» Summary of proposals
» Executive summary
» Section 1: Introduction
Purpose of this paper
Background
Scope of the Review
Basic Principles
The wider picture
Enforcement methods and gaps
Information
Towards a New Enforcement Framework
Phase 2
» Section 2: Gaps
Inhibitions
Equitable Execution
Pensions
Registration of High Court Judgments
» Section 3: Oral Examinations
» Section 4: Attachment Of Earnings
» Section 5: Charging Orders
» Section 6: Garnishee Orders
» Section 7: Warrants & Writs
Warrants and writs of execution
Warrants & Writs of Possession
Warrants & Writs for Return of Goods
» Annex A: Draft Regulatory Impact
Assessment
» Annex B: The Enforcement Review
Consultation Process
» Annex C: Sanctions
A summary of the proposals is set out below identifying what would be required, in legislative terms, to take the proposals forward:
| Proposal | How to take forward |
|---|
Oral Examinations
| 1. | N37 (order to attend oral examination, served by post) to be dropped and replaced, as the first stage in the oral examination procedure, by personal service of N39 (second order to attend) in all cases | Secondary legislation |
| 2. | Court to have the power to implement enforcement action at the time of the hearing | Further consideration needed |
| 3. | The venue for an oral examination should remain the debtor's home court, but the court should have discretion to order that the examination should take place elsewhere | Change not recommended |
| 4. | Court to have power to require, from specified third parties, the disclosure of information to assist with the enforcement process | Further consideration needed |
| 5. | The committal power to be extended to situations in which the debtor fails to answer questions truthfully | Primary Legislation |
| 6. | The committal process to begin either immediately following the debtor's failure to attend a hearing or, if a DDO is sought but fails to produce any information, immediately after the information has been returned | Primary Legislation |
| 7. | The N9 (Admission) form to be extended to obtain more information at an earlier stage | Secondary legislation |
| 8. | A standard oral examination questionnaire to be introduced | Secondary legislation |
Attachment Of Earnings
| 9. | A fixed deduction system be introduced, with deductions calculated according to standard tables rather than being individually calculated for every debtor; suspension of attachment of earnings orders to be retained, to allow debtors to apply for individually- set instalment orders | Primary Legislation |
| 10. | To consider with the Inland Revenue introducing a system for tracking debtors to new jobs | Primary Legislation |
| 11. | The scope of attachment of earnings orders should not be extended to the self- employed | Change not recommended |
| 12. | No change to the priority of attachment of earnings orders | Change not recommended |
| 13. | To consider the introduction of a national register of AEOs when it becomes practicable to do so | Further consideration needed |
| 14. | To consider introducing a centralised payment system for all different types of AEO, when it becomes practicable to do so (the capital cost being too large at present to justify the introduction of such a system). | Further consideration needed |
Charging Orders
| 15. | Charging Orders should be made available in cases in which the debtor is not in arrears, but with appropriate safeguards to ensure that debtors are not unduly penalised (for example, by being prevented from moving home altogether) | Primary Legislation |
| 16. | That the requirement on the applicant to name all other creditors should be dropped in Charging Order proceedings, but in making an application creditors should be required to give any information they might already have on other creditors. Debtors would also be asked, in responding to the application, for any information they have regarding other creditors. There should, however, be a requirement on an application for an order for sale that the creditor make reasonable efforts to identify other creditors. | Secondary legislation |
| 17. | Orders for sale should be retained | Change not recommended |
| 18. | Despite problems with registration, we should not attempt to amend 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 | Change not recommended |
Garnishee Orders
| 19. | Amend rules so 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 application to proceed | Secondary legislation |
| 20. | Amend legislation so that joint accounts should be able to be attached. | Primary Legislation |
| 21. | To introduce a new procedure for garnishee orders, featuring one hearing at which the debtor's circumstances would be taken into account in making any decision about whether or not any funds should be released. Whilst funds are frozen, but before the hearing takes place, debtors would have the ability to apply for an interim payment from the funds to ward off any potential hardship. | Secondary legislation |
| 22. | That banks and building societies that receive a garnishee order should be required to undertake a search for connected accounts | Primary or Secondary legislation |
| 23. | Introduce a rule that only one bank can be targeted by a garnishee application at any one time, unless the creditor can specifically identify accounts held by the debtor at separate banks. | Secondary legislation |
| 24. | To change the name of the garnishee order | Primary Legislation |
| 25. | The garnishee order should continue, as now, to catch only money in the account at the moment it is first applied by the bank. We will, however, be reviewing this further in conjunction with the banks, to establish whether practical difficulties can be overcome to allow garnishee orders to be reapplied | Change not recommended |
| 26. | That the existing procedure should be retained for attaching debts other than bank or building society accounts | Change not recommended |
Warrants and Writs
| 27. | In line with the first phase of the civil justice reforms it is recommended that the rules for warrants and writs should be unified, the aim being to produce simpler and more user- friendly rules, which do not result in more regulation | Secondary legislation |
| 28. | The use of the form N326 by bailiffs (notification to debtors by bailiffs of proceedings to execute against goods) should be discretionary | Secondary legislation |
| 29. | That the procedure for regaining rescued goods should be revised | Secondary legislation |
| 30. | County Court Bailiffs should be given greater flexibility to negotiate instalments (subject to approval by the creditor) without recourse to the judiciary or court staff. If no agreement is reached the debtor will remain able to make a formal application to the court | Primary Legislation |
| 31. | Debtors applying to suspend warrants should not be allowed to use the N244 (general application form). If a debtor is applying to suspend a warrant of execution or a warrant for return of goods they should apply using the N245 and complete the statement of means. If debtors wish to apply to suspend a warrant of possession they will be required to complete a new form. The form would be based on the N245, asking additional specific questions in relation to the debtors mortgage or rent arrears and for details of any significant change in their circumstances since the original possession hearing | Secondary legislation |
| 32. | A unified interpleader process for the High Court and county courts should be established which requires the third party claimant to produce evidence of their ownership in the first instance rather than the creditor having to produce evidence to disprove the claim. Section 123 of the County Courts Act 1984 (which makes District Judges personally responsible for the actions of bailiffs) should be abolished so that District Judges will be able to hear interpleader cases | Primary Legislation |
| 33. | Sale by public auction should remain the normal route for selling seized goods. However, a private sale should be allowed, regardless of the value of the goods if the creditor and debtor both agree to the arrangement | Primary Legislation |
| 34. | As for warrants and writs of Execution it is recommended that the rules for warrants and writs of possession should be unified, the aim being to produce simpler and more user- friendly rules, which do not result in more regulation | Secondary legislation |
| 35. | Ensure greater uniformity of practice in the determination of whether an application for suspension of a warrant of possession should be successful or not, by means of a practice direction or similar guidelines. | Secondary legislation or new guidance required |
| 36. | There should be no change to the current rules for applying for a warrant of restitution in squatters' cases | Change not recommended |
| 37. | Service standards should be introduced into the county courts for warrants of possession and for return of goods so that warrants can be executed by the bailiff within 28 days of the warrant being passed to them | New guidance required |
| 38. | As for the other types of warrant and writ it is recommended that the rules for warrants and writs for return of goods should be unified, the aim being to produce simpler and more user-friendly rules, which do not result in more regulation | Secondary legislation |
| 39. | Creditors should be required to supply more information on the goods to be seized in return of goods cases to assist bailiffs and sheriffs in identifying the correct good to be taken. Litigants in person should receive additional instructions to assist them in providing such information | New guidance required |
| 40. | To allow creditors who sell goods on hire-purchase terms to continue to use their own employees to recover unprotected goods, or use private bailiffs to carry out the work, after obtaining an order for specific delivery from the court | Change not recommended |
Other
| Registration of High Court Judgments | Secondary legislation |
Section 1 sets out the scope of the Enforcement Review and the basic principles of enforcement, introduces some of the Review's key conclusions and explains what work remains to be done in the second phase of the Review.
The enforcement system ought to allow those who have established a legitimate claim to pursue satisfaction of that claim, through a system that is both straightforward and effective. It ought also to protect the interests of those debtors who do not have the means to pay, and to prevent oppressive pursuit of debts. Throughout the course of the Enforcement Review, we have sought to achieve a balance between these objectives.
