be over £50 and deductions can be made from earnings, pensions and statutory sick pay (but not social security benefits), but only after tax and national insurance contributions have been deducted.
1.2 AEOs are the second most popular enforcement method after execution against goods, although only one tenth as many applications for an AEO were made (63,000 in 1997) as warrants for execution were issued. The views of creditors who responded to the first consultation paper were very mixed. Some creditors use them as a first choice of enforcement method, when employment details are available. Others will only consider using an AEO when another form of enforcement (presumably in most cases a warrant of execution) has failed to produce payment of the whole debt.
1.3 Most creditors thought that there was much more chance of success if they are able to provide the court with employment details. In the absence of those, the process can be very slow and more prone to failure. Nonetheless, some creditors do regularly apply for AEOs without having employment details. Many creditors also criticised the speed at which AEOs are processed by the court and noted that there are significant problems in obtaining completed reply forms from debtors. The fact that the self-employed cannot be subject to an AEO also attracted considerable complaint.
1.4 There is no doubt that AEOs are an important and useful part of the enforcement machinery, but there does appear to be widespread dissatisfaction amongst creditors with their operation. This chapter will examine proposals put forward by the panel to address some of the causes of that dissatisfaction, together with areas in which the panel does not consider that there is a case for change. The paper makes reference to AEOs issued elsewhere than the county courts (Magistrates' Court AEOs for the collection of fines, for example). The scope of the enforcement review is, however, restricted to examining procedures relating to the enforcement of civil court judgment debts. Reference is only made to other procedures in so far as these have an impact on the working of AEOs for civil court judgment debts.
1.5 In theory, the creditor's involvement in the process of obtaining an AEO should be limited to making the initial application and providing as many details as possible on the debtor's place of employment. All processes subsequent to that, up to the granting of the order and collection of payments, are the responsibility of the court and should happen, from the creditor's point of view, automatically.
1.6 The responses to the first consultation paper suggest that this is not always the case. The main criticism is that, if the court is left to its own devices, the process takes far too long. The majority of creditors said that they therefore tend to chase the court to move onto the next step.
1.7 The panel did not consider this problem in any detail. The question of whether automatic procedures are working and whether they need to be strengthened is being addressed by the General Issues Panel, which is looking at automatic procedures across all of the enforcement methods. This panel has concluded that, wherever possible, successive steps should be taken automatically by the court, unless there is a need to refer back to the creditor.
1.8 The AEO procedure should already be almost entirely automatic, but in view of the opinions expressed by the respondents to the first consultation, we will be reviewing how the procedure is working in practice and considering whether there are improvements that could be made.
1.9 The court can, if it sees fit, make a suspended AEO following the creditor's application. This will give the debtor the opportunity to pay the debt in instalments voluntarily. If the instalments agreed to at the time the suspended order is made are not adhered to, then the AEO will be brought into effect. The responses to the first consultation paper showed a small majority in favour of retaining suspended AEOs. The panel agreed with this and has concluded that suspended AEOs should be retained.
1.10 An AEO can potentially be detrimental to a debtor in his place of employment and suspension offers a means of avoiding this. It may simply be that the debtor suffers a loss of privacy in the workplace - colleagues, for instance, may become aware of the debtor's problems because of the AEO. In some cases, however, the debtor's job may be threatened by the application of an AEO. Anecdotal evidence suggests that it is not unknown for debtors to be dismissed when they become subject to an AEO, particularly those working for smaller employers for whom an AEO may be more burdensome than for a large employer with more sophisticated payroll systems.
1.11 The panel accepted that suspended AEOs can add delay to the overall process. Debtors can abuse the process by applying for a suspension when they in fact have no intention of complying with the instalment payments. Creditors must then wait until instalments slip into arrears before applying again to the court for the suspended order to be implemented. On balance, however, the panel considered that the protection offered to debtors by the procedure is important enough to justify the retention of suspended AEOs.
1.12 At present, the court requires a substantial amount of information on the debtor's income and outgoings before making an AEO. An AEO needs to specify both the amount below which the court thinks the debtor's earnings should not fall (the Protected Earnings Rate, or PER) and the amount that should be deducted each week or month from the debtor's earnings to pay off the debt (the Normal Deduction Rate, or NDR), subject to the total earnings not falling below the minimum amount. Outgoings - including other debt payments and essential expenses - are added together to calculate the PER. The difference between income and outgoings will help to inform the court of the appropriate level of weekly or monthly deductions.
1.13 There are three significant problems with the process as it currently stands. The first is that debtors very often do not complete and return the form that is sent out with the notice of the application for the AEO. The experiences of respondents to the first consultation seem to vary widely, but amongst those who put a figure on response rates, the consensus was that only about 40% of debtors complete the form at first asking.
1.14 In more than half of all the applications for an AEO, therefore, the court will have to take further action (personal service of the reply form, summons to appear at court etc) to try and obtain information from debtors. No matter how efficiently these further steps are carried out, there will inevitably be delay as a result.
1.15 The second problem is that, even if debtors can be persuaded to complete the reply form, there is no guarantee that the information provided will be accurate. There is an incentive on debtors to overstate their outgoings and understate their income, so that the court will set a smaller NDR and a higher PER (although we do not know how much this happens in practice). Supporting documentation is often not provided so the court will have little or no independent evidence against which to assess the debtor's reply.
1.16 Third, the existing system is incapable of tracking changes in the debtor's income. If income increases, the NDR remains the same, unless the creditor goes back to the court to ask for the NDR to be recalculated. That depends on the creditor being aware that the debtor's income has increased, which in most cases is unlikely.
1.17 The panel considered ways to address the problems caused by the current system. It is possible to calculate deductions for an AEO solely on the basis of the debtor's income (in this paper, the term 'fixed deduction' is used to describe such a system). This system is already in use in England and Wales for calculating deductions under a council tax AEO. It is also used in Scotland for AEOs for civil court judgment debts. The only information required is the debtor's income, which can be obtained from the debtor's employer. The court is therefore freed from the root cause of the problems, namely having to obtain information from the debtor.
1.18 The Scottish system uses tables that are provided to the employer, which set out, in pounds, the amount to be deducted for any level of income. Income is split into a large number of different bands, with a set deduction for each band. The system provides for a gradually increasing proportion of income -from 3% for low earners up to 50% for high earners - to be deducted. Any change in the debtor's income will automatically be catered for within the tables - the employer will simply look up and apply the deduction appropriate to the revised level of earnings.
1.19 The main disadvantage of the fixed deduction system is that it is unable to cope with disparities in the circumstances of individual debtors. Any two debtors receiving a similar income may have quite different 'essential' outgoings and therefore have quite different amounts of disposable income available to them to pay off any debt. The main factors affecting essential outgoings are the number of dependants, location of the debtor's home, and the number of other debts.
1.20 Although careful design of the tables can minimise these problems, it is difficult to see how such a system could be implemented without having an individual review mechanism. In Scotland, a debtor can ask the court to remove the AEO so that he can enter into a voluntary payment arrangement instead. The AEO will be re-established if the debtor fails to keep up with instalments.
1.21 The panel thought that the fixed deduction approach has some significant advantages that are worth exploring. The Scottish system would not be entirely suitable for adoption in England and Wales because it does not allow for suspended AEOs, which the panel would like to retain. Similar principles could, however, be applied.
1.22 The panel discussed a system whereby, following an application by the creditor, the court would inform the debtor of the application and of the court's intention to make an AEO based on fixed deductions. The debtor would, at that stage, be offered the chance to apply for a review of the deductions or ask for the order to be suspended. The panel discussed whether all debtors would be likely to apply for a review, but thought that if deductions were set at a realistic level, and debtors were informed what the deductions were likely to be, then there would not be any great incentive for most debtors to ask for a review. Applications for reviews that have no prospect of success could be discouraged by giving the court the discretion to set deductions at a higher level than is set out in the standard tables. The fixed deduction system would also serve as an incentive to provide information, since if the debtor fails to provide full information to support a review of his circumstances, the court could simply revert to the fixed deduction.
1.23 If the debtor does not ask for a review or for suspension of the order, then the court would simply proceed to make the order, sending the appropriate deduction tables to the employer (the panel thought that the tables ought to refer to net, rather than gross income). A fixed deduction system can only work if the employer is provided with the tables. If the court calculates the deduction rate itself, based on the debtor's salary at the time (obtained from the employer), then whenever the debtor's income changes, the employer would have to contact the court to ascertain the appropriate deduction for the new income level. That would be burdensome for both the court and the employer.
