FAQ – Informal Debt Management Plans

Formal time to pay arrangement managed under the supervision of an Insolvency Practitioner such as Voluntary Arrangement are not always possible or in your best interest. Informal Debt Management Plans are a time to pay arrangement managed outside of the insolvency regime.
 Yes, the defendant can pay a fee and ask for the warrant to be suspended. The court will send a copy of the defendant’s application to suspend the warrant to the creditor. If the creditor agrees to the suspension but not the defendant’s offer, a court officer will look at the information given on the defendant’s application and decide how much the defendant can afford to pay. The Court will send an order to the defendant telling him or her how much to pay and when.

No. You can ask for a district judge to decide what would be a fair rate for the defendant to pay. To do this you need to write to the court saying why you object to the court officer’s decision and give reasons. You must send the form or your letter to the court within 16 days of the date of the postmark shown on the envelope in which the order came. An appointment will be arranged and you and the defendant will be told when to come to court.

Car Repossession explained

If you feel you are struggling with your car on finance, your company or you personally are suffering issues of company insolvency or even liquidation this article will explain your rights and the rights of your creditors and the best way to defend repossession.

Your lender has the right to repossess the goods if you don’t keep up your repayments. You’ll be sent a notice first, giving you the chance to put things right. But you will have to act quickly – within seven days.
If you are insolvent or suffering cash flow problems and haven’t got the money to pay your creditor and if they won’t accept a short settlement, they may take you to court. You can ask the court to give you extra time to pay if you want to carry on with the deal.

If you’ve paid more than a third of the total cost of the HP or CS (not including any insurance), your lender will need a court order to take the goods back. If you’ve paid less than this, the lender still can’t enter your property to take the goods without a court order, unless you give them your permission to. For more information on bailiffs, the various types of bailiff and the best ways to combat walking possession orders and repossessions see our FAQ section for related insolvency articles.
If you are insolvent or suffering cash flow problems and having problems keeping up with repayments it may be cheaper, in the long run, to hand the goods back.


Ending your contract early

If your HP agreement is for under £25,000, you have two ways of ending your contract early:

  1. You can terminate an HP agreement and return the goods at any time by writing to the lender, as long as you bring your total payments up to half the price of the goods. You will also have to pay off any credit you took out to pay for insurance. If you have already paid half, you only have to pay for any missed payments or damage to the goods. But if you have already paid more than this amount, you will not get a refund of the difference. You should not be charged to return the goods. If under the terms of your contract you must take the goods back, this should only be to premises within a reasonable distance of your home.
  2. You can also pay off your loan early (including any credit for insurance) and keep the goods. Contact your lender and find out how much this will cost. You will be entitled to a rebate on future charges. There are rules on how this is calculated. Credit agreements should include examples of how much it will cost to pay early at different times.


Checklist to avoid car repossession problems in the future

If you are considering HP, have you:

• Reduce the risk of car repossession by shopping around for a cheaper credit deal?

• Reduce the risk of car repossession by deciding whether HP is the right form of credit for you?

• If you work out the total amount you will have to repay then hopefully car repossession will not be a problem.

• Have you checked that you can afford the repayments, if not then you car may get repossessed.

• You should read the small print carefully to avoid car repossession in the future.

• You should check whether you really need any insurance offered, as this often fuels car repossession.

• To avoid car repossession you should check the small print to really ensure you have understood what your rights are.

• If you have any doubts about a hire purchase or conditional sale agreement, you should consult a trading standards officer or lawyer.


Car loans causing debt problems?

There are a number of common problems.

1. The car is faulty.

2. You will have to force the dealer to repair or replace it. This is why it pays to use a reputable dealer.

3. If your business is unincorporated (a partnership or sole trader), and you are buying a car or cars worth less than £25,000, you can require the finance company to take some responsibility under the Consumer Credit Act.

4. The car’s performance falls short of your expectations.

5. You have an accident and write the car off.

6. It is your responsibility to arrange comprehensive insurance cover. This usually costs more for business use.

7. Make sure the insurance company knows who is going to drive the car and anything that affects their driving status.

8. You default by failing to keep up your payments, or by breaching any other terms (eg an arrangement with your creditors).

9. Ask about this before you sign. The finance company will be entitled to take the car, but you may be able to come to an arrangement.


Types of Car Finance

Normal Unsecured Loan

• You obtain the money in advance to buy the goods outright, then repay the debt in agreed monthly instalments.

• Available from: banks, building societies, independent finance companies.