Substantial sums of money - we estimate at least £600 million per year - are lost to creditors through unpaid civil judgment debts. The first phase of the Review has considered how to make enforcement more effective. It has concluded that many debts will remain unenforceable, however effective the system, because the debtor does not have the means to pay. There is a case for looking beyond the enforcement system to try and cut down the amount of unenforceable debt coming through the court system. Improving education and money advice may have a greater impact on the success rates of enforcement than anything we can do to the enforcement system itself.
The Review has not identified any significant gaps in the system. The basic procedures in place now are the right ones, although they could be made to work more effectively and more smoothly than at present. In particular, more information is needed to support the choice of enforcement method and to enable particular enforcement methods to be more effectively targeted (for the benefit of creditors and debtors). That information will come from third parties, if the debtor refuses to supply it himself. The requirements of information handling will necessitate some changes in the structure of the enforcement system. We have come to some preliminary conclusions, but the bulk of the questions about structure will fall to phase 2 of the Review, beginning in June 2000.
Section 2 explains in more detail the Review's work on identifying gaps in the enforcement system. We have not been able to identify any significant gaps in the enforcement armoury, which it is possible to fill. We have considered a number of possible new procedures, some from other jurisdictions, but do not believe any of these to be worth pursuing. Pension investments are beyond the scope of enforcement at present and we recommend that should remain the case. We do, however, recommend that High Court judgments should be registered in the same way as county court judgments, to ensure that creditors have access to all relevant information in making credit decisions.
Section 3 deals with information to support enforcement. We propose that the oral examination procedure should be slightly streamlined by removing a stage from the process (postal service of notice to attend for an examination) and that it should be strengthened by the addition of new procedures for obtaining information. At present, the process relies entirely on obtaining the debtor's co-operation, which takes time and does not necessarily produce reliable information. The proposal is that information should be made available from third parties in certain, carefully defined circumstances. The oral examination procedure would continue to be the main forum for information gathering for enforcement - information from third parties ought not be freely available at any stage of the process.
We recommend that imprisonment for contempt should be retained, for those cases in which the debtor fails, wilfully, to co-operate and information from third parties proves to be unavailable or of little assistance. The co-operation of the debtor in such cases is essential, and imprisonment, or the threat of it, assists considerably in encouraging that co-operation.
Other proposals are for minor adjustments to the system to make it work more smoothly. In particular, we recommend that a standard oral examination questionnaire (separate versions for individuals and for businesses) should be introduced.
Section 4 proposes a substantial overhaul of the attachment of earnings system. The existing system is prone to delay and is too dependent on information being obtained from the debtor in order to set the rate at which deductions are made from the debtor's salary. We propose, instead, a system of fixed deductions set according to standard tables, with a mechanism for reviewing individual debtor's circumstances if they so request. That system should be cheaper for the courts to operate and get attachment orders in place more quickly. We would also like to introduce a tracking system for debtors who change jobs, so that the attachment order would follow them, rather than being lost as is often the case now, although there may be practical difficulties in so doing.
Other suggestions for improving the procedure have been rejected, or put on hold for the present. This section sets out what those suggestions were and explains why they have been rejected.
Section 5 finds that no major changes are needed to the charging order procedure. We do, however, recommend some minor changes to help the procedure run more smoothly. In particular, we suggest that charging orders should be made available in cases in which the debtor is not in arrears, to close a loophole which allows debtors with large debts, paying small instalments, to benefit from the sale of a property without paying off the debt. We also recommend that orders for sale should be retained, despite representations from the debt advice sector that they should be abolished.
Section 6 proposes a substantially new procedure for garnishee orders. We believe that these are a powerful way of getting directly at a debtor's money, but they are complex and difficult to use and can be very harsh on the debtor. We propose to introduce a new procedure which places greater emphasis on the court considering the debtor's circumstances before granting the order. To assist with that, we propose that the court should have power to obtain records of transactions on a bank or building society account that is the subject of a garnishee application. We also propose to:
Enable a garnishee order to be reapplied to an account for five consecutive days, to catch any additional funds paid in subsequent to the first application of the order (subject to being able to address practical difficulties).
Enable joint accounts to be attached
Make provisions for connected accounts held by the debtor at the same bank to be identified
Section 7 covers warrants and writs, which are the most widely used enforcement procedure, but also the least sophisticated. Warrants and writs come in three forms: warrants and writs of execution (against goods), of return (against specific, named goods) and of possession (for the return of land).
The proposals outlined in this section are 'quick hits' aimed at improving existing procedures in the short term. Procedures vary considerably between county court warrants and High Court writs, and unification of the rules will require a greater degree of unity between the procedures, which has led to some of the proposals outlined in this section. Other proposals, such as revising the rescue and interpleader procedures, are intended to make complex processes easier for those who have to use and operate them, or at the very least to ensure that procedures are consistently applied and that information about them is easily accessible.
Fundamental questions about who should do the work will come in phase 2 of the review, informed by the work done by Professor Jack Beatson, who has undertaken a separate review of bailiff law looking at the powers of bailiffs (county court and private sector). We may, in due course, recommend substantial changes to the framework in which warrants and writs are operated.
Purpose of this paper
This is the report of the first phase of the enforcement review. It outlines the conclusions reached to date in the Lord Chancellor's Department's review of civil court judgments. A large proportion of the proposals have already been exposed in the series of consultation papers issued during the course of the review. This is not, therefore, intended as a consultation document. Any remaining issues for consultation will be picked up during the course of the remainder of the review.
The proposals contained in this document remain subject to change and refinement, particularly as we examine in more detail the practical issues surrounding implementation of the proposals. This paper is being published at this stage to provide information on the current state of play of the enforcement review. As such, it should be taken as being indicative of the Government's views, rather than as a final statement of the review's conclusions. Final proposals, representing a complete package of reform, will be put forward on completion of the second phase of the review.
Background
Enforcement is a major element of the civil justice system. People against whom a money judgment has been issued will have little incentive to pay the judgment if they know there is no effective means of enforcing it.
The limited information available suggests that, under the present system, large amounts of debt are written off post-judgment. For example, the Registry of county court judgments records that only 25% of 1.12m judgments registered in 1998 were paid (although updating of the Register is not automatic). Court Service statistics on warrants of execution - which make up around 85% of the total enforcement action - show that less than one quarter of the total value of all warrants issued is recovered. It would not seem unreasonable to assume that at least half a million judgments remained unpaid in 1998. We do not know the average value of debt claims in the county court, but a sample taken in 1996 suggests that the average might then, on a conservative estimate, have been in the region of £1,200. Taking these figures together, we can (very roughly) value the unpaid post-judgment debt at more than £600 million per year.
This figure only relates to debt that is actually pursued through the courts. There may be considerably more debt that is not pursued, perhaps because of a perception that it will not be worthwhile to do so.
Not all of this debt is unpaid due to deficiencies in the enforcement system. Creditors take a risk, when making a loan or entering into a credit agreement, that the debtor may, perhaps because of a sudden change in circumstances, be unable to repay the loan. The interest rates charged are set accordingly. There will always be a certain amount of unpaid debt within the economy. Nonetheless, we are very far from being able to say that the enforcement system does the best possible job in minimising the amount of unpaid debt.
This paper explores ways of improving existing procedures. Much of the paper is devoted to the question of information for enforcement, to which the Enforcement Review has come back time and again as the key issue in improving enforcement. Throughout the Review, we have attempted to achieve a balance between what is in the public interest in terms of improving enforcement, and what would be against the public interest in terms of inappropriate levels of access to personal information. The Review has concluded that more information - of a quite personal nature - is absolutely essential to an improved enforcement system, but that there should be strict safeguards. In particular, access to information must only be available in strictly- defined, limited circumstances, there must be statutory provision for it, and there must be tight controls on the transfer and subsequent handling of the information.
The consultation that has taken place during the Enforcement Review has made it quite clear that everyone involved in enforcement would like to see improvements made to the system. There is a clear body of opinion - shared by the Civil Justice Council - that substantial and comprehensive reform should be undertaken. This paper represents the first step in suggesting how that reform might be carried out.