1.24 If the debtor does ask for a review of his individual circumstances, there are three basic options for implementing the outcome of that review. The first is for the court, following the review of the information provided by the debtor, to send the employer a revised table of deductions. This might either be drawn up by the court specifically for the debtor, or it might be taken from a range of tables designed broadly to reflect the circumstances of particular groups of debtors. The major disadvantage of this approach is its complexity, which would make life difficult for the court and could lead to mistakes on the employer's part, arising from having to deal with a range of different tables for different employees.
1.25 The second approach would be to use instalment orders rather than an AEO for debtors who seek a review and are granted a reduction in the level of deductions. If they failed to keep to the instalment order, the creditor could apply to the court to have the AEO implemented, with deductions set according to the standard tables. Unless the debtor could show that his circumstances had changed, the implementation of the order would be automatic.
1.26 This is not dissimilar to the system employed in Scotland. It would have the advantage of relative simplicity for the court and for employers, who would only be required to deal with one method of calculating deductions. In addition, the instalment order could be used whether the debtor has asked for a suspension or for a review of his circumstances. There are, however, disadvantages: the instalment order would not track any changes in the debtor's circumstances, which could lead to repeat court involvement to set new instalment orders; and the creditor would have to go back to the court a second time to ask for the AEO to be implemented if the debtor fails to keep to the instalments.
1.27 The third option would be to have a dual system, combining the fixed deduction tables for those who do not seek a review (and those who do seek a review, but who the court concludes should pay the fixed deductions), with the existing system of PERs and NDRs set by the court for those debtors who do seek a review and are granted a reduction. This should be reasonably straightforward for the court to operate, but employers might find it rather complex. Their payroll systems would have to be able to cope with two completely different systems for calculating deductions. Again, this is likely to increase the potential for mistakes to be made. Both this and option 1 would also require a separate mechanism to cater for debtors who simply want the opportunity to suspend the order and pay by instalments. This option does, however, have the advantage over option 2 that an AEO, rather than an instalment order, will be made whatever the outcome of the review of the debtor's circumstances. Creditors would not have to return to court to have the AEO put in place if the debtor defaults.
1.28 It is clear that the fixed deduction system, whilst solving some problems inherent in the system currently in use, brings with it its own problems. The panel came to no firm conclusions on this issue and wished to open the subject up for wider debate. However, if fixed deductions were to be introduced, the choice would seem to be between the second and third options outlined above, the first option being too complex.
1.29 A large number of respondents to the first consultation commented that the inability to apply AEOs to the self employed creates a significant gap that ought to be filled. The number of self employed people is rising, although apparently not quite in the dramatic way that some respondents suggested - there were 3.1m in 1998 compared to 2.7m in 1986 (Table 4.2, Social Trends 29, Office for National Statistics).
1.30 The panel has, however, been unable to identify any practical way of extending attachment of earnings orders to the self-employed in general. A self-employed person's income is typically intermittent, variable and derived from a number of sources that may change over time. Whatever form they take, AEOs will always work best against income that is predictable, relatively stable and derived from a single source that does not change too frequently. Any deviation from this stable income type will introduce opportunities for the debtor to avoid payment and will make an attachment more complex to administer. There are many ways for the self-employed to avoid payment unless close and continuous scrutiny is given to their financial affairs.
1.31 Experience in the area of personal insolvency, where a statutory mechanism (the income payment order) exists which can be used to claim part of a self- employed bankrupt's income, suggests that if such a system is to be effective it is likely to require stringent policing. Even the significant powers enjoyed by a trustee in bankruptcy do not seem to guarantee that income payment orders will be effective against the self- employed.
1.32 The panel concluded, therefore, that attempting to widen the scope of AEOs to cover all of the self-employed would serve only to produce an unworkably complicated and expensive system that would be of no practical use.
1.33 The panel was, however, keen that the scope of AEOs should be extended as widely as possible. They were, in particular, keen to target those people who, although self-employed for tax purposes, have a particularly strong relationship with one 'employer'. Examples might be a self-employed, labour-only building subcontractor who receives regular payments from a single source, or certain types of agency worker.
1.34 At present, the Attachment of Earnings Act 1971 assumes that an AEO will only be made when an employer-employee relationship exists. The test of that relationship is whether a contract of service exists. The fact that someone pays their own tax and national insurance would usually indicate that, for the purposes of the Act, they should be considered as self-employed.
1.35 The panel recommended that, for the purposes of an attachment of earnings, the test should not be whether there is a contract of service, but whether the debtor is in receipt of regular payments from a single source. If there are regular payments being made, then it should be possible to make an AEO in respect of those payments. The strict contractual arrangements between the person making the payments and the person receiving them are largely irrelevant and the court should have no need to concern itself with them.
1.36 This would, of course, raise questions about what constitutes 'regular payment'. The panel thought that anything less regular than quarterly payment ought to be excluded. The definition would also have to be capable of including payments that are frequent but irregular. The impact of such a change would have to be carefully considered. Extending the scope of AEOs in this way is likely to have more effect on small business than on large ones and it is small businesses that have the most difficulty in applying AEOs, since they tend not to have access to sophisticated payroll systems that can deal with them automatically.
1.37 County court AEOs in respect of civil court judgment debts always give way to orders to enforce any other type of debt. So AEOs for maintenance, Magistrates' Court AEOs for fines, and council tax AEOs all take priority over a civil court judgment debt AEO.
1.38 The general feeling amongst creditors from the first consultation was that it is unfair for fines and council tax debts to have a higher priority than civil court judgment debts (although there was some support for maintenance to continue having a higher priority). The panel, however, was strongly of the view that priority ought not to be changed.
1.39 The panel felt that it was relevant that, in civil court judgment debt cases, there will usually have been an element of choice on the creditor's part in entering into the arrangement that has subsequently given rise to the debt. Whenever credit, of whatever form, is granted, the creditor accepts that there is some risk that the debtor will not repay the debt. This element of choice, and acceptance of risk, is not present in the case of maintenance, fines or council tax. None of these are debts entered into voluntarily by both parties.
1.40 It is not being suggested that creditors' ability to recover money should be fettered simply because they accepted a risk in granting the credit. The panel did, however, feel that the distinction between debts with a voluntary element to them and those without formed a reasonable basis for differentiating between AEOs when considering priority. It is worth noting that priority is also an issue in other areas of the enforcement review, in particular on administration orders. The panel did not consider priority within enforcement as a whole and hence did not consider, for example, whether it would be desirable to take a consistent approach between priority on AEOs and on administration orders. This is, therefore, an issue that may need to be revisited in the light of decisions taken elsewhere in the review.
1.41 At present, each county court holds a register of AEOs made in that court, which can be searched by creditors. There is no national register. Other types of AEO are not recorded at all in a publicly-searchable form.
1.42 The panel suggested that it would be helpful for creditors to have access to a national register of all AEOs. The existence of other AEOs is very relevant to a creditor who is considering making an application. A debtor who is already subject to one or more AEOs may pay off a debt under an additional AEO more slowly than one who has no other AEOs. This is particularly the case with AEOs for civil court judgment debts, which have a lower priority and which will therefore be paid off last. Equally, an existing AEO may indicate that this could be an effective method of enforcement against the debtor concerned.
1.43 A national register could also be of assistance to debtors. It is not necessarily in their interest to be subject to a large number of AEOs. It is quite possible for the court to be unaware of other AEOs in operation against a debtor when making the order. Making it compulsory for creditors to search a national register before making an application would provide a way of ensuring that the court has the information that it needs before making an order. This might become even more relevant if a system of fixed deductions were adopted, in which the debtor's circumstances are not investigated in any detail prior to the order being made.
1.44 Some difficulties have been identified with putting together a central register. For a start, it is unlikely to be complete. Deduction from Earnings Orders issued by the Child Support Agency are used as an enforcement tool, but they may also be entered into voluntarily by non-resident parents who may use them as a convenient aid to budgeting for payment of child support maintenance. In those circumstances, the parent's confidentiality ought to be respected by leaving them out of any register. The problem is compounded by the fact that the CSA has at present no easy way of identifying which DEOs are voluntary, which means that no DEOs could be included on a central register.
1.45 Confidentiality issues may also create difficulties for including council tax AEOs in the register. There is presently a restriction on local authorities disclosing any council tax information for non-council tax purposes. That would, for example, prevent the debtor's name and address being disclosed since that information would originally have been collected for council tax purposes. A register of council tax AEOs would not be feasible without such information.