• Two types of loans are available, secured and unsecured. Secured is cheaper, but the lender can confiscate whatever you offer as security if you fail to pay on time. In extreme cases, you can lose your home. To find out more about secured, unsecured loans, debentures and the changing laws please visit the related articles on our company debt and business insolvency FAQ page.

Car Hire Purchase

• You pay a deposit, a fixed amount for an agreed number of months and then you own the vehicle. Available for new and nearly new cars – used cars over two years old are often excluded because their values will be too low by the time the loan ends.

• Available from: banks, car dealers, loan companies.

• Car remains the lender’s property until the agreement ends. Until then, you cannot sell the car without obtaining permission

• If you fall behind by as little as two repayments, the finance company can repossess the car, sell it cheaply at auction then sue for anything still owed, plus their costs

Personal Contract Purchase

• You pay a deposit (up to 20% of total), followed by the agreed number of low monthly repayments for up to three years. Final payment must then be made. This is agreed at the start and is known as the Guaranteed Minimum Future Value (GMFV). At the end of the agreement that you can keep the car, hand it back, or part-exchange it for another new car.

• Available for new and nearly new cars only. If you want to keep the car you must pay the GMFV. If you hand it back, you owe nothing more. But you won’t have a penny of your deposit or payments refunded. If you part-exchange the car, the dealer will value it. If it’s worth more than the GMFV, he’ll put that amount towards the deposit on your next car. But if it’s worthless you won’t have to make up the shortfall.

• Available from: car dealers, independent finance houses, banks.

Popular questions on the area of hire purchase car repossession

1. When can the creditor repossess my vehicle?

If you have paid less than one-third of the total payments and the vehicle is parked on public ground then a hire purchase company has the legal power to repossess your vehicle. without obtaining a court order.

2. How can I reduce the risk of repossession?

Please note that they cannot repossess the vehicle if the car is in your drive or on a third parties property. They CAN take it if it is in the road.

3. Does the finance company need to take me to court to get my vehicle?

The only time that court action will precede car repossession is after you have paid one-third of the total payments.

4. Will they just take my car without telling me?

No, you will always be given a pre-possession order. So make sure you open all your post. The pre-possession notice will allow you at least 15 days to make arrangements to avoid car repossession.

5. I have had a change in circumstances and do not need the vehicle. What shall I do?

The rules and regulations regarding handing back your vehicle depend on how long you have had the car for. The general rule is that if you have paid more than half of the total amount outstanding then just give the vehicle back and there can be no legal comeback for you or your family. Always read the terms and conditions of the hire purchase agreement as we have noticed they can somewhat vary.

6. I have only had the car for 3 weeks and I have just lost my job, what can I do?

You may be forced to pay expensive early redemption penalties if you want to hand the vehicle back. This amount can vary but the general pattern of what you are made to pay is difference between the payments already made and half the original price of the goods. In addition, there may be various administration fees to pay.

7. My friend has offered to buy the car off me even though there is outstanding finance on the vehicle. Can I sell it to him?

It is actually against the law to sell a car if it still has finance on it. Please make sure you always settle outstanding finance before ownership is changed.

8. I bought a car on finance and then it got written off. Now I am liable for the whole finance. Car insurance only covered a small proportion. What can I do to avoid this in future?

Gap Insurance will protect you if you write off your vehicle. Your motor insurer may not pay you enough either to settle any finance outstanding on your vehicle or purchase a replacement vehicle. Gap Insurance will ensure that you are not left out of pocket if you have a total insurance loss by covering any shortfall between your insurance payout and the amount outstanding on the finance agreement.

Also consider Payment Protection Insurance as this will pay your monthly payments on any motor finance agreement, mortgage, or any type of loan if you become unemployed or cannot work due to accident or illness.

Where the judgment debtor is an individual and the third party is a bank or building society an application for a hardship payment order may be made. The order may be made by a judge. The order tells the third party to release some of the money frozen as a result of a debt order.

You can file written evidence setting out your objections not less than 7 days before the hearing. You must send copies to the court and the creditor. You will also be expected to attend the hearing.

Bailiffs can only enter the defendant’s home if the person there allows them in. If there is nobody there the bailiff can enter if a door or window is left unlocked. Bailiffs may be able to break into business premises if there is no living accommodation attached and they believe the defendant’s goods are inside.

They can also enter if the bailiff has previously been allowed in and is returning to the defendant’s house to collect goods to be sold. The bailiff can only take goods that belong to the defendant or are jointly owned. Any goods the bailiff takes must be likely to fetch money at auction.