Scope of the Review
This is the report from the first phase of the review of enforcement. The terms of reference of the review were as follows:
To examine the present methods available for enforcement of county court and High Court judgments, to assess their effectiveness, identify the reasons for any ineffectiveness, to identify what changes would be necessary to enhance the effectiveness of the current methods of enforcement; and to make costed recommendations;
To examine the information, advice and assistance currently available to creditors and debtors, to identify what changes would be necessary to enhance the effectiveness of the current methods of enforcement; and to make costed recommendations;
To review the powers of bailiffs (county court and private sector) to determine what changes to their powers would be needed to enhance the effective enforcement of civil court judgments and to increase uniformity; and to make costed recommendations;
To consider what amendment is needed for the successful implementation of section 13 of the Courts and Legal Services Act 1990; and to make costed recommendations;
To consider whether, and if so how, the present power to distrain for rent should be abolished (as recommended by the Law Commission); and to make costed recommendations;
This paper concentrates on the first two terms of reference above. The third has been taken forward on our behalf by Professor Beatson of Cambridge University. The fourth and fifth are being taken forward within the Department, as separate projects. Section 13 of the Courts and Legal Services Act 1990 concerns administration orders. Administration orders are a means of protecting vulnerable debtors with multiple debts, so whilst they are linked to the enforcement system, they are not strictly speaking a part of it. In a recent consultation paper, the Insolvency Service proposed a very similar mechanism in respect of individual bankruptcies. We will be working closely with them to ensure that any proposals we bring forward are compatible.
Similarly, distress for rent is not an enforcement procedure that is available through the civil courts. It is only available in respect of unpaid (mostly commercial) rent. Again, whilst there is a link to the enforcement system, it is possible to consider distress for rent as a distinct entity. This work is being taken forward in conjunction with DETR. We are still clarifying the legal position with respect to ECHR compliance, and will consult separately on the issue in due course.
The second phase of the review will run from June 2000, the terms of reference being:
To identify, in the light of the amended procedures and revised powers of bailiffs, the type of agent(s) or form of agency which should be responsible for carrying out those enforcement procedures; and to make costed recommendations;
To implement those recommendations accepted by the Lord Chancellor (including the production of a unified set of Rules of Court for enforcement);
To gather the necessary data to make comparisons between the current and revised methods of enforcement and to evaluate the effectiveness of the project.
This structure has been criticised by some, including the Civil Justice Council and the Association of District Judges. In particular, they are concerned that it is difficult to make judgments about some of the procedural changes being suggested, without having thought more about the structure into which those procedures may fit in the future. These criticisms may, with the benefit of hindsight, have some merit to them, although they come a little late in the day to enable us to take account of them without wholly departing from our existing timetable. It is also true that, to some extent, the structure is informed by the procedures which operate within it, as well as vice versa. The only real solution would have been to conduct phases 1 and 2 concurrently, which would have been a larger task than we were, and are, equipped to carry out.
This paper does in fact set out a potential structure for the enforcement system in the civil courts, but it stops short of answering the question of who should deliver the service. We have tentatively concluded that there may need to be a different structure, with enforcement agents of the bailiff/sheriff type and, perhaps, information officers capable of obtaining information about debtors to inform the enforcement process, and able to take decisions about enforcement on behalf of creditors. Our initial thoughts are set out in more detail under 'phase 2', post. We have not yet considered who would take on these roles, or precisely how the system ought to be structured. Those details will be left to phase 2.
The review has been a fundamental exercise, looking at all options for change, including radical ones. As well as looking at the whole framework in which individual procedures sit, we have considered enforcement in other jurisdictions and assessed whether there may be new procedures that might work better than those already in place. Our conclusion is that the existing procedures are the right ones. They are well designed to allow creditors access to a debtor's assets, although they could be made to work more effectively, particularly if supported by better information.
• Basic Principles
The Enforcement Review was established because the Lord Chancellor recognised that the impact of the civil justice reforms would be lessened if successful claimants are unable to recover money or possessions awarded to them by the court.
Statistics about how successful enforcement actually is are rather few and far between. The only major study undertaken ( Endnote 1. ), on small claims, found that fully 30% of successful claimants had received no part of the sum awarded to them, several months after judgment. The Court Service collects information about the success of warrants of execution (which account for about 85% of all enforcement effort). These show that only 35% of all warrants issued are actually paid. That figure rises to around 75% if 'unenforceable' warrants are excluded, i.e. those warrants which, according to the Court Service, are either incorrectly addressed or suffer from some other problem (bankruptcy of the debtor, for example) that renders them legally unenforceable. There are no figures available on the effectiveness of other enforcement methods.
Although the statistical coverage is poor, the process of consultation adopted during the enforcement review (see annex B) has provided a wealth of anecdotal evidence from those with day to day experience of using the enforcement system. The picture that emerges is of an enforcement system that is not particularly effective, difficult to understand and prone to excessive delay. Delay and obscurity were mentioned by creditors just as frequently as lack of effectiveness, and are clearly a major source of irritation to creditors.
The system is far from ideal for debtors either. In particular, the system is not good at identifying which debtors have the ability to pay and which do not, so debtors may find themselves being pursued relentlessly for a debt that they have no means of paying. Equally, debtors who know the system's weaknesses are able to exploit them to avoid payment.
We believe, therefore, that to make the system more effective, in line with the Enforcement Review's objectives, we will need to make it:
more straightforward and understandable;
capable of delivering higher rates of recovery;
fair to both debtors and creditors, and particularly sensitive to those debtors who do not have the resources to pay;
capable of delivering results more quickly.
These principles are similar to those set out in Lord Woolf's report on Access to Justice, although it is not possible to appropriate the Woolf principles in their entirety. In particular, the emphasis on success rates in enforcement is not present pre-judgment, before the validity of a case has been established.
• The wider picture
An important conclusion of the review is that, no matter how efficient the enforcement system, some judgments will remain simply unenforceable. Creditors may have quite inadequate information about the debtor, to the extent that even the address is incorrect, which makes identification of the debtor for enforcement purposes very difficult. Creditors, particularly companies, have a responsibility to help themselves as far as possible and the enforcement system should not become a means by which creditors can remedy the deficiencies in their own management and information systems.
Creditors should also lend in a responsible manner, but the enforcement system is rather too blunt an instrument to be used effectively in encouraging more responsible lending behaviour. In particular, enforcement is very remote from the original lending decision, which makes it difficult to establish effective links.
Responsible borrowing is also important. In many cases, it seems that debtors have inadequate resources to pay the debt, and no likelihood in the foreseeable future of obtaining sufficient resources. Professor Hazel Genn's 'Paths to Justice' research ( Endnote 2. ) confirmed that money problems are often related to other difficulties, in particular loss of employment or family breakdown. The financial implications of major events like these can be devastating and recovery may be slow.
The wider use of administration orders may assist in dealing with this type of debt, but there may be other strategies that we can adopt, in the longer term, to manage the debt that comes into the courts and hence into the enforcement system. The Community Legal Service may have a significant role to play, for example in encouraging the development of debt advice. DTI is an important player with its responsibilities for regulation of the lending market. The debt advice sector - both free and fee-charging - would also have a role, and is already working with the banking sector to develop alternative approaches to debt management.
• Enforcement methods and gaps
The enforcement review has considered both the detail of existing procedures and the nature of the framework into which those procedures may fit. We have concluded that all the existing enforcement procedures should be retained and improved. Each gives access to a different type of asset, and removal of any one of the procedures would deprive creditors completely of access to that particular asset. The procedures are:
Attachment of earnings orders (allowing creditors direct access to the earnings of an employed debtor)
Charging orders (allowing a charge to be placed onto any property or shares owned by the debtor)
Garnishee orders (allowing creditors to gain access to funds held by the debtor in a bank or building society account)
Warrants and writs of execution against moveable property owned by the debtor.
The changes that we believe are desirable to improve these procedures are set out in the following sections. Some of the changes should improve the effectiveness of particular procedures, whilst others are designed to cut out delay and improve ease of use.
We have also considered Judgment Summonses during the course of the review, and concluded that there is no justification for extending their range of use. Some creditors have called for the procedure to be extended. We believe, however, that that would represent a step back towards imprisonment for debt. There would also be practical problems in extending the scope of the procedure. The courts would undoubtedly find it more difficult to deal effectively with larger numbers of judgment summonses. In view of this conclusion, the present report does not cover judgment summonses in any detail.
We have not identified any fundamentally new procedure that ought to be adopted. The information we have been able to obtain about European enforcement systems suggests that the procedures available throughout Europe largely mirror our own. We have considered, and rejected, some new procedures from other jurisdictions. These are covered in more detail in the section on 'gaps', post.