1.46 It may be possible to legislate to get around this problem, but that possibility has not as yet been explored in any detail. We would like first to establish whether the idea of a national register is one that may be worth pursuing.
1.47 Creditors have complained of two problems in this area: the difficulty of identifying whether someone is in employment (and if so, where their place of employment is); and the difficulty of tracking a debtor who changes jobs.
1.48 The first problem is one that has been dealt with by the panel looking at oral examinations. Improving the oral examination procedure (which may include enabling the courts to obtain information from, for example, the Inland Revenue) may assist creditors in establishing whether a debtor is in employment. This issue will be dealt with in more detail in the forthcoming consultation paper on oral examinations.
1.49 The second problem arises out of the fact that, at present, the court relies on the debtor to inform it of any change in circumstances, such as a change of job. If the debtor leaves a job and moves to another, but fails to tell the court, the creditor may have no way of tracing where the debtor has gone. This problem may also be addressed to some extent by improvements in the oral examination procedure, although it is not particularly satisfactory from the creditor's point of view to have to bring the debtor in for an oral examination simply in order to be able to redirect an existing AEO. If the debtor has moved house as well as moving jobs, the creditor may not even be able to locate him for the purposes of an oral examination.
1.50 Under section 15 of the Attachment of Earnings Act 1971, the debtor is required to notify the court of his new employer and give details of earnings from that employment. Section 23 of the Act makes it an offence to fail to comply with s15, punishable by a fine or up to 14 days imprisonment. That sanction appears, however, to be little used and in any case to have little effect.
1.51 The panel wondered whether it would be possible to put in place a system that would enable the court to avoid having to rely on information from the debtor and on unsatisfactory sanctions. The panel considered that the obvious mechanism for tracking debtors who change jobs would be the PAYE system. The PAYE system would record that an attachment of earnings exists and this information would be brought to the attention of the new employer - who would be under an obligation to ensure that the order continues to be paid.
1.52 There would be some practical problems in implementing this. There are around 11-12 million job cessations each year, only a small proportion of which (probably less than one percent) involve an AEO. It will not be straightforward to deliver the computer changes required to operate the system and it has been suggested that use of the PAYE system for this purpose would be akin to using a sledgehammer to crack a rather small nut. It could also add an additional administrative burden on employers who are required to ensure that an AEO is redirected.
1.53 A system which tracks debtors to new jobs would, however, do away with the need to have an offence of failing to provide the relevant information to the court.
1.54 This chapter has concentrated on how AEOs might be improved from the point of view of creditors, debtors and the court. There is, of course, a fourth party with an interest, namely the employer who is required to operate the AEO. Employers would be affected by any proposal that affects the calculations they have to make in deducting the correct amount under an AEO, but there is one area that is of particular interest to employers, although of only marginal interest to the other parties. That is, the arrangements for making payments under the terms of the order.
1.55 Payments into the county courts have already been centralised to a large extent under CAPS (the Centralised Attachment Payment System). CAPS is responsible for collecting payments from employers and distributing money received to creditors. It provides a single address for employers to make payments to, rather than payments having to be sent to whichever county court issued the order. The Court Service is considering whether the remaining county court and High Court payments for maintenance AEOs could be brought within the remit of CAPS, although it would appear that this would not be straightforward.
1.56 Beyond this, the panel agreed that the concept of employers being able to send any payment relating to any order, whoever it had been issued by, to a single point was very attractive. The panel recognised, however, that this would be extremely difficult to achieve.
1.57 Convenience for employers is important, but this cannot be achieved at any cost. The administrative convenience of the bodies receiving payments must also be part of the equation. It is undoubtedly convenient for each Magistrates' Court to receive direct the money from AEOs issued by it. They would gain nothing, apart from additional delay, by having a central collection point. There would also be significant accounting difficulties - each Magistrates Court Committee is a separate entity that keeps its own accounts. Any central payment system would have to be able to cater for this. The same applies to Local Authorities issuing council tax AEOs and to the Child Support Agency issuing Deduction from Earnings Orders.
1.58 In addition, payments relating to other types of order could not simply be 'bolted on' to the CAPS system, which has been tailored specifically to dealing with civil court judgment debts AEOs. A new system would be required, capable of dealing with all different types of order and with the various accounting systems. A significant investment would therefore be required. It seems unlikely that this investment could be justified solely on the basis that it would make payment more straightforward for employers.
1.59 Whilst a centralised payment system is not likely to prove to be a realistic option in the foreseeable future, the panel did consider that there might be some merit in encouraging more AEO issuers to accept payment by electronic transfer. CAPS is already able to do this.
2.1 A charging order is a means of securing a debt by placing a charge onto the debtor's immovable property, particularly a house or land, although it can also be used against shares. A charging order also allows a creditor to apply subsequently to the court for an order for sale of the property. There were around 15,000 applications for a charging order in 1998.
2.2 Charging orders seem to provoke mixed reactions amongst creditors. Some respondents to the first consultation liked the procedure, thought it to be effective and had few complaints about the way in which it operates.
2.3 Other respondents, however, complained particularly about the time that it takes to obtain a charging order. Several commented that it is a laborious procedure and would benefit from simplification. It may be that those who use charging orders regularly and are more familiar with the procedure find it less laborious than do those who only use it occasionally. Another significant criticism was that it can be difficult to establish whether the debtor has sufficient equity in the property to make it worthwhile pursuing a charging order. There is, for example, little point in obtaining an order on a property that is subject to a 100% mortgage.
2.4 The majority of respondents never proceed as far as applying for an order for sale. Those that do generally said that they will only apply for such an order if the debt is large and they are confident that there is sufficient equity in the property to cover the debt. Several respondents commented that judges are reluctant to grant orders for sale and that the difficulty in succeeding discourages them from making an application.
2.5 Overall, in the light of these comments, the panel considered that charging orders are a useful form of enforcement that work reasonably well in their present form, but that there are several areas of weakness that ought to be addressed. The remainder of this chapter examines these areas in more detail.
2.6 The panel was in favour of changing the application format, from an affidavit to a standard form that would specify on it what information is required. The panel could see no reason why affidavits should remain as the method of application for charging orders. Almost every other court procedure can be started using a standard form, which are easier for applicants to understand.
2.7 Several respondents to the first consultation found the initial application too complex. It is certainly the case that a good deal of supporting information is required. The creditor is, for example, required to identify in the affidavit the property to be charged and verify the debtor's ownership of the property. If the property is jointly owned under a trust, the creditor must as far as possible identify the other beneficiaries of the trust.
2.8 Although these requirements may seem onerous, it is difficult to see how the court could properly make a charging order against a property without having such information to hand. Details of the title to property are available from the Land Registry and it does not seem unreasonable to ask the creditor to verify these before making an application.
2.9 The panel did, however, question another requirement of the application, which is that the applicant name every other creditor whom he can identify. A charging order confers on the applicant a degree of security for the debt and therefore some degree of preference over other creditors. The requirement to name other creditors is intended to provide the court with the information it needs to judge whether granting the order to one creditor would create an unreasonable advantage over other creditors.
2.10 The panel thought that, whilst there may be some merit in the court being able to consider the overall position of the debtor, requiring the creditor to name other creditors is not a satisfactory way of ensuring that the court will have full information. The more creditors a debtor has, the less likely it is that a charging order will be considered appropriate, so the applicant is being asked to provide information that could prejudice their chance of obtaining the order. In that situation, there is no incentive on the applicant to identify every other creditor and the court is not assured of being in possession of all the facts.
2.11 The panel concluded, therefore, that the requirement to name other creditors in the application should be dropped. The panel identified two options to put in its place. First, the debtor could be required to identify other creditors, in responding to the order nisi. The debtor is in a much better position to do this than the creditor. There is some incentive for a debtor with multiple creditors to provide the information, since it may assist in defeating the application. The court is therefore more likely to obtain the information that it needs. There is a problem here, in that many debtors at present simply do not respond to, or seek to defend, a charging order application. If the debtor fails to respond, then the court will have no information at all about other creditors. Repeated efforts to obtain a response from the debtor would serve to further delay a process that is already described by creditors as laborious.