Bailiffs cannot take:

  • Items that the defendant needs for his job or business, such as tradesman’s tools or books.
  • Essential household items which the defendant and his family need such as clothing or bedding.
  • Items that are leased, rented or are on hire purchase agreements or goods which may have already been seized by bailiffs acting under another warrant.

Currently under Common Law and the Distress for Rent Act of 1988 a landlord has the legal right to seize the debtor’s assets in order to recover overdue rent.

There are 4 options available to a landlord seeking to levy distress:

Personally Levy Distress

A landlord can personally levy distress against a tenant;
Under the Distress for rent act, there are no regulations on landlords levying distress.
It is unwise and unusual for anyone other than a certificated bailiff to levy distress because if the distress is illegal the agent and the landlord may be liable to criminal charges.
A corporation can only levy distress by a certificated bailiff; it cannot distrain by a director.

Appoint A Certified Bailiff

A landlord does not have to apply to the courts in order to recover overdue rent; the landlord can commission a private certified bailiff.
A certified bailiff is a bailiff that has been found to be ‘fit and proper’ by the County Court.
A certified bailiff must produce their certificate upon the request of the tenant.
When the landlord appoints a certified bailiff, that bailiff will attend the premises, without the need to give prior warning, and levy distress.
Certified Bailiff’s cannot force entry to a property.

Apply to the County Court

A landlord can apply to the county court in order to recover overdue rent, the county court will post a county court summons to the defendant informing the defendant on how much the landlord claims they owe.
Once the debt has been confirmed the court will issue a county court judgement, which outlines a repayment plan.
If payments are not made then the court will take steps to recover the debt.
The County Court will empower a County Court Bailiff (CCB) to recover the debt. CCB’s are salaried civil servants employed directly by the court service.
They can enforce on county court judgments up to £5000.
They work under the authority of a Warrant of Execution that can be requested from the County Court for a fee of £100.
Before they attempt to collect, the County Court Bailiff must write to the defendant advising them of their visit.
They do not have the power to force entry into commercial premises without the court’s permission.

Apply to the High Court

HCEO’s are authorized by the Lord Chancellor and work privately or in private companies.
HCEO’s work under the authority of a Writ of ‘Fieri Facias’.
This is issued when a County Court Judgment is transferred to the High Court for enforcement via Form N293A and a £50 transfer up fee. The transfer process normally takes between 5 and 21 days.
Unlike the County Court Bailiff, the HCEO does not have to give the judgment debtor any advance notice of their intention to collect, giving them the advantage of surprise.
HCEO’s are also permitted to force entry into commercial premises to enforce, a power not permitted to County Court Bailiffs or Certified Bailiff’s.

It is an order of the court that freezes money held by a person, organisation or institution that might otherwise be paid to the defendant against whom you have a judgment. The organisation or person that is holding the money is referred to as a third party. A third party debt order will prevent the defendant having access to the money until the court makes a decision about whether or not the money should be paid to you.

The freeze only applies on the day the judgment is served. For instance, if the order is received a couple of days before the debtor’s salary is paid into their account you are likely to receive very little since the freeze will not be applied to any money paid into the account after the court’s order was received. In these proceedings, the person who owes the money is referred to as the judgment debtor and the creditor is referred to as the judgment creditor.

You have received a third party debt order because the claimant/creditor has told the court that you have failed to comply with one of the following:

  1. Pay the amount of the judgment when it was due or;
  2. You have failed to pay one or more of the instalments due under the terms of the judgment.

The Distress for Rent Act is ancient common law, first enacted in 1689. Since then it has been amended many times, most recently in 1988. In its current form, the Distress for Rent act outlines the rights of commercial landlords to levy distress (seize goods) in order to recover rent arrears.

The remedy of distress as it currently exists allows a landlord or a bailiff acting on their behalf to enter the premises of a tenant in arrears of rent in order to seize goods to the value of the debt and to subsequently sell them to raise money to satisfy the debt.

There is no court process, no requirement to give notice and also the right to distrain arises immediately following the day upon which the payment becomes due.

Distress is generally considered to be a highly effective deterrent against late payment of rent and a fast and cost-effective way of recovering arrears.

Other than those items which are specifically exempted from distress, such as things in actual use, perishable goods and tools of the trade, the bailiff can remove the goods it chooses to, even where the proceeds of sale for particular items may be so small, especially once costs are deducted, that the debt is only very slightly reduced.

There are detailed rules on the methods used to levy distress, designed to protect vulnerable debtors from threatening and intimidating behaviour on the part of enforcement agents, and ensure a consistent and appropriate approach to distress. However, there is no regulation whatsoever of landlords who may choose to exercise the right to levy distress personally.