Neither have we been able to identify any significant gaps in the type of asset that can be targeted by existing procedures. We have asked specific questions about this in our consultation papers and have not been told of any additional financial products that ought to be covered. New products, such as ISAs, are accessible to creditors through existing procedures.
• Information
The central conclusion of the Enforcement Review is that the key principles, outlined earlier, can only be met by improving the information available on which to base informed and responsible decisions about enforcement. The overwhelming preponderance of warrants and writs, compared to other enforcement methods (600,000 warrants as compared to only 60,000 attachment of earnings orders, 15,000 charging orders and around 4,000 garnishee orders) suggests that many creditors have little or no information at present on which to base their decisions. To issue a warrant, all that is required is an address for the debtor (and Court Service statistics suggest that even the address is wrong on perhaps as many as half the warrants issued). An attachment of earnings order, on the other hand, requires information about the debtor's employer, their earnings and their expenditure.
Better information would allow enforcement efforts to be targeted towards the procedure that is most likely to produce results for the creditor. It would also make it possible to identify, at an earlier stage, those debtors who do not have the resources with which to pay the debt in question, and allow creditors to consider whether further action against the debtor can be justified. The need for better information is reinforced by the positive response to questions on the subject, particularly in consultation paper 2. We asked whether the courts should be able to obtain information from external sources, including Government Departments and banks. 76 out of 85 respondents agreed.
In considering individual procedures, we have tried wherever possible to get rid of excessive information requirements. For example, before an attachment of earnings order can be made at present, the court needs to consider the debtor's means in some detail, to decide what rate of deduction can be afforded. It is possible, however, to make an attachment order without any of that detail. All that is required is the name of the debtor's employer.
Sometimes, however, information is essential (using the example above, it is impossible to make an attachment of earnings order without information about the employer). The current system relies almost entirely on the provision of information by the debtors themselves. If they do not provide information voluntarily, there are mechanisms in place which attempt to force them to do so, but the process inevitably takes time. Ultimately, debtors face imprisonment for contempt of court if they do not co-operate, but any process featuring imprisonment as a sanction must give debtors adequate opportunity to respond. Even if debtors do respond, it can be difficult to establish whether the information they are providing is accurate or truthful. Whilst we have no evidence to show that debtors are untruthful, it would be surprising if some are not, given the lengths to which some go to avoid paying a judgment debt.
We have considered whether different sanctions might encourage debtors to co- operate earlier in the process and improve the level of information provision and have concluded that they will not. Our more detailed conclusions on the question of sanctions are set out in annex C. We are still investigating sanctions against business and are co-ordinating with the DTI's Company Law Review on this issue.
The alternative approach is to obtain information direct from other sources and this is the approach that we favour. It has two major advantages over obtaining information from debtors. First, it cuts down delay, assuming that information can be obtained reasonably quickly. Second, being from an independent source, the information ought to be reliable. We propose that, initially at least, information should be available from a limited range of sources, as part of the oral examination process. The detail is set out in the subsequent section on oral examinations.
• Towards a New Enforcement Framework
At present, creditors have full control over the enforcement process. It is up to them to gather any necessary information and decide which method of enforcement to pursue. The court will carry out the chosen enforcement procedure, but that is the full extent of the court's involvement.
It has been suggested, however, that the court should take a much more active role in the enforcement process. The reputation of the civil justice system is profoundly affected by the ability of successful litigants to recover their money or possessions, and the court ought to be more interested in the outcome of the enforcement process. Organisations representing litigants in person, such as the Advice Services Alliance, have particularly pushed this line, on the grounds that litigants coming to the court for the first time are not well placed to take decisions about enforcement. Professor Baldwin's research on small claims found that creditors were often shocked to discover that the defendant had no intention of paying up, and that the court would offer little assistance to pursue the matter further.
Conversely, many creditors, particularly large organisations which issue large numbers of cases, have told us that they want to retain full control of the process. They know what enforcement action they wish to take, and want to be able to apply directly for that particular procedure.
Primarily for that reason, we do not believe that the court should take full control of enforcement. That approach has been tried in Northern Ireland, and reaction from users of the system suggests that it is not popular. In particular, creditors feel that it is prone to delay and are frustrated at not being able to take action themselves, more quickly. Such an approach would be expensive, requiring court officials to take action that could perfectly well be taken by the creditor.
There are, however, two factors that drive us towards the conclusion that the court should have an expanded role in enforcement. First, we accept that the interests of the litigant in person are underplayed in the current system. Enforcement is undoubtedly complex and it is difficult to argue against the proposition that someone with a small claims judgment should not have to learn their way around the various enforcement procedures in order to get their money.
Second, our conclusions on information suggest a role for the court, both in obtaining that information and subsequently making decisions about it. We do not believe that it would be appropriate for information obtained from third parties to be passed directly to creditors. In particular, there are likely to be concerns about data protection if we were to go down that route. It would not be appropriate for creditors to use information, obtained to help with enforcement, for any secondary purpose, as that would be impossible to effectively police. The response of the Data Protection Registrar to our consultation papers has confirmed this view. It is also clear that the negotiation of the release of data from third parties will be substantially easier if we can demonstrate that effective mechanisms are in place for the control of data subsequent to its release.
Our proposed solution is an enforcement system with, essentially, two entry points. We propose to retain the existing system whereby creditors can, if they have the relevant information, apply directly to the court for a particular enforcement procedure. We will ensure that the individual procedures operate as quickly and effectively as possible, so that creditors who take the trouble to collect good information for themselves are rewarded with rapid, effective enforcement.
We would also provide that creditors who do not have good information, which probably includes a large proportion of litigants in person, would be able to apply for an oral examination of the debtor, as they can now, but strengthened by access to information from third parties. Requests for information would be made by the court and information would be returned to the court, not to the creditor. If the creditor does not have access to the information, he will not be in a position to make decisions about enforcement, which implies that the court must be able to take decisions on the creditor's behalf.
Therefore, in setting up systems for handling information, we would be moving towards a system in which, in some cases, the court would take over responsibility for enforcement from the creditor. Precisely when and in what circumstances that happens is open to question. For example, the oral examination procedure that we propose includes, as a first step, a request for information from the debtor. That information, if voluntarily provided, can be passed to the creditor (as it is now), and strictly speaking there would be no need for court involvement. That would only come later in the process, if the debtor does not co-operate and information is sought from third parties. There may, however, be scope, if the creditor requests it, for the court to be involved throughout the oral examination procedure. Bulk issue creditors are unlikely to make use of such a service, but it may be welcomed by litigants in person, who have no information and little idea how to use the enforcement procedures on offer.
We have got no further at present than considering the basic structure of a possible enforcement system. The detail is to be filled in in phase 2 of the review, scheduled to last from June to December 2000.
• Phase 2
The previous section explains our preliminary thoughts on structure, driven by the requirements of information handling. In order to take this forward, there will be three basic questions that remain to be answered in the second phase of the review, about the type of agents or form of agency that should be responsible for carrying out the revised enforcement procedures.
The first question relates to the powers that the court and its enforcement agents should have. Answering that question will involve us in considering at precisely what stage the court should become involved in the enforcement process, and in what circumstances. We will also need to consider Professor Beatson's findings on bailiff law and decide in what way that particular aspect of the court's current role (i.e. the enforcement of warrants and writs) needs to be redefined.
The second question will be to ask what structure might best deliver the new enforcement procedures. It seems unlikely to us that the existing structures will be capable of delivering the information-handling aspects that we are proposing and that an additional layer may be required. Our initial thoughts are that this additional layer would consist of 'information officers', perhaps organised into an enforcement agency of some form, responsible for the control of information (so when, in the previous section, the role of the court is mentioned, the 'court' may in fact be some independent, or semi-independent body.) It would need to be closely linked to the court, although not necessarily a part of it. It would need links to other Government Departments, as sources of information. It would also need to be adequately resourced to handle information requests and to take decisions about enforcement on the basis of the information available, within a reasonable time scale.
Information officers could be empowered to take over the enforcement process in its entirety from the creditor, if so requested, and we will examine the extent to which officers could actually put orders into place themselves, rather than having to make an application to the court. There could, for example, be significant scope for this in the attachment of earnings order procedure, although it may be more problematic in procedures which require more detailed judicial scrutiny, such as charging orders.