2.12 The second option is simply to accept that the court is unlikely to be able to be able to obtain, on a consistent basis, a reliable picture of the other creditors. It could be argued that there is no point having in place a mechanism that will at best produce only partial information and that it would be better to do away with the requirement altogether. The requirement, whether on the applicant or the debtor, is unenforceable and the court has no way of knowing whether it has been properly fulfilled. Debtors (or creditors) would still be free to provide information to the court about other creditors, but there would be no requirement to do so.
2.12 The court already has powers enabling it to discharge an order on the application of the debtor or of any person interested in the property on which the charging order is placed. In the absence of any requirement to name other creditors, this power could provide some protection for other creditors who do not find out about the application until after the charging order has been made. It is unclear whether other creditors could at present apply for an order to be discharged since they may not be considered to have an interest in the property. This would need to be clarified if it were decided that other creditors should be able to seek the discharge of an order already made.
2.13 At present, the rules governing where an application for a charging order must be made allow an application to either the court in which the judgment was obtained or the court for the district in which the debtor resides. Local practice amongst courts varies as a result. Some courts will insist that the application is made at the debtor's home court, whilst others will allow an application to be made to the court in which the judgment was obtained.
2.14 The panel considered that the venue for making applications should be standardised. In the case of a charging order against property, it would be appropriate for the application to be heard at the court local to the property in question. This will in most cases also be the debtor's local court, although this will not necessarily be the case if the property is, for example, a holiday home.
2.15 In the case of a charging order against securities or other investments, the appropriate venue would be the debtor's home court. In all cases, the court would retain the discretion to order that the matter be dealt with elsewhere if there was some compelling reason to do so.
2.16 The panel did consider whether the venue should always be the debtor's home court, but concluded that, since the order is made against the debtor's property, rather than against the debtor directly, consideration of the application should take place in the court nearest to that property.
2.17 Although many respondents to the first consultation said that they never seek an order for sale, the panel did not think that there were any grounds to abolish the procedure. Orders for sale are particularly useful with debtors who have a large debt, but few assets other than equity in a property, or with debtors who refuse to pay when all other forms of enforcement available have been exhausted. The panel thought that, in such cases, it was not unreasonable for the creditor to seek to release the equity through an enforced sale.
2.18 The panel discussed whether the existing safeguards for debtors on orders for sale are adequate. In particular, one panel member suggested that there may be a case for restricting the circumstances in which orders for sale can be used, for example by setting a lower limit on the value of debt. Debtors owing less than, say, £5,000 would then be automatically protected from the loss of their homes.
2.19 Other panel members agreed that it is generally inappropriate for an order for sale to be granted when the debt is small in comparison to the value of the property in question. It was noted, however, that when considering an application, the court must balance the interests of the creditor with the interests of the debtor and the debtor's family. That almost automatically rules out the granting of an order for sale when the debt is small, since the detriment to the creditor in not receiving immediate payment is likely to be less than the detriment to the debtor caused by the loss of his home. The court is also likely to look favourably on a genuine offer to pay by the debtor and the debtor's previous record of payment may be relevant. The presence of dependent children would also be a significant factor in the court's decision.
2.20 The panel did not consider that there was any evidence of particular problems arising from the order for sale process. The message that applications relating to small debts are unlikely to succeed seems to have got through to those who make use of charging orders, since most respondents to the first consultation who sought orders for sale said they would only do so if the debt was substantial. The courts have a range of orders that they can make which may provide additional protection for the debtor. The application can, for example, be adjourned to a later date to test whether the debtor is willing to abide by an offer to pay in instalments, or the order for sale could be postponed to allow the debtor time to make alternative arrangements.
2.21 In view of all this, the panel concluded (although not unanimously) that there was no need for additional safeguards for debtors. It did, however, wonder whether there might be some benefit in taking steps to ensure that a consistent approach to decisions on orders for sale continues to be taken by the courts. In this regard, the panel noted, with approval, a paper published in 1990 by the Judicial Studies Board on behalf of the Association of County Court and District Registrars on the enforcement of charging orders by way of sale.
2.22 At present, the court cannot make a charging order when payments due under an instalment order are not in arrears. When making an application, the creditor must specify that the whole or any part of an instalment due remains unpaid.
2.23 The panel was concerned that this might, in some circumstances, be unfair to the creditor. An example might be a situation in which a debtor, who is paying a relatively large debt by small instalments over a long period of time, sells a property and thereby obtains a capital sum which, if a charging order had been in place, would have gone towards paying off the debt. Although the creditor could apply in these circumstances for a review of the instalment order, the money from the sale could already have been disposed of and an opportunity to settle the debt more quickly would have been lost. The panel considered that, if it is possible that the debtor may receive a financial windfall from the sale of property, the creditor should be able to secure a benefit from that through the use of a charging order.
2.24 The panel accepted, however, that a charging order applied against someone who is not in arrears on an instalment order should only be viewed as security against a future sale of the property. It would be inappropriate for the creditor to be able to obtain an order for sale in such circumstances. The debtor should not face the prospect of being forced out of his home, whilst he is keeping up to date with instalment payments set by the court.
2.25 The court already has discretion not to grant an order for sale and, as noted above, the debtor's previous payment record is likely to be a factor in the court's decision. If charging orders were to be made available in cases where the debtor is not in arrears on instalment payments, it seems unlikely that the court would grant an order for sale whilst those instalment payments were maintained. Whilst it would be possible to place a restriction on the ability of the creditor to apply for an order for sale in such circumstances, the existing discretion may be sufficient to meet the panel's concerns on this point.
2.26 Simply obtaining a charging order over an interest in land does not necessarily provide security for a debt. It may be necessary to take further steps, in particular to register the charge. Before discussing the limitations of registration, it may be useful to explain briefly the outline of the law relating to the ownership of land. The starting point is to appreciate that ownership of land in England and Wales is defined by reference to legal estates - freeholds and leaseholds - on the one hand and equitable interests on the other. This device of treating the legal estate as being separate from equitable interests is fundamental to the whole of the present system of conveyancing.
2.27 Some examples may help. If one person owns a piece of land entirely for his own benefit, that person owns the whole of the legal and equitable interest in that land. The equitable interest merges into the legal estate. The person in question is the beneficial owner of the land. If two people own a piece of land the law requires that the legal estate in the land is held on trust. This is the situation that arises when a husband and wife buy a home.
2.28 Typically, they will buy in their joint names and be trustees of the legal estate for themselves. They are the joint legal owners of the property as trustees. Typically, they are also the beneficial owners of the equitable interests in the property. They may divide the ownership of the equitable interests in such shares as they wish. However, there may be people who own an equitable interest but who are not trustees of the legal estate. Thus, if the husband and wife just mentioned shared the equitable ownership of the home with one of the husband's parents (because he or she had paid some of the purchase price), a buyer from the husband and wife could acquire the land free of the equitable interests which would attach instead to the sale proceeds. In this case, the equitable interests are said to have been 'overreached'.
2.29 Equitable interests in land come in many guises. An important distinguishing feature of legal estates and equitable interests in land is that a buyer always takes subject to legal estates but can take free of equitable interests unless they are protected in the appropriate way and cannot be overreached.
2.30 A charging order creates an equitable interest in favour of the creditor. The creditor will usually take steps to protect the order against potential buyers of the land. If the debtor or debtors own the whole of the equitable interest, the order will be made against the legal estate and the creditor can register the order against that estate by a notice in relation to registered land or as a land charge in relation to unregistered land. The order will then bind even a purchaser of the legal estate. Such a purchaser then has every incentive to secure the discharge of the order before buying the land.
2.31 Otherwise the charging order can only be made against part of the equitable interest and cannot be registered against the legal estate. The charging order then only relates to the equitable interest of the debtor. In these cases, the creditor may seek some protection by giving notice of the order to the trustees and, in the case of registered land, by registering a caution against dealings. A caution gives the cautioner a chance to object to any proposed dealing with the land but does not bind the land. Unless a creditor takes some rather complicated steps, such as appointing a receiver, there is nothing to prevent the debtor obtaining all of his share of the money from the sale, leaving the creditor in no better a position than if no charging order had been in place at all. Cautions are only effective in practice because of the reluctance of buyers to proceed unless proper arrangements are made for the discharge of the charging order.
2.32 Charging orders are often discharged to enable or facilitate a dealing with the legal estate. They may however have to be enforced. In the case of a charging order over the legal estate an application may be made to the court to enforce the charging order by sale of the property charged. In other cases the creditor can apply to the court for an order for the sale of the property under the Trusts of Land and Appointment of Trustees Act 1996. But obtaining such an order is by no means straightforward and the outcome is far from certain. Few creditors are likely to want to embark on this uncertain and expensive course of action. It would seem, from consultation responses, that the majority of creditors use charging orders primarily to obtain some security in the event that the debtor sells. Pointing them to their right to apply for a determination of the trust would not help in that regard.