Tenants cannot challenge distress before it has happened and may only have a very short period of time following distress to challenge before goods are sold.

In the case of Fuller v. Happy Shopper Markets Ltd [2001], the court went so far as to comment that the self-help remedy of distress involved a ‘serious interference’ with the tenant’s human rights, namely respect for privacy and home and the right to peaceful enjoyment of possessions.

Over recent years, the remedy of distress has begun to be openly criticized and the exercise of it is becoming increasingly uncertain. Reports carried out by the Law Commission have concluded that it is ‘riddled with inconsistencies, uncertainties, anomalies and archaisms’ and ‘has no place in modern society’. It is considered to be too technical and complex, and out of touch with other areas of the law, which it has not been adapted to fit in with.

The main criticism of distress, however, is that it is inherently unjust. The Distress for Rent Act is set to be abolished by the Tribunals, Courts and Enforcement Act 2007 and replaced by part 3 of the Act known as Commercial Rent Arrears Recovery (CRAR).

Despite the problems associated with the existing right of distress, the effectiveness of a mechanism whereby the landlord is able to remove and sell a tenant’s goods to satisfy rent arrears has been recognised. It is acknowledged that this cannot be abolished without a replacement. CRAR will be this replacement.

The proposed CRAR is narrower in scope than distress. As its name suggests, it applies only to rent arrears due under a lease of commercial premises.

The changes to be introduced by the TCEA are designed to improve human rights compliance. Explanatory notes to the TCEA maintain that its provisions engage both debtor’s and creditor’s rights under the European Convention on Human Rights to a fair trial, private life and the protection of property.

Effectively, the right to remove and sell a tenant’s goods to pay a rental debt is preserved. There are simply more checks and processes and there is a clear attempt to introduce more certainty to safeguard the debtor’s interests, which in many people’s view are currently neglected.

It is clearly stated that the rent recoverable by CRAR is that paid by the tenant to the landlord for possession and use of the premises under the lease, including any interest payable on that sum and VAT if applicable.

Any debts not directly attributable to the tenant’s possession and use of the premises do not qualify. Accordingly, service charges and other charges in the lease (whether or not they are reserved as rent in the lease) will not be recoverable by CRAR.

In order for CRAR to be used, the defaulting tenant must be given a notice of enforcement. The rent must be due and owing at the time the notice is served and immediately before the goods are seized, it must be certain or capable of being calculated with certainty, and the ‘net unpaid rent’ must be at least a minimum amount to be prescribed by regulations.

‘Net unpaid rent’ is the total rent owing once interest, VAT and any permitted deductions are made.

Permitted deductions are any deductions, recoupment or set-off that a tenant would be entitled to claim (in law or in equity) in an action by the landlord for rent arrears.

The introduction of this concept of permitted deductions builds upon the judgments in Eller v Grovecrest Investments Ltd [1995] where the tenants were held to be entitled to invoke an equitable set-off against a landlord levying distress.

For the same reasons that service of a statutory demand requires a minimum and certain level of debt, the proposed CRAR requirements would seem to be in place to protect tenants against what is in principle a rather draconian remedy.

The tenant’s position is further safeguarded by provisions enabling it to apply to court following receipt of a notice of enforcement. The court has the power to set aside the notice or delay its execution.

In addition, the TCEA will introduce a new system of certification for “enforcement agents.” Landlords will only be able to carry out CRAR if they themselves meet the criteria for enforcement agents. There are also new rules on the powers and duties of enforcement agents.

When the CRAR scheme is implemented and the remedy of distress is abolished, there will be a new procedure introduced by which a landlord can demand rent owed to it by the tenant direct from a subtenant. Notices under s6 of the Law of Distress Amendment Act 1908 will no longer be used.

The element of surprise and the swiftness with which a landlord can act will be lost under the new CRAR scheme, with notice provisions. Similarly, the requirement for a minimum level of debt coupled with the permitted deduction element may mean that it is significantly more difficult for a landlord to make out a case for CRAR.

Under the TCEA there will be several notable changes to the way in which a commercial landlord can go about recovering rent arrears:

  1. A landlord can only recover rent arrears above a minimum level (minimum level yet to be confirmed).
  2. In CRAR the term rent is used to describe only the use and possession of the property and so does not include; tax, charges, maintenance and similar matters whether they are included as rent in the lease or not.
  3. A Landlord will now have to give notice of their intent to proceed with CRAR.
  4. Once notified by the court of the landlords intention the tenant can apply to the court to set aside the notice or that no further action can be taken.
  5. Landlords themselves will not be able to seize the goods and will have to use a certified enforcement agent.
  6. Enforcement agents cannot seize goods that are not owned by the tenant and can only take control of goods that exceed the value of the debt owed if there are not sufficient smaller goods available.