A separate agency for the control and regulation of information could have other advantages: there is considerable interest in bringing about closer ties between civil and criminal enforcement. One way of achieving this may be to establish a common structure between the two. We could design a civil enforcement agency in a way that would allow expansion, in the longer term, to encompass criminal enforcement as well.
The third question is who should deliver this service. That itself breaks down into two sub-questions:
Who should do the job currently done by bailiffs/sheriffs, primarily execution against goods. Civil court enforcement is carried out by county court bailiffs and sheriffs, although private bailiffs have a role in distress for rent and in the enforcement of magistrates' court fines, council tax and other types of 'non- civil' debt. England and Wales is very unusual, compared to other European countries, in having such a mixture of bailiffs. It would appear, from the limited research that is available, that most countries adopt a single system.
The existing system is widely criticised for being too complex and, as a result, ineffective, and we should not waste the opportunity to start the process of rationalising and simplifying the system.
Who should take on the information-handling role. There is an argument that the person carrying out enforcement is best placed to take on the information function as well. An enforcement officer may have visited the property and be able to combine information from that visit with information gained from third parties to build a reasonably comprehensive picture of the debtor's circumstances.
There are, however, strong arguments for separating the information control functions from the day to day enforcement business. Those arguments are particularly pertinent if we seek greater co-ordination between the civil and criminal enforcement systems. Individual enforcement officers may carry out enforcement of several different types of debt, but it may not be appropriate for information obtained in respect of one type of debt to be used to assist with the enforcement of a different type of debt. Regulation of the flow, and use of, information could be easier to achieve if the information management functions are separated from the business management functions.
| Summary | We have not been able to identify any significant gaps in the enforcement armoury. We have considered a number of possible new procedures, set out in more detail below, but do not believe any of these to be worth pursuing. We do, however, recommend that High Court judgments should be registered in the same way as county court judgments. |
• Inhibitions
In Scotland, a procedure called 'inhibition' exists, which has no English equivalent. We do not recommend, however, that it be adopted in England and Wales. An inhibition acts against the debtor's property, preventing him disposing of it or granting any further security against it (a mortgage, for example) whilst the inhibition is in place. It is not, however, a security on that property. Its prime purpose seems to be to disrupt the debtor's business or finances. Inhibitions can be granted even before judgment has been given.
An inhibition applies to all of the debtor's property, rather than any specific item. It can therefore be particularly disruptive in certain circumstances, for a property company, for example.
The procedure is popular because it is available pre-judgment, and without having to establish what property the debtor owns, but those features are also precisely the ones that would cause most problems in attempting to introduce the procedure into England and Wales. Any procedure that can be started before judgment is entered, with minimal involvement on the part of the court, must be open to question on ECHR grounds. The impact of the inhibition is impossible to predict without knowing how much property the debtor owns, and the impact may be out of all proportion to the size of the debt. We concluded as a result that inhibitions were not something that we wanted to pursue in respect of civil debt cases in England and Wales.
• Equitable Execution
More obscure assets, such as income from rent on a property, can be reached by appointing a receiver by way of equitable execution. This procedure is only available to creditors where normal enforcement methods cannot work. It is, however, an expensive option with no guarantee that the procedure will realise sufficient assets to cover the costs.
One of the expert panels considered whether equitable execution should be made more widely available, for instance by removing the restrictions which state that other methods of enforcement must first be shown to be ineffective. It concluded that the expense of employing a receiver is sufficient to justify this being kept as a procedure of last resort. Creditors ought to be made to think seriously about the alternatives, and whether the debt can be enforced in other, less expensive ways.
• Pensions
The asset not generally available to creditors is an unmatured pension fund. Once a pension has matured, it becomes possible to attach the earnings derived from it, in the same way that earnings from work can be attached. Any lump sums paid out may be accessible to the creditor using, for example, a garnishee order. Until that point, however, the pension fund is out of the creditor's reach (unless the debtor can be shown to have made excessive contributions, in which case there are bankruptcy provisions which allow the overpayments to be recovered).
It has been recognised for some time that pension rights are amongst the most valuable assets owned by most people and that they ought to be considered when looking at divorcing couples' finances. Since the Pensions Act 1995, courts can require occupational and personal pension schemes to pay maintenance from a member's pension directly to the former spouse of a member. Also a court can order part or all of a lump sum payable on the death or retirement of a member to be paid to the former spouse of a member.
Further provision in the Welfare Reform and Pensions Act 1999 will allow pension sharing orders to be granted. These new orders will allow the courts to create a new pension for a non- member spouse out of the member spouse's pension.
Pension funds have, however, been put out of the reach of creditors because of the long-term difficulties that attacking a pension fund may produce. Is it reasonable for a debtor to face the prospect of a reduced pension income many years, or even decades, after the debt was incurred? Removing capital from a pension fund would reduce the pension income throughout the debtor's retirement and could lead to a loss for the debtor far greater than the size of the original debt. There would also be a risk that the debtor could be forced into reliance on the state in retirement.
We have discussed the policy issues with the Department of Social Security. DSS is quite clear that divorce represents a special case in that the provisions are not purely for payment of money to the other spouse but to provide them with a pension. Although sharing the fund will reduce the retirement income of one party, it will ensure that the other party has some provision for retirement. That is not the case in an ordinary debt situation, where any money removed from the fund will be lost entirely for pension purposes.
In addition, pensions are just part of the ancillary relief settlement and are not considered in isolation. The court is required to take into account all the circumstances of the case and may seek to avoid sharing the pension if the same result could be achieved in a different way. For example, it may be that the interests of one party could be adequately met by the sale of the house and the appropriate division of the proceeds, without having to split the pension. The court does not have, and could not realistically be given, that facility in a civil debt case - the only question would be whether the pension, or part of it, should be taken.
For these reasons, we believe that giving creditors access to pension funds is not a desirable policy objective and should not be pursued further. If the fund itself is not available, then the remaining options are limited. We have identified two possibilities for extending what is available to creditors in respect of pensions:
Charging the lump sum. This would involve placing a charge on the pension, registered with the pension company, so that on payment of any lump sum on maturity, a proportion of that payment would be directed to the creditor. The major problem with this approach is that lump sums are often taken at the pension-holders' discretion. The pension-holder could simply delay taking the lump sum, or choose to take the money as additional monthly sums, rather than a lump sum. The charge would be far from watertight.
Earmarking the pension for later payment under an attachment of earnings order. This would not be difficult to do, but equally it would not achieve very much for creditors. It would involve no more than asking the pension company to flag the fact that, when the pension matures, regular payments from it will be subject to an attachment of earnings order. A problem does, however, occur for the pension fund, if the debtor moves the pension from one fund to another, or closes the 'flagged' fund and starts a wholly new one. The advantage for creditors would merely be that they would not need to remember to return to the pension company themselves, but would receive notification that payments have become available for attachment.
Both of these suggestions also face the problem caused by creditors' address details becoming out of date. It is far from certain that, when the pension matures, the creditor would still be around to collect payment. That could be addressed by introducing a time limit, so that pensions can only be charged or attached within, perhaps, a couple of years of maturity. But that would almost defeat the purpose of introducing the measures at all. If a creditor knows that a pension will mature in a year or two, it should be relatively straightforward for him to come back and seek payment from the matured pension.
We therefore believe that neither of these suggestions should be pursued any further, not least because of:
the relatively small benefit to creditors which are outweighed overall by administrative complexity
the availability of existing measures to attach pension payments
the ease by which debtors could avoid any provision to charge a pension, and
the extensive regulations that would be required to ensure debtors could not avoid any provision.
There is one further possibility on pensions. In bankruptcy, provision is made for the Trustee in Bankruptcy to make an application to the court to recover excessive pension contributions. The court must be satisfied that the contributions made were excessive and that such contributions prejudiced creditors. We are exploring the possibility of replicating this provision in the enforcement system, so that creditors who have evidence that a debtor has been making excessive pension contributions could pursue those without first having to make the debtor bankrupt.