2.33 The panel has recommended, therefore, that the registration of charging orders should be improved. It is not possible, however, simply to change the way in which registration takes place. The registration system must reflect the general law. At present, the Charging Orders Act 1979 only allows a charge to be placed on an interest held by a person as trustee in certain limited circumstances (essentially, only when there are no non-debtors having an interest in the trust).
2.34 The panel itself has not considered how the registration system could be improved, but the Government has given some thought as to how the panel's recommendation could be implemented. There is, in our view, only one realistic option, which is to amend the Act so that the court has a wider discretion than at present to impose a charge on an interest held by a person as trustee, even if the debtor does not own the whole of the beneficial interest. Such a charge could be legitimately registered as a notice against the legal estate.
2.35 The application would have to state that the debtor does not own the whole of the beneficial interest and identify any non-debtors who have a beneficial interest in the property (this has to be done at present in any case). There seems no reason why the judge should not continue to consider the order nisi without the attendance of either party, nor any reason why the onus should not remain with the debtor to explain, at the absolute order hearing, why the charge should not be made permanent. Non-debtors with an interest in the property would have to be given an opportunity to make representations at the absolute hearing. In terms of the overall process, therefore, the change would appear to have few implications.
2.36 However, the court would have to confirm that the debtor has a beneficial interest in the property and that there are no circumstances that would make the granting of an order inappropriate and that enquiry may not be straightforward. In particular, the court may need to satisfy itself that the extent of the debtor's beneficial interest is sufficient to cover the debt, or else decide what proportion of any equity in the property should be attributed to the debtor. Otherwise, the sale of any property in which there are third party who have an equitable interest, and which is affected by a charging order, may become impossible.
2.37 An example may be of assistance. Say the debtor jointly owns, with one other person, a property worth £100,000, which is subject to an £80,000 mortgage, leaving £20,000 worth of equity. Assume a debt of £15,000. How much of the equity should go towards paying off the debt? If the equity is split equally between the two owners, then no more than £10,000 should be used in that way, otherwise the non-debtor will be unfairly penalised (it is not being proposed that the non-debtor's interest should be available to the creditor). But that must be clear to all the parties involved in the transaction, from the outset. Otherwise, the purchaser could not be sure that the arrangements put in place by the debtor to pay off the charging order will suffice to enable the charging order to be removed.
2.38 It may be possible for the court to assume an equal split of equity, in uncontested cases, but where this is contested, an enquiry would be necessary. The degree to which either trustee has contributed to the purchase and upkeep of the property may then be relevant. That would entail the court looking at the history of the property over many years and possibly hearing a substantial amount of evidence. The process could, as a result, become over-complicated, perhaps to an extent that could not be justified in terms of the improvements obtained in the registration procedure. In addition, by the time a property is sold (assuming that the creditor holds off from seeking an order for sale), the information gathered at the hearing could be substantially out of date.
2.39 Therefore, although the problem seems quite straightforward - charging orders cannot be properly protected when jointly-owned property is involved - the potential solution seems itself to be beset by difficulties. It has been suggested that, although in strict legal terms the current arrangements are not ideal, they do in many cases produce the desired effect. The proposed solution could, whilst addressing the theoretical problems, make the situation worse in practice.
2.40 The panel did not look at pensions, which are being dealt with separately by another of the expert panels. Some of the issues surrounding pensions cut across several different areas of enforcement and we considered it appropriate to take a wider view than this panel was able to take.
2.41 The panel noted that some financial products are already susceptible to existing enforcement methods. For example, stocks held in an ISA can be charged in the same way that any other stocks can be charged. A savings account in an ISA could be garnisheed. There seems no need to make separate arrangements for enforcement against this type of financial product.
2.41 We would, however, welcome views about any difficulties currently experienced in relation to enforcement against financial products (excluding pensions) and about how such difficulties might be overcome.
3.1 A garnishee order is a method of securing payment of a debt by freezing and seizing (attaching) money owed or payable by a third party (the garnishee) to the debtor. Garnishee orders are the least used of all enforcement procedures, with only just over 4,000 issued in total in 1998.
3.2 This chapter concentrates, as did the panel, on garnishee orders as they apply to accounts with deposit-taking institutions (essentially, banks and building societies), since these are the type of asset most frequently targeted by garnishee orders. Except where specifically stated otherwise, the following discussion relates to such orders.
3.3 Respondents to the first consultation paper stated that they chose to issue garnishee proceedings because they had evidence that a debtor's bank account contained money or that they had knowledge of regular payments being received by the debtor. They found that if funds were available the procedure could be a very effective form of enforcement.
3.4 However, the respondents highlighted a number of difficulties that would often prevent an application from being successful. These included, incorrect bank details, accounts containing insufficient funds at the time of the application, difficulties in issuing the application on the right day so as to catch an account in credit and problems where accounts were in joint names. The greatest problems were caused by insufficient information being available to enable a successful application to be made.
3.5 As the responses to the first consultation paper indicated, a key problem in the current garnishee procedure is the lack of information on which to base applications. Creditors are expected to state in the affidavit accompanying their application the name and address of the registered office of the bank concerned together with the branch at which the account is held, if this is known. After the application is issued it is passed to the district judge who will consider whether the order nisi should be granted, taking into account the amount of evidence provided by the creditor in the affidavit. In effect the less information that is known by the creditor the more likely it is that the application will fail. Respondents to the first consultation paper said that failure was particularly likely if they could not provide account details or could not produce evidence that there were sufficient funds in an account.
3.6 At the present time sources of information are very limited. For example, many creditors, especially litigants in person, have to rely on information obtained in previous dealings with the debtor. This information is likely to be out of date or incomplete, and even if it does provide sufficient bank account details to make an application, there may be insufficient funds in the account in any event.
3.7 Business creditors, although more likely to have copies of credit application forms for debtors or other financial details, are also likely to experience difficulties. First and foremost the debtor's financial details may have changed, particularly if the information was provided years previously.
3.8 Even when sufficient information is available to enable an application to be issued, difficulties in obtaining full information can prevent an application from being successful. For example, there is no obligation at present for the bank to search for connected accounts. If the debtor has other accounts held by the same bank that the creditor does not know about, they cannot be targeted. Therefore, a situation can arise where the bank may have two or more accounts held in the name of the debtor, but the only account known to the creditor has insufficient funds to pay the judgment.
3.9 The panel agreed that information was a key problem for creditors when issuing garnishee applications. It was, however, unable to identify any new methods for creditors to obtain additional information on a debtor's bank accounts prior to making an application. For example, in Scotland all the clearing banks can be directed to supply information about any accounts they hold in the debtor's name. The panel considered that this was not a viable option in England and Wales due to the much larger number of clearing banks. It would not be reasonable or practicable to issue an order to all of them requesting that they search for accounts held by the debtor. However, the panel noted that changes to the oral examinations procedure being devised by another of the expert panels, could improve the process enabling creditors to obtain more relevant information on debtor's bank accounts.
3.10 In addition, the panel considered that the existing procedure could be adapted in some way so as to make it easier for a creditor to issue the application, without having to have the debtor's precise bank details to guarantee successful issue of the order. It was agreed that the minimum information required to commence proceedings should be the knowledge of the existence of an account at a particular financial institution and details of the debtor's name and address to allow the bank to identify the correct account.
3.11 Once an application was issued the panel recommended that the particular bank identified should be required to conduct a search and freeze all connected accounts. This could help the creditor in a situation in which the debtor holds both a savings and a cheque account with the same organisation. The panel also thought that the bank should disclose to the court detailed information about those accounts (i.e. copies of bank statements for the previous month). This information would assist the judge at the final hearing to make a more informed decision based on the debtor's circumstances. For example, if a debtor's account only contains enough money to meet day-to-day living expenses, and the previous month's transactions demonstrate that to be the case, the judge may decide that the money in the account should not be garnisheed.
3.12 The panel recognised that asking for disclosure of information from a bank could be contentious. The court has already recognised (in Bankers Trust v Shapira [1980] 3 All ER 353) that it is undesirable for an order for a bank to disclose the state of its customer's account to be made lightly. There is, though, a precedent in the form of Mareva Orders where banks can be requested to search for accounts standing to the debtor. Inspection of bank accounts is already available under section 7 of the Bankers Books Evidence Act 1879 on the application of any party to a legal proceeding.