Although the TCEA has been given royal assent Commercial Rent Arrears Recovery is not yet active legislation. Currently, the Common Law Distress for Rent Act still stands.

The order will prevent you from having access to the money in the bank or building society until the court makes a decision about whether or not the money should be paid to the creditor.

You may file written evidence setting out your objections not less than 3 days before the hearing. You must send copies to the court and the creditor. You will also be expected to attend the hearing.

You can make an application for a hardship payment.

An order will only be made if you can prove that and your family are suffering hardship and are not able to meet day to day living expenses.

If the proceedings are taking place in a County Court you can apply to any County Court. If the proceedings have been issued in the High Court, you may apply to the Royal Courts of Justice or any district registry.

The judge may make an order telling the third party (bank/building society) to release some of the money.

A charging order is an order made by a court placing a “charge” on the judgment debtor’s property, such as a house or a piece of land. The charge will equal the amount owed. If the judgment debtor owns stocks or shares or has a fund or money in court, the court can also put a charge on these.

A charge on a property means that if the property is sold, the charge usually has to be paid first before any of the proceeds of the sale can be given to the judgment debtor. You have received the interim charging order because the claimant has told the court that you have failed to comply with either of the following:

  1. Pay the amount of the judgment when it was due or;
  2. Pay one or more of the instalments due under the terms of the judgment.

The common law right to forfeit a lease for non-payment of rent is dependent on a provision in the lease called the ‘proviso for re-entry’. Unless the contract between the landlord and tenant contains an express provision permitting re-entry in the event of non-payment of rent, there is no right of re-entry. It is not an implied right.

Most leases of commercial property have a clause, which gives the Landlord the right to forfeit (cancel) the Lease if the rent falls into arrears for more than a specified period, often 21 days. Similar provisions generally provide for forfeiture of the Lease if a tenant is declared bankrupt.

The lease is forfeit once the premises have been physically entered by or on behalf of the landlord and secured by them following entry.

According to common law, the re-entry does not have to be peaceable. Breaking into locked premises may not be peaceable, but it may still be a sufficient re-entry (Harvey v Brydges [1845]). Excessive force does not in itself nullify the forfeiture.

Criminal law, however, proscribes forcible or violent re-entry. Any person who without lawful authority uses or threatens violence for the purpose of securing entry into any premises is guilty of an offence provided that there is someone present on the premise that is opposed to the entry and the person using or threatening violence knows that to be the case.

The fact that a person is a landlord and has a right to re-enter for non-payment of rent is no lawful authority for the use or threat of violence.

Once the landlord has re-entered (in person or through their authorized agent) they must secure the premises. Where there are no locks the forfeiture has to be manifested by fencing off the premises or otherwise confirming the re-possession – for example, by posting security guards around the perimeter.

For all breaches other than the non-payment of rent, the landlord will need to give the tenant notice of intention to forfeit the lease under Section 146 of the Law of Property Act 1925 – a failure to do so will make the forfeiture unlawful.

If a commercial landlord is forfeiting for non-payment of rent however they do not need to give any notice.

Once the lease has been forfeited, the lease is terminated and the remedy of distress ceases to be available even for rent that had accrued prior to the forfeiture (Murgatroyd v Silkstone & Dodworth Coal & Iron Co Ltd [1895]).

After forfeiture by peaceable re-entry, a tenant’s fixtures revert to the landlord. The tenant has no right to remove them (Re Palmiero [1999]).

A tenant company in administration is immune to forfeiture without the consent of the administrator or the leave of the court (Insolvency Act 1986, Schedule B1, paragraph 43). The same prohibition applies where an administration application has been made to the court but not yet granted (paragraph 44).

This summary remedy (in respect of commercial premises) strikes at the heart of a tenant’s business enterprise even more quickly than distress. The defaulting tenant is likely to be able to recover the lease if the rent is available and tendered with compensation for the landlord’s costs of re-entry. But the tenant must not delay, and if they cannot pay the arrears they will not get relief from forfeiture.

The Late Payment of Commercial Debts Act 1998 gives all business regardless of size a statutory right to claim interest on late payment of commercial debts

Where no right to contractual interest exists, the Late Payment Act provides businesses with the legal right to claim interest on commercial debts that are paid late.

It can allow suppliers to claim an amount of compensation for reasonable debt costs.

It can allow suppliers to challenge contracts that are imposed upon them which do not provide a substantial remedy for late payment.

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