• Registration of High Court Judgments
At present, only county court judgments are registered. Larger debts, pursued through the High Court, do not appear on the register, which leaves a small but significant gap in the information available to lenders in deciding whether to do business with a particular person. We believe that the gap should be filled and will take appropriate steps to do so.
| Summary | We propose that the oral examination procedure should be slightly streamlined by removing a stage from the process (postal service of notice to attend for an examination) and that it should be strengthened by the addition of new procedures for obtaining information. At present, the process relies entirely on obtaining the debtor's co-operation, which takes time and does not necessarily produce reliable information. The proposal is that information should be made available from third parties (DSS, Inland Revenue and banks/building societies) in certain, carefully defined circumstances. |
• Broad proposals for a new procedure
We propose to build on and strengthen the existing oral examination procedure, to create an information-gathering system which moves away from complete reliance upon obtaining information from the debtor. Creditors complain that the existing procedure takes far too long (possibly several months, depending on how much co- operation is forthcoming from the debtor) and produces results that are frequently unreliable and inaccurate.
The proposed system is not particularly straightforward and still contains several stages. There are two reasons for this. First, we believe that debtors ought to be given an opportunity to provide information themselves. If a debtor is prepared to co-operate (and many are, since it is often in their interests to do so), asking the debtor for information remains the quickest and cheapest way of obtaining it. The debtor is also in a position to provide much more detailed information than could ever be obtained from third parties.
Second, we believe that the threat of imprisonment for contempt should remain as the ultimate sanction in the oral examination process (see also the section on imprisonment, post). There will be cases in which information from third parties is missing, or does not particularly assist in the enforcement process. In that case, the only option (apart from abandoning enforcement altogether) would be to force the debtor to attend at court and be examined as to his means. The most effective way of doing that is to issue a summons for his arrest and imprisonment, but that does add a degree of complication to the procedure.
Certain creditor representatives, including some members of the Civil Justice Council, believe that it should be possible to obtain information outside the oral examination procedure, as soon as the debtor has shown himself to be unwilling to co- operate with the enforcement process. That might simply be that the debtor does not pay the debt, or make arrangements to pay the debt, within the initial period allowed for payment following judgment. The argument is that debtors have ample opportunity to contact the court or the creditor and that, by the time the enforcement stage is reached, there is little point wasting more time trying to extract information from the debtor.
The limited evidence available, however, suggests that debtors all too often bury their heads in the sand when it comes to debt, and do not begin to think about ways to resolve the situation until they are forced to do so. A lack of response to the judgment does not necessarily indicate an unwillingness to co-operate and many may do so if specifically prompted within the context of an oral examination.
There are also cost arguments and questions about the burden that information requests would impose on third parties. Restricting information requests to the oral examination procedure, and insisting that debtors are first asked for the information, ought to control the number of requests that are made. We think that it would be difficult to justify our procedures to information providers if those procedures allowed requests that could be answered in the first instance by asking the debtor.
We are proposing to make some information available in the context of specific enforcement procedures (see particularly the section on garnishee orders, post, in which we propose that information from banks should form an integral part of the procedure). That, however, is quite different to the sort of situation some creditors would like to see, where information would be available in a relatively unstructured way.
• The type of information
We propose, initially at least, to limit the information being sought to a few specific categories. Many respondents to consultation were keen to see information made available from any relevant source, depending on the particular needs of the case. There are some merits in that - it is easy to envisage cases, particularly more complex ones, where, for example, an accountant might hold information on the debtor that could assist in the enforcement process.
Such a loose system would, however, be very difficult to control. All the potential suppliers of information that we have approached have told us that they would want information requirements to be closely circumscribed, so that automatic procedures can be designed for dealing with the requests. Large numbers of ad-hoc requests for non- standard information would impose a substantial burden on the information suppliers.
We also believe that key information for the vast majority of cases could be supplied from a small number of sources. The key sources are:
Department of Social Security for information on addresses and benefits/pensions
Inland Revenue for information on earned income and, possibly, employer details
Banks and building societies, for information on money held in accounts.
Access to these information sources will depend upon settling the practical details, a process that has not been completed. It will also require the establishment of statutory gateways, not least to overcome data protection barriers.
• The role of imprisonment
We have concluded that imprisonment ought to be retained in the enforcement process as the main sanction for contempt of court. Imprisonment for failure to pay a debt is no longer a feature of the system and, by general agreement, has no place in a modern enforcement system. Imprisonment for the deliberate refusal to pay a debt is a feature of the judgment summons procedure, but the circumstances in which that is available are severely limited and we do not propose to extend it.
In the context of the oral examination, imprisonment is an option if the debtor refuses to attend court for the examination. In practice, debtors are always brought before the court and given an opportunity to purge their contempt before being committed to prison. The threat of imprisonment is extremely effective in obtaining the co-operation of debtors who would otherwise have no inclination to comply with orders of the court. The committal process results in very few people going to prison: the Home Office does not collect statistics in precisely the form we might want, but their figures suggest that only a handful of debtors go to prison each year for contempt. We can be certain, even with limited statistics, that well over 99% of the 10,000 enforcement related warrants of committal issued each year result in the debtor co- operating, rather than being imprisoned.
It has been suggested that, since very few people go to prison, it would make sense to do away with the warrant of committal and replace it with a warrant which simply allows the bailiff to arrest a debtor and bring them before the court to answer questions. We believe, however, that the threat of imprisonment at the end of the process is essential. A truly recalcitrant debtor is no more likely to answer questions once brought before the court, if he knows that ultimately the court has no sanction to bring against him.
• Specific proposals
N37 (order to attend oral examination, served by post) to be dropped and
replaced, as the first stage in the oral examination procedure, by personal
service of N39 (second order to attend) in all cases
At present, when a creditor applies for an oral examination, the court sends an N37 by post to the debtor, ordering them to attend court for examination. If the debtor fails to attend at the appointed time, he will be personally served with an N39, ordering attendance at a rescheduled hearing. If that appointment is missed, then a warrant for committal may be issued, leading to the debtor's arrest and possible imprisonment.
The N37 is, however, widely ignored. We do not have any national statistics on the number of N37s that are ignored, but a small-scale survey of three courts in February of this year indicated that only a quarter of the debtors actually turned up as a result of the N37. That has two unfortunate results. First, in three-quarters of all oral examination, creditors experience an additional delay, of perhaps two weeks, which could be avoided if postal service was removed. Second, in all those cases, the court is currently scheduling time for examinations which never take place.
It is, of course, the case that postal service is more cost effective if the debtor does attend, since the costs of sending a bailiff round to the debtor's address to serve the notice do not need to be incurred. Indeed, we understand that the N37 was introduced in the 1970s in an effort to reduce costs. But to set against that, it would appear that the administrative costs of sending out the N37 are themselves wasted in three quarters of all applications. It is likely that removing the N37 would increase costs overall, but we believe the increase to be justified.
A large majority of consultees agreed with this proposal, but several (including a number of courts that responded) were concerned about the resource implications for bailiffs. It is important that sufficient resources are available to allow service to take place in good time. We will need to consider further whether county court bailiffs need to undertake service, or whether it is something that could be left to creditors or contracted out to third parties.
Court to have the power to implement enforcement action at the time of the hearing
There would be advantages in the court being able to react quickly to information obtained at the oral examination and to order appropriate enforcement action without delay. In particular, it would ensure that assets identified at the examination are not removed before enforcement occurs.
Many consultees were concerned at the practical difficulties that would be encountered. Several gave the example of execution against goods: should a bailiff be on permanent standby at oral examination hearings in case goods were identified that could be seized? There would also need to be provision for contacting the creditor for permission to proceed with a particular enforcement procedure.
Court staff who currently conduct oral examinations do not have the training or authority to take such action. This may, however, be something that could be done within an enhanced enforcement structure, as described earlier in the submission. We therefore propose no immediate action, but will develop this further in considering the powers available to enforcers in the second phase of the review.
The venue for an oral examination should remain the debtor's home court, but the court should have discretion to order that the examination should take place elsewhere
We asked two questions in consultation. First, whether individual (as opposed to company) creditors should be able to request that the examination be held in their home court, rather than the debtor's, to enable the creditor to attend more easily. The logic behind the suggestion was that the creditor should not be inconvenienced more than is necessary, when he is the wronged party.
There was much opposition to the proposal. Many consultees made the point that debtors are already clearly reluctant to attend examinations and are even less likely to co-operate willingly if they are required to travel a long distance. Although the creditor may be the 'wronged' party, only the debtor's attendance at the examination is essential. The creditor's attendance is entirely optional, although it has been strongly argued that the creditor, or a representative, should attend if possible, to challenge statements made by the debtor. That, it is suggested, tends to lead to a better result. Creditors do not attend very frequently and we may wish to explore in more detail how their attendance could be encouraged.