3.13 The panel acknowledged from the outset that any system for enabling the court to obtain information about debtors from external sources would need to have regard to the provisions of the Data Protection Act and the European Convention on Human Rights (see Consultation Paper 2: Key principles for a new system of enforcement in the civil courts).
3.14 Timing is also recognised to be a major factor in determining the success of an application. The existing procedure freezes an account at a specific point in time (after the bank receives a copy of the court order and takes the necessary action to prevent the debtor from obtaining access to the account). There may or may not be sufficient funds in the account at the time to satisfy the judgment. A creditor can lose out if, for example, a payment was due into a particular account shortly after that account was frozen or if a cheque is paid in but has not been cleared. As the court order only relates to funds in an account at the time it is frozen any subsequent funds paid into an account before the absolute hearing cannot be considered.
3.15 In order to overcome this, the panel recommended that the bank should be ordered to check accounts over a five day period following the initial freeze and freeze any subsequent payments received into the account(s) that did not exceed the total amount of the judgment debt. It was agreed by the panel that accounts should not be checked for longer than five days, as by the end of this period the debtor would know about the order and would stop paying in money to the account in any event.
3.16 The panel were advised that the mechanics of disclosure and of repeated application of the order to an account on successive days would be relatively simple and would not place an undue burden on the financial institutions being asked to carry them out.
3.17 Accounts held in joint names can also cause difficulties as money cannot be attached from such accounts where only one partner is named in the judgment.
3.18 The majority of respondents to the first consultation paper supported the concept of creditors being able to issue a garnishee against a joint account. However, it was thought that safeguards, such as only 50% of a joint account being 'garnishable', would have to be considered.
3.19 The current position is that a joint account cannot be attached - Hirschon v Evans [1938] 3 All ER 491, CA held that a joint account with a bank, even if owned by a husband and wife, cannot be attached under a garnishee order in respect of a debt owned by one of the joint owners. This effectively created a 'safe haven' for debtors with joint accounts enabling debtors to transfer funds into joint accounts in full knowledge that the creditor would be unable to enforce the judgment debt by means of a garnishee order against the account.
3.20 The panel considered the feasibility of amending legislation to allow joint accounts to be 'attached'. The panel agreed that as a matter of policy, debtors should not be able to avoid payment of a debt simply by putting money into a joint account. The panel thought that in consenting to a joint account a person ought to accept that if debts were incurred by the other person, the account might be susceptible to a garnishee order. It was argued that if they were not prepared to take such a risk they should not consent to the opening of such an account in the first instance. The panel therefore recommended that joint accounts should be attachable subject to a limit of 50% of the funds being taken.
3.21 It was agreed by the panel that in administrative terms it would not be a burden for the banks to split funds in an account as a similar process was already undertaken for separating couples. However, the panel recognised that there would be certain circumstances where a partner in a joint account may have a genuine grievance about the funds in the account being used to pay off a judgment debt. The court should therefore be able to consider, at the final hearing, any objections put forward by the other holder of the account.
3.22 The panel gave some thought to how a garnishee procedure that takes account of the concerns and recommendations outlined above, might work in practice.
3.23 The panel's proposals would place a greater emphasis than at present on the 'absolute' order hearing, and on considering the debtor's overall financial situation before deciding whether the garnishee order should succeed. That would be to the debtor's advantage. To improve the creditor's position, the proposals would allow other accounts held by the debtor to be identified and targeted.
3.24 The panel thought that the procedure might work as follows. An application would be made on a standard form, with a section for the creditor to certify that the information provided is correct, removing the need for a sworn affidavit. The panel considered that this would make the process more straightforward, especially for litigants in person.
3.25 The form would ask for all the usual details, including the case number, creditor's details and the amount outstanding on the judgment. The creditor would be required as a minimum to supply the debtor's name and address and the name and address of the registered address of the bank against which the order is to be made (and branch if known). Only one bank would be permitted to be named per application. However, multiple applications could be allowed on payment of the appropriate fees. The panel took the view that creditors should not be restricted to making a single application to one particular bank. It recognised that by not imposing a restriction on the number of applications, creditors could use the procedure as an indiscriminate 'fishing expedition'. However, the panel considered that asking for a separate fee for each application (to be borne initially by the creditor) would provide a sufficient disincentive.
3.26 The application would be considered by a suitably trained member of court staff. The process would involve checking that the minimum amount of information needed to issue the garnishee has been provided, i.e. name and address of debtor and bank, and that the application is otherwise in order. If that is the case, the application would be accepted automatically. There would be no exercise of judicial discretion at this point. In effect the nisi order would be removed from the process, removing the need for judicial involvement at the application stage. The panel felt that there was no need for there to be judicial involvement twice in the process and that a single, detailed consideration of the application, before the order is made absolute, would be sufficient.
3.27 A standard order would be drawn up by a member of the court staff, stipulating that the account named (if a specific account is identified by the creditor) together with all other connected accounts held by that institution should be frozen with immediate effect. The order will give details of the period of time over which the order should be reapplied (for example, that it is to be checked on a daily basis over a period of 5 working days to check for any other payments paid into the account, and to freeze such payments up to the value of the judgment debt). If no specific account is named by the creditor the bank would be asked to undertake a search to identify accounts standing in the name of the debtor. The order would also stipulate that the total value of funds frozen across all accounts should not exceed the value of the judgment debt.
3.28 The panel thought that the order should request that the bank disclose to the court details of transactions on all of the accounts identified for the preceding month (it is proposed that this information will take the form of copies of bank statements). This information will assist the judge at the final hearing to assess the purpose for which the account is held i.e. whether it is used to pay the regular household bills or whether it is a savings account. This will help the judge to make a more informed decision about whether or not funds held in a particular account should be paid to the creditor or whether another connected account held by the bank would be more suitable. The bank will be given seven days to respond to this request.
3.29 If an order, which does not include a specific account number, is sent to a financial institution, and the organisation is unable from the information provided to identify precisely the account held by the debtor (for example, because there are two people of the same name living at one address) the bank would be directed not to freeze any accounts and to inform the court immediately that they have been unable to action the order. The court would then notify the creditor that the order could not be actioned stating the reasons why.
3.30 It is proposed that the order could be served on the bank, either by fax direct from the court, by first class post or the creditor would have the option to serve the order personally on the branch concerned. The obligation would remain for the bank's registered office also to be served with a copy of the order so that they could keep a record of the work being undertaken by particular branches or assist in the searches themselves, if this was necessary. The panel considered that speed of service on the bank was of great importance in order to prevent the debtor having an opportunity to close an account or accounts in the intervening period.
3.31 Along with the order, the court official would also set a hearing date. The panel thought that it would be important for the hearing to be given high priority as the order could freeze any number of the debtor's accounts and any unnecessary delay could cause the debtor undue hardship. It is envisaged therefore, that if possible, the hearing should be set within 2-3 weeks of the original application.
3.32 At this stage the creditor would be informed that the application had been issued and would be sent notification of the hearing date. The debtor would be sent notification of the issue of the garnishee together with notice of the hearing date 7 days later to allow time for the bank concerned to take the necessary action. On receipt of the account records from the bank, the court would copy the papers to the creditor and the debtor ahead of the hearing.
3.33 The panel appreciated that there may be concerns about a proposal that a debtor's financial information should be copied direct to creditors. An alternative may be to restrict the disclosure to the court only.
3.34 The panel was concerned that if a number of a debtor's accounts were being frozen at the same time, the debtor might be denied access to all of his entire funds, leaving him without anyway to meet day to day expenses. In the interim period between the accounts being frozen and the court hearing, the panel, therefore, proposed that the debtor should be able to apply to the court for an 'interim hardship payment'.
3.35 The debtor would be required to complete an application form giving information (supported by evidence) about their circumstances and explaining why a hardship payment is necessary. On the basis of this court staff would determine whether or not money should be released. The panel thought that the decision process undertaken by the court official would be similar to the current application for fee remission. If the application by the debtor is successful, an order would be drawn by the court officer instructing the bank concerned to immediately "unfreeze" an account or to release a particular sum of money contained in an account. Service would be effected immediately by faxing a copy of the order to the bank concerned. The bank would be expected to action the order immediately on receipt to enable the debtor to obtain the money required. It is proposed that the costs incurred by the bank in acting on such an order would be deducted from the payment before it is given to the debtor. There is already a comparison in the attachment of earnings procedure where employers are entitled to deduct £1 for administrative expenses when deducting money from an employee's salary. We would welcome views on how much money banks should be able to deduct for this service.
3.36 The panel recommended that only one application for an 'interim hardship payment' should be allowed.
3.37 The panel suggested that, if a debtor did attend court to make a hardship application, an officer of the court would have the authority to ask the debtor to complete an oral examination questionnaire if it was thought appropriate to do so. Getting the debtor to attend court was half the battle and such an opportunity to obtain information while the debtor was at court could not be overlooked. The information gained by creditors would enable them to make an informed decision about whether or not to issue other enforcement proceedings, should the garnishee application fail.
3.38 The final (and in this proposal, the only) hearing would be conducted by a district judge who would have the discretion to order payment by the garnishee in full or in part, or to refuse to make the order and release the freeze on the account if an examination of the debtor's circumstances, referring to the documentation disclosed by the bank, shows that the order would be unduly prejudicial to the debtor.
3.39 As judicial involvement would be restricted to the final hearing, the panel considered that it would be important to ensure that all the circumstances of the case are considered at this hearing. The court is at present expected to take account of all the circumstances in exercising its discretion, although there are no explicit rules as to what must be considered. In particular, the circumstances of the debtor, although relevant, are given no particular weight and the fact that money frozen in an account may be needed for day to day living expenses is unlikely to prevent an order being made. The panel thought that the circumstances of the debtor ought to be given more weight in the revised process. Disclosure of information about the debtor's accounts would assist the court in making a judgement about the debtor's circumstances.
3.40 The judge would be able to examine any other relevant evidence but claims by the debtor regarding other urgent calls on the money would have to be backed by satisfactory evidence. The basic presumption would remain as in the current absolute hearing that, unless the debtor can show that it should be otherwise, any money frozen in an account should be paid to the debtor.
3.41 The panel agreed that attachments for trade debts and other third party debts apart from bank accounts should still be operated under the existing garnishee process as the procedure worked well for the limited number of cases in which it was used.
3.42 The panel considered that the term 'garnishee' was confusing and did not convey clearly the nature of the process. It was suggested by the panel that the name of the process could be changed to 'attachment' i.e. 'attachment of bank account' or 'attachment of third party debt' as this more accurately described the process involved. However, the panel would welcome any other suggestions for a suitable new name for the procedure.
Q.1 Do you agree that suspension of an AEO offers important protection to debtors and should be retained?
Q.2 Do you agree that a system of fixed deductions would have significant advantages over the existing system? If so, what procedure do you consider should be adopted?
Q.3 Do you agree that regularity of payment should form the basis of deciding whether an AEO can be made? Do you have any views on how this might work in practice?
Q.4 Do you agree that priority should remain unchanged? If not, why not?
Q.5 How useful do you think a central register of AEOs would be? Would the utility of such a register be seriously reduced if some types of AEO (Deductions from earnings orders, for example) are excluded?
Q.6 Do you consider that the difficulties presented by debtors changing jobs are sufficient to justify a system for tracking debtors to new jobs? If such a system could not be put in place, are there any other options that might be available to improve the current position?
Q.7 Should centralising payments for all AEOs be a priority (we do not consider it to be so at the present time)? Do you agree that there would be merit in encouraging the more widespread acceptance of electronic transfer payments?
Q.8 Do you agree that the requirement on the applicant to name other creditors should be dropped? If so, should it be replaced with a requirement on the debtor to name other creditors, or should there be no requirement on either the debtor or the creditor?
Q.9 Do you agree that the venue for a charging order application should be the court local to the property in question or, in cases which do not involve property, the debtor's local court?
Q.10 Do you agree that orders for sale should be retained and that no more formal protection for debtors is required?
Q.11 Do you agree that charging orders should be made available in cases in which the debtor is not in arrears? Is the existing discretion on the granting of orders for sale a sufficient safeguard for debtors who maintain payments on an instalment order?
Q.12 What are your views on amending the Charging Orders Act 1979 to allow registration against the legal estate for property in which there are third parties who have an equitable interest? Would the difficulty of establishing the extent of the debtor's interest in the property outweigh any benefits gained by creditors in having the procedure made available?
Q.13 In your experience, are the existing arrangements for enforcing against modern financial products adequate? In what areas might improvements be made?
Q.14 Do you agree that the debtor's name and address and the name and address of the bank against whom the order is to be made is sufficient information to enable the bank to action the order appropriately?
Q.15 Do you agree that banks should check accounts for up to 5 days after receipt of an order from the court? If not, what timescale would you recommend?
Q.16 Do you agree with the recommendation that joint accounts should, in principle, be able to be attached?
Q.17 Do you consider that the court fees alone will provide a sufficient deterrent to indiscriminate 'fishing expeditions' by creditors to banks?
Q.18 Do you agree with the proposals for 'interim hardship payments'?
Q.19 Do you agree with the general outline of the new procedure?
Q.20 Do you agree that the name of the procedure should be changed? If so, do you agree with the proposed new name or do you have any other ideas?
| Miss Agnes Brough | Lord Chancellor's Department (Chair) |
| Mrs Jill Collins | Court Manager, Woolwich County Court |
| Mrs Ruth Dixon | Debt and Insolvency Manager, Travell Horner & Partners, Solicitors |
| Ms Caroline Harmer | Legal Training Consultant |
| Mr William Lewis | Head of Legal Support, Recoveries, Barclays Bank |
| Mr Nick Pearson | National Money Advice Co-ordinator, Federation of Independent Advice Centres |
| Mr Lincoln Pereira | Court Service |
| The following attended for one meeting each: | |
| Mr Roger Denman | Treasurer's Department, London Borough of Greenwich |
| Mr Mike Nicholas | Publishing Manager, Butterworths Tolley |
There were 140 responses to the first consultation paper, from a wide range of interest groups. They can be broken down as follows:
| Creditors/Creditor Associations | 53 |
| Courts | 21 |
| Solicitors | 15 |
| Advice organisations | 14 |
| Individuals | 8 |
| Judges | 6 |
| Bailiffs/Sheriffs | 3 |
| Academics | 1 |
| Others | 19 |
This annex sets out an analysis of responses to questions posed in the first consultation paper on the enforcement procedures examined in this paper. More responses were received from creditors and creditor associations than from debtor advice organisations. The number of responses is not, however, in itself an important part of our analysis. We were interested in learning about the experiences of all those involved in enforcement and all relevant views are given equal weight. In analysing the responses to all of the consultations in the course of the review, we will ensure that any imbalance in numbers between the different interest groups does not influence decisions taken on policy. A numerical analysis was carried out on some of the questions below, but only where the spread of answers tells us something about, for example, the most commonly encountered problems. Views that dissent from the general consensus are noted where relevant.
Q.19 Why do you choose to apply for an AEO?:
a) because you have the debtor's employment details
b) because you have found it effective with other debtors
c) because you have tried another method of enforcement and it has proved
unsuccessful (please give examples)
d) other (please give examples)
a) was chosen 37 times, b) 22 times, c) 24 times and d) 13 times. Other reasons given included: An AEO was easy to obtain and fairly effective; it was the most effective process if the creditor felt that payment by instalments was acceptable; the threat of an AEO could be effective: if it was not possible to recover the full debt by some other method in a short period and; if the defaulter failed to make regular payments when given the opportunity.
Q. 20 When you apply for an AEO, do you (always) provide the court with the debtor's employment details? If you do not, what is the result?
Out of 56 respondents, only 10 stated they didn't always provide the necessary details when applying for an AEO. Of these only 2 claimed that this had little effect on the success of the AEO. The rest said that delays were almost inevitable if information was not provided. The rest of the respondents all claimed that where possible information was always provided as this would greatly enhance the probability of success.
Q. 21 If an application has failed in the past, why? (please give examples)
a) you did not provide the court with details of employment?
b) The debtor had moved away?
c) The debtor was unemployed, self - employed, a merchant seaman, or a member
of the Armed Forces?
d) The debtor did not earn enough money?
e) other?
Respondents chose a) 10 times, b) 26 times, c) 28 times, d) 38 times whilst e) was chosen 21 times. The majority of respondents indicated, therefore, that the major reason for the failure of an AEO was that the debtor did not earn sufficient money. Other reasons for AEO failure included: The debtor is self - employed; insufficient information was available to trace the debtor; the debtor evades order with the collusion of his employer.