Second, we asked whether oral examinations could be held at the debtor's home, to encourage more debtors to comply voluntarily with the procedure. Again, there was a great deal of opposition. Most consultees felt that doing so would devalue the oral examination procedure, giving debtors the message that the court is at their beck and call. Court staff can already arrange a home visit in cases where the debtor cannot attend for reasons of disability, and consultees felt that this provision was sufficient.
One interesting suggestion made in response to consultation was that, if enforcement officers are to personally serve the notice to attend for examination in all cases, it may be possible for them to make at least initial enquiries, if not a full examination, at the time of service. Those enquiries may be sufficient to establish whether the debtor is likely to have any assets worth further investigation. The enforcement officer could also ask to see relevant evidence, such as benefit books, which may help overcome the problem of debtors failing to bring evidence with them to court.
We have not yet had an opportunity to consider this in detail. There could, however, be significant health and safety concerns. Enforcement officers should not be put in a position of significant risk in which there is likely to be a confrontation with the debtor. This would clearly be something that would not be practicable in cases where the debtor was unwilling to co-operate. We will consider this further in developing the proposals in phase 2 of the review, relating to the powers available for enforcement officers.
We will also give further consideration to the possibility of carrying out oral examinations by telephone, where appropriate. This suggestion was not favoured by the panel that considered oral examinations because the panel members felt that a telephone interview would diminish the authority of the process. Equally, however, many debtors may be more willing to give up a few minutes of their time to answer questions on the telephone than to give up perhaps an hour or more to attend court, and telephone examinations could increase the amount of information voluntarily given. We have not yet carried out any significant work on this suggestion, but it is something that Court Service colleagues are keen to investigate further and we suggest that the possibility of telephone examinations should not be ruled out for the present.
Court to have power to require, from specified third parties, the disclosure of information to assist with the enforcement process.
The general thinking behind this proposal is set out above. We have called the information request a 'data disclosure order' (DDO). It is proposed that an order would be available only after the debtor has failed to attend the scheduled examination, or has attended and answered questions, but has failed to provide evidence to back up their answers. That would ensure that debtors first have an opportunity to provide the information themselves. We believe that the availability of a DDO in the absence of co- operation from debtors may act as an incentive on debtors to attend.
A DDO would be available only if the information had not been provided voluntarily by the debtor. It would also need to specify precisely the information being requested and the use to which any information would be put. We will put arrangements in place with other Government Departments for the handling of information requests, which will specify what information may be requested, set out the format in which information will be supplied and the time scales for doing so, and specify the costs involved.
The demands of handling information requests are almost certainly beyond the courts' current abilities. A new structure would be required, particularly to set out responsibilities under data protection rules and establish procedures for dealing with the data received. The precise shape of that structure is, again, a matter for the second phase of the review.
The committal power to be extended to situations in which the debtor fails to answer questions truthfully
The Association of District Judges suggested that committal should be extended to cover situations where it could be demonstrated that the debtor can be shown to have lied in an oral examination. Access to information from third parties might make it easier to obtain evidence to that effect.
At present, there is an existing criminal penalty of perjury, but anecdotal evidence suggests that it is hardly ever used. The CPS and the police would need to be convinced that a serious transgression had occurred if they were to devote the resources necessary to bringing a criminal prosecution. It is far too cumbersome a weapon to be of any use in combating the casual untruths which are probably much more of a feature of the oral examination process.
The reaction to consultation on this point was mixed, but a majority thought that there would be little point giving the power to the civil court, since the standard of proof would need to be just as high as for a criminal prosecution. There were concerns that a new civil procedure might slip below these standards. One consultee pointed to litigation against magistrates who were over-eager to imprison poll tax defaulters and suggested that the same fate might befall judges exercising a power to commit for perjury.
There is, however, a powerful argument, made by the Civil Justice Council amongst others, to the effect that the court should take responsibility for ensuring its own integrity and for punishing those who seek to abuse that integrity. Lying in the civil court should be punished as a civil offence, particularly if the criminal justice system is unwilling or unable to take responsibility for doing so. It can also be argued that lying during the course of an oral examination is a contempt of court, in precisely the same way as failing to attend, or refusing to answer questions, is a contempt.
Section 23 of the Attachment of Earnings Act 1971 makes provision for the court to imprison anyone found deliberately or recklessly to have given false information pursuant to an application for an attachment of earnings order. Extending the committal procedure to cover false statements in these circumstances is not, therefore, without precedent. However, the Civil Procedure Rules make no separate provision for proceedings against claimants or defendants found to have lied on statements of truth, other than the ordinary contempt procedure.
In implementing any such proposal, careful thought will need to be given to the parallels with magistrates' powers to imprison local tax defaulters. In that field, over 90% of the appeals to date against the decisions of justices to commit debtors have been successful. That is not something that we would wish to repeat in the civil courts.
There is also an argument for carrying out a more general tidying up of the contempt procedures across the enforcement system. Debtors can face imprisonment in oral examinations, judgment summonses and attachment of earnings procedures. The contempt provisions differ according to the procedure. Legislation on enforcement would provide an opportunity to rationalise the position. We will consider, in drafting instructions for legislation, whether a more streamlined system can be achieved.
The committal process to begin either immediately following the debtor's failure to attend a hearing or, if a DDO is sought but fails to produce any information, immediately after the information has been returned
DDOs are not a universal panacea to solve the problems of information for enforcement. There are likely to be many cases in which no information is available, or in which the information that is available is of limited use. In those circumstances, committal, or at least the threat of it, will remain the only route to obtaining information from the debtor and we recommend that it be retained.
The Association of District Judges suggested that the committal process ought to be allowed to run in tandem with the DDO process, to avoid unnecessary delays. If the information obtained was of no use, then the committal process could be allowed to run on. Otherwise, committal could be halted.
There are problems in this approach. In particular, there are concerns that human error and poor timing could result in debtors being arrested even though information had been obtained which would have enabled enforcement to proceed. Initial indications from DSS suggest that it might be possible to obtain information (or confirm that no information is available) within 3-5 working days. With that time scale, the delay involved in waiting until the information is returned before deciding whether to proceed would be minimal. It is difficult at this stage to judge how this may work in practice. We may seek, therefore, to pilot the process in a small selection of courts to assess which approach to take.
The N9 (Admission) form to be extended to obtain more information at an earlier stage
The N9 is not part of the oral examination process, but it is part of the wider information-gathering process and it is appropriate to consider it here. The N9 is sent out with the claim form, before judgment, to be completed by the debtor if they wish to admit the claim and make an offer of payment. Information collected at this point can be useful if, later on, the debtor defaults on a payment arrangement and enforcement becomes necessary.
It was generally agreed, both by members of the expert panel and by consultees, that the existing N9 form could usefully ask for more information that could be useful for enforcement purposes than it currently does. It must, however, be borne in mind that the primary purpose of the N9 is to collect sufficient information about the debtor's means to enable the merits of an offer of payment to be judged. Debtors are likely, quite reasonably, to be wary of providing too much information additional to that required to fulfil the primary purpose.
In consultation, we suggested that information such as bank account numbers and employee works numbers could be collected, but these clearly go well beyond the information needed to assess a debtor's circumstances and they met with considerable opposition. We do, however, propose to include additional sections asking for information relevant to the debtor's circumstances, about:
Salary payments
Circumstances of the self-employed
Bank and building society details (address of bank, type of account held, balance of the account and whether the account is held in joint names)
Details of any other investments
Whether the debtor is an owner occupier and if so, the amount outstanding on any mortgage
We also propose to simplify and clarify the explanatory notes, to make it clear that, even if the debtor does not consider himself able to afford to pay the debt, it is in his interest to reply.
A standard oral examination questionnaire should be introduced
There is at present no standard set of questions for use in an oral examination, although individual courts have designed their own questionnaires.
There was overwhelming support from those who responded to consultation for the idea of introducing a questionnaire. The draft version that we published in the fourth consultation paper received widespread support. There were a few additions suggested, some of which we will take on board.
We propose to create two questionnaires, one for individual debtors and small companies, and one for larger companies (the information needs, and the approach to enforcement, are likely to be quite different between the two). The questionnaires would be sworn and signed by the debtor on completion.