Q. 22 In your experience, is the procedure automatic, or do you have to chase the court to initiate the next stage in the proceedings?
26 respondents said the procedure was automatic, 19 said that the courts had to be chased to initiate the next stage in proceedings and 7 said that it varied from court to court. Of the 26 respondents who said that the procedure was automatic the majority still felt that the whole procedure was slow.
Q 23 Does the debtor usually complete the initial reply form? If not, how far do you usually have to take the procedure before an order is made?
25 respondents said that the debtor usually completed all forms, 19 respondents said that debtors don't usually complete all forms and 6 respondents said the situation varied. Many of those respondents who said that debtors always completed the initial reply form pointed out that not all forms were accurately completed. It was estimated that around 40% of debtors completed the initial form. Some respondents felt that the debtor would only complete the form if they were unemployed, self employed or didn't want their employer to be involved. The respondents who said that forms were not always completed each had different experiences. Some had to chase debtors all the way to the committal stage before obtaining a response; whilst others said that they experienced an 8 - 10 week delay whilst documents were served.
Q24 If you choose not to apply for an AEO, why not?
The most common reasons given for not choosing to apply for an AEO were, lack of detailed information on the debtors circumstances and if the debtor was self or unemployed. These though were not they only reasons given, others included: the availability of a better alternative method; AEOs only tend to work for medium / large sized companies; AEOs are not always economically viable; AEOs imply a protracted period of re - payment with no interest and AEOs never used if debtor is not on PAYE.
Q 25 If you do not know the debtor's employment details, what steps do you take to find out about them, before applying for an AEO?
The responses included: taking no steps to discover the debtor's employment details; discovering information through communications with the debtor verbally through home telephoning; through questionnaires; using third parties such as enquiry agents and private investigators; through contact at work and 9 respondents said via the use of oral examinations. The majority of respondents used the verbal enquires and questionnaire methods to gather their information, but the use of third parties was also quite frequent.
Q26 Should the court no longer make suspended AEOs but only ever proceed to a full AEO?
Some creditors were in favour of getting rid of suspended AEOs, arguing, for example, that a suspended AEO can result in one creditor gaining preference over another or that suspension adds unnecessarily to the time taken to obtain an AEO.
Others thought that, whilst suspension can be useful, it is used too often at present, or that the debtor should be required to show that his employment would be jeopardised by the making of a full AEO. The majority of respondents, however, were in favour of the current system, arguing that although suspension can delay proceedings, it provides a useful protection for the debtor.
Q27 Should the courts check regularly whether the debtor's circumstances have changed, ie asking the employer whether the debtor is earning more, or asking the debtor whether their outgoings have increased?
44 respondents said the courts should make regular checks concerning the debtor's circumstances, although many of these noted that this could cause administrative difficulties and extra expense. 9 respondents said that the courts should not make such checks and 21 respondents were non - committal, or put forward other suggestions. All the respondents agreed that the checks would place a greater burden on the courts time and resources. Other suggestions included placing the burden on either the employer or the debtor to notify the court of any changes in circumstances; setting up an AEO centre to cover searches, issuing and monitoring of the AEO process; asking the employer to provide details of how often the debtor's salary changes prior to the AEO being issued.
Q28 What gaps or loopholes are there in the definition of attachable earnings and employment / self - employment that you consider should be closed?
A wide range of gaps and loopholes were identified, these included: Many self employed people are in fact employed by small businesses; documentary evidence should be provided ie salary slip or proof of employment; the wording on the form should be changed to " failure to inform the court of a change of employer or address will result in imprisonment."; should be able to make deductions from the unemployed via the DSS; if the debtor is willing to pay by instalments why not provide the opportunity to have instalments deducted from earnings when submitting a judgment; the debtor should be liable for the cost of them being tracked down; remove the need for a separate scheme for armed forces and merchant seamen; form N56 should be amended to include national insurance number and the benefit office where benefits received.
Q29 To what extent do you consider the priority of attachment of earnings orders should be changed? Currently, AEOs for civil judgment debts end up at the bottom of the pile. Should debts to the state still take priority over civil debts?
A high number of respondents felt that state debts should no longer take priority over civil debts, one respondent even felt that civil debts should rank higher than state debts because the state would not be as effected by the debt. The alternative put forward by most of these was that priority should be based on date of issue. A few respondents felt that justification remained for state debts to continue to take priority and in particular that an AEO to collect child maintenance should have priority over all other debts.
Q.30 Why do you choose to issue garnishee proceedings?
The general consensus was that a garnishee order can be very effective in clearing a debt quickly. The process is fast and the outcome is difficult for the debtor to avoid. However, almost all the respondents said that they would only use a garnishee order if they are sure that funds are available. Those who do not use the procedure, or use it only rarely, mentioned the difficulty of obtaining reliable information to support a garnishee order.
Q.31 How do you obtain information about a debtor's bank account/debts owed to the debtor? Do you issue oral examination proceedings first?
17 out of 46 respondents said that they used oral examinations and obtained useful information from these to support a garnishee application. The remainder said that they obtained information either from information given by debtors in the past (in making an application for a loan, for example), from cheques received from the debtor or from enquiry agents. Three respondents said that they would not use an oral examination because they have found it provides no useful information.
Q.32 What difficulties do you encounter when applying for a garnishee?
There were 45 responses. 8 of these identified difficulties with obtaining sufficient details of bank account numbers and sort codes to satisfy the court. 15 respondents mentioned problems with the timing of a garnishee order, to ensure that the funds intended to be caught are in fact available on the day the order is applied. Others simply said that there may be no money in an account and a few respondents thought that delays in court processes could sometimes lead to funds disappearing before the garnishee can be applied. One respondent, replying from the debtor's point of view, suggested that the procedure can create significant difficulties for debtors by taking funds intended for essential expenditure, and should not be encouraged.
Q.33 Should the garnishee order nisi specify the date from which the garnishee should freeze the account?
52 respondents replied to this question, of whom 42 replied in the affirmative. 10 respondents thought that this might cause problems, particularly for the garnishee if, for example, service of the order is delayed for some reason. Most of these thought that the order should operate to freeze the account from the date of service.
Q.34 Should garnishee orders be reapplied for a specified period? i.e. a bank would re-check accounts every day for a period specified in such an order.
A substantial majority were in favour of re-applying the order. Many of these suggested a specific period of time, although this varied from 5 days through to 6 months. The most frequently mentioned time period was 7 days. Several of the respondents were concerned about the cost to the garnishee, particularly in the case of banks that would be required to recheck account balances on a daily basis. One respondent suggested that the additional cost, if passed onto the debtor, could be oppressive.
Q.35 Should a creditor be able to issue a garnishee against a joint account, e.g. an account held in the name of a husband and wife?
A minority of respondents expressed outright opposition to the idea of garnisheeing joint accounts. These particularly identified the potential for conflict between the debtor and others having an interest in the joint account. Others answered a qualified yes, stressing the need to have an arrangement for the other account holder to make representations about the distribution of the funds in a joint account. Several respondents stated that the garnishee order should be restricted to taking no more than 50% of the money in a joint account (assuming two account holders). Two thought that only joint accounts belonging to business debtors should be open to a garnishee order. The majority of respondents, however, thought that a garnishee order should be obtainable against any joint account.
Q.36 Should a creditor be able to issue one garnishee application to cover two or more debts owed to him by the debtor (currently you must issue separate applications for each case)?
All but four respondents were in favour of this. There were several comments made, the most frequent being that the creditor would have to provide clear information about which judgment debts the garnishee order is being sought for and how much is outstanding under each debt.
Q.37 Why do you choose to apply for a charging order? a) because you have found it effective with other debtors; b) because you have tried another method of enforcement first and it has proved unsuccessful; c) as a fall back whilst pursuing other methods of enforcement, such as warrants of execution; d) other.
It would seem that creditors use charging orders for a variety of reasons, but that for the majority they are seen as a last resort after all other enforcement avenues have been explored. They are also used as a fall back position to provide some security whilst other forms of enforcement are pursued, particularly for larger debts (two respondents mentioned figures of £3,500 as the minimum debt for which they would seek such security). Only a few respondents said that they ever used charging orders as a first- choice method, and even then in only limited circumstances - particularly when specific information about the debtor's equity in a property is available.
Q.38 How do you obtain information about debtors' assets? Do you issue oral examination proceedings first?
Most stated that an application for a charging order would be based on information held on file or obtained from earlier enquiries. A Land R