The questions would relate only to information required for enforcement, i.e. information about the debtor's assets and financial circumstances, specifically employment details, home-ownership and family circumstances including outgoings, details of bank and building society accounts and any other financial assets, details of domestic or business goods owned. The purpose will be to build up a comprehensive picture of the debtor's means, to enable the creditor to judge whether enforcement action is worthwhile and if so, how best to pursue that action, or alternatively to enable the creditor and debtor to come to an agreement about reasonable repayment terms.
| Summary | We propose a substantial overhaul of the attachment of earnings system. The existing system is prone to delay and is too dependent on information being obtained from the debtor in order to set the deduction rate. We propose, instead, a system of fixed deductions set according to standard tables, with a mechanism for reviewing individual debtor's circumstances if they so request. That system should be cheaper for the courts to operate and get attachment orders in place more quickly. We would also like, subject to overcoming practical difficulties, to introduce a tracking system for debtors who change jobs, so that the attachment order would follow them, rather than being lost as is often the case now. |
• Introduction
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.
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.
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.
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. We have concluded that the present arrangements need a radical overhaul, primarily to simplify and speed up the process.
• Specific proposals
A fixed deduction system be introduced, with deductions calculated
according to standard tables rather than being individually calculated for every
debtor; suspension of attachment of earnings orders to be retained, to allow
debtors to apply for individually-set instalment orders.
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.
There are three significant problems with the process as it currently stands:
debtors very often do not complete and return the form that is sent out with the notice of the application for the AEO
even if debtors can be persuaded to complete the reply form, there is no guarantee that the information provided will be accurate
the existing system is incapable of tracking changes in the debtor's income
We have therefore proposed a 'fixed deduction' system, which was generally supported by respondents to consultation. A system of this type is much less information-hungry than the existing system and does not need to rely on the debtor's co-operation. Deductions are fixed according to a standard table, which sets out the amount to be deducted according to the debtor's net salary.
There are disadvantages to the fixed deduction system, the main one being 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.
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, where this system is already in use, 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.
We propose something similar. 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.
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. 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.
Currently, 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.
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.
Suspended AEOs can, however, 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. Nonetheless, suspension seems to be a necessary safeguard for the debtor and should be retained (this was also the view of a substantial majority of consultees, including many creditors).
We proposed, in our consultation paper on the subject, three basic options for implementing suspension or review:
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 to broadly 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.
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. We are particularly conscious of the need to avoid excessive burdens on employers. Cabinet Office has taken a particular interest in AEOs and has expressed concern about the regulatory burdens that they impose. We do not believe, in the light of these concerns, that the third option would be politically acceptable.
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 fail 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.
This is similar 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. For reasons of simplicity, this is the approach that we favour.
It was agreed also by respondents that, should a fixed deduction system be introduced, there was a need to streamline the systems that employers have to use to make deductions. CSA, Council Tax, fines and student loans all have a fixed deduction system. The tables being used are all different and it would make it easier (and cheaper) for employers if there were fewer varieties of table. In line with joined up Government and reducing cost to business it would be helpful if, where possible, all Departments used the same tables or at least similar systems.
The review of the enforcement has provided the opportunity to look at the processes and consider whether it was possible to streamline the systems. We held a meeting with other Departments who use an attachment of earnings system. We will be working closely with DETR with a view to using similar systems as the Community Charge. It was agreed that there may be some difficulty in using the same system for maintenance payments therefore it may be worth considering whether these could be streamlined in line with CSA systems.
To consider with the Inland Revenue introducing a system for tracking debtors to new jobs
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.
The first problem would be addressed by improving the oral examination procedure. 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. 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.
The PAYE system potentially provides a mechanism for tracking debtors. 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. There could, however, be some practical difficulties, for example in amending the PAYE computer system without incurring disproportionate costs. We are exploring these in conjunction with Inland Revenue.
The scope of attachment of earnings orders should not be extended to the self-employed.
We identified a problem during the enforcement review with the self-employed, who are currently beyond the scope of attachment of earnings orders. At present, there has to be an employer - employee relationship, since the Attachment of Earnings Act 1971 defines earnings in those terms. It was suggested that we could 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.
The intention was that the court would consider whether the debtor is in receipt of regular payments from a single source ('regular' being perhaps quarterly, or more frequent). If there are regular payments being made, then it should be possible to make an attachment of earnings order in respect of those payments, even if no contractual employer-employee relationship exists.
The responses to our consultation paper have persuaded us that our proposal is unlikely to be workable. The reasons for this included employers being able to get round the system by making payments less regularly, administrative difficulties as the regularity of payment would be unknown, company directors paying themselves dividends instead of wages and debtors being more vulnerable to losing their contract. At a meeting with officials from other Departments who have faced similar problems, it was agreed that the problems surrounding attachment of earnings of the self employed are probably insurmountable. It is simply impossible to design a system that would not be easy to evade.
The Inland Revenue introduced measures aimed specifically at the problem of self employed building contractors known as the Construction Industry Scheme (CIS). Inland Revenue has advised us that the results of CIS have been good in the sense that the industry does seem to be more compliant, and tens of thousands of apparently well-established sub-contractors have registered with Inland Revenue for the first time. There were, however, difficulties with the scheme. The measures that enable the scheme to catch those who would otherwise evade tax have had an impact on more reputable businesses. There have been genuine difficulties with cash flow, paperwork and procedures for some of the smaller compliant businesses. It seems inevitable that any scheme to apply attachment of earnings orders to the self employed would risk similar impacts on small businesses.
No change to the priority of attachment of earnings orders
County court AEOs in respect of civil debt always give way to any other order. So AEOs for maintenance, Magistrates' Court AEOs for fines, and council tax AEOs all take priority over a civil debt AEO. 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 debts (although there was some support for maintenance to continue having a higher priority). The respondents agreed that maintenance should retain its priority status. The other priority orders are enforceable by committal to prison if not paid. It was considered therefore that priority should remain the same.
To consider the introduction of a national register of AEOs when it becomes practicable to do so.
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. It was 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 is likely to 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 debt, which have a lower priority and which will therefore be paid off last. 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.
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.
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. It will be necessary to address these problems before we are able to consider the proposal further.
To consider introducing a centralised payment system for all different types of AEO, when it becomes practicable to do so (the capital cost being too large at present to justify the introduction of such a system).
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.
Payments into the county courts have already been centralised to a large extent under the CAPS payment system. 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 to achieve.
The review considered 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. However, whilst, convenience for employers is important, this cannot be achieved at any cost. The administrative convenience of the bodies receiving payments must also be part of the equation. 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 debt 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.
| Summary | We recommend some minor changes to the charging order procedure to help it run more smoothly, but have identified no major changes. In particular, we suggest that charging orders should be made available in cases in which the debtor is not in arrears, to close a loophole which allows debtors with large debts, paying small instalments, to benefit from the sale of a property without paying off the debt. We also recommend that orders for sale should be retained, despite representations from the debt advice sector that they should be abolished. |
• Introduction
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. Charging orders therefore provide a means by which a creditor can gain access to any equity a debtor holds in a property.
Because charging orders need to be legally registered against a property, they are more complex and specialised than some other forms of enforcement. That is likely to remain the case - the review has identified no significant means by which charging orders may be simplified. Registration against the property is an essential feature. We have concluded that the procedure works well in the main and the recommendations relating to this procedure are therefore minor in nature.
• Specific proposals
Charging Orders should be made available in cases in which the debtor is
not in arrears, but with appropriate safeguards to ensure that debtors are not
unduly penalised (for example, by being prevented from moving home
altogether).
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. 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.
It was generally agreed by respondents to consultation that charging orders should be made available in cases in which the debtor is not in arrears. A charging order is essentially a means of establishing a degree of security for payment of an otherwise unsecured debt. Creditors should have the right to seek a charging order despite the fact that no arrears exist under a judgment order.
It is important, however, that the "security" should not be enforceable by way of an order for sale until arrears have accrued. A debtor who is following the orders of the court in paying instalments in full and on time should not face the prospect of losing his home to an order for sale. We believe that the existing judicial discretion would be sufficient to prevent this happening. The debtor's previous payment record already forms part of the judge's consideration and it seems highly unlikely that any judge would allow an order for sale when the debtor has kept up with instalments, except in the most extreme circumstances.
It would also be important to ensure that debtors are not put in a position of being unable to move house if they need to, perhaps because of a change of job. Loss of the entire equity in a property could prevent the debtor purchasing a new property, or even finding sufficient funds for a deposit on a rented property. We suggest, therefore, that debtors who are the subject of