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Debt Collection agencies & Statutory Demands
a few strategies
Of late, more and more Debt Collection agencies seem to have a penchant for bankruptcy proceedings rather than going down the traditional route of County Court money judgments. It may seem that these agencies send out Statutory Demands purely as a scare tactic but each case should be treated as if the intention is to issue the Creditor’s petition.
The service of a Statutory Demand can be by various means, it may be possible to speculate on how serious the creditor is depending on their choice of service, however, the fact that the demand is posted shouldn’t allow an assumption to made that the creditor will not follow up with the petition. 1st Credit/Connaught have been sending their Statutory Demands out via 2nd class pot, this I was hoping to challenge.
The wording of CPR PD INSOLV 11.1 states: "where it is not possible to effect prompt personal service, service may be effected by other means such as first class post...", which does not entirely rule out second class post. However, it would probably be possible to obtain an extension of time in which to respond to the demand if sending it by second class post meant that it actually arrived later than the seventh day after posting, which is deemed to be the date of service for a Statutory Demand sent by first class post.
Under further investigation of the Insolvency practice directions it should be noted that the service of the Statutory Demand should only be served by post if the creditor has tried to bring it to the debtor’s attention via a personal service, where possible. The process involved is set out in CPR PD INSOLV 11.4 .
The creditor is under obligation to take reasonable steps to bring the demand to the debtor’s attention and if, practicable, personal service should take place. Where this is not possible, the creditor is allowed to serve the demand either via post or through a letterbox, but it is expected that following steps have taken place first:
- One personal visit to each of the debtor’s known residencies and places of business
- If it is not possible to serve the Statutory Demand during the visit(s), a letter should be sent to the debtor making her/him aware of the visit(s) have taken place and purpose of the visit(s). The letter should also state that another visit will be made for the same purpose and specify the date, time and place. At least two business days’ notice must be given. The letter should also state that if the time and place are inconvenient, the debtor should name a reasonable alternative. The letter can also state that if the debtor fails to keep the appointment, the demand will be posted/inserted through a letterbox and, if a bankruptcy petition is presented, the court will be requested to accept this as a service of demand. Copies of the letter should be sent to all known addresses of the debtor.
If the creditor presents a bankruptcy petition to the court, an affidavit has to be sworn giving details of service of the Statutory Demand. If a demand was not served personally and no written acknowledgement of service has been received from the debtor, the creditor must set out the steps it has taken to ensure the demand has been served on the debtor. If the court is not satisfied that the creditor has carried out their obligations, it can refuse to issue a petition.
So, to move forward with challenging the creditors there are a few things the debtor could consider doing.
- Check whether the creditor or agency has the right to chase the debt in the first instance. Has the debtor received a default notice? If the debt has been transferred, a notice of assignation?
- Request a copy of the agreement/statement of account under s77-79 CCA 1974. Some debt collection agencies are very bad at having the correct paperwork; some might try and fob you off with an application form. Check if the amount being chased is inclusive of any excessive fees and charges. There may be the opportunity to have the Statutory Demand set aside on the grounds that the debt is disputed. It could well be that the debtor has a counterclaim equal or greater than the sum claimed by the creditor.
- The demand doesn’t comply with the Insolvency Rules 1986, in this ground it must be shown that an injustice has been caused, eg, the demand is confusing and the debtor cannot reasonably understand the true position between her/himself and the creditor.
Stopping the Creditor’s Petition
If all attempts to halt the Statutory Demand fail it is still possible to avoid bankruptcy. Any opposition to the order being made will need to be filed at least 7 days prior to the hearing setting out the grounds. In order to justify a dismissal, the debtor would need to show a “substantial injustice”. The courts’ powers to make a bankruptcy order are discretionary, under r6.25(1) IR 1986 a court may make an order if it is satisfied that the statements in the petition are true and that debt on which it is founded has not been paid or secured or compounded. s271(1) IA 1986 prohibits the court from making a bankruptcy order unless it is satisfied that:
- The debt has not been paid; or
- The debt has not been secured to the creditor’s satisfaction; or
- The debt has not been compounded for; or
- The debt is one which will become payable in the future and the debtor does not have a reasonable prospect of being to pay it when it becomes due
s271(3) IA 1986 gives the court power to dismiss the petition if it is satisfied that any of the following apply:
- The debtor is able to pay ALL her/his debts; or
- The debtor has made an offer to secure or compound for the debt and the creditor has unreasonably refused it. (The onus would be on the debtor to prove that the debt was unreasonable refused – the offer would have to be realistic and practicable. A creditor is entitled to consider their own interests, but a rigid application of an organisation’s policies could amount to “institutional unreasonableness”. My own interpretation is that if a creditor doesn’t adhere to the OFT debt collection guidance then I would argue there is institutional unreasonableness being carried out. Whether or not a judge would agree is another story!
Other possible defences:
- The debt is subject to a judgment or order of the court which is payable by instalments and no default has occurred or enforcement has been suspended
- The debt is subject to a judgement or order of the court and an appeal is pending.
- It might be possible to apply for a Time Order under s129 of the CCA 1974.
- The debt is subject to a judgment or order, but the court considers, in the particular circumstances of the case, that this does not prove there is a legitimate bankruptcy debt .
- The amount of the debt was overstated on the Statutory Demand and the actual amount owed has been paid within 21 days of service.
- The debt is £750 or more but there is a bona fide dispute, which would bring the undisputed amount to below £750.
- An IVA interim order has been made
- There is an outstanding application for the Statutory Demand to be set aside.
- If any of the rules have not been complied with or the court feels that the petition should be dismissed or proceedings stayed “for any other reason”.
In summary
As it seems that the use of bankruptcy proceedings is likely to increase the question should raised whether or not it is fair for debt collection agencies to use these tactics as a first resort. The whole question of “is it reasonable?” should be aired and the debtor should certainly consider complaining about any unfair tactics adopted by these firms. Is a debt collection agency “fit” to hold a consumer credit licence if they seem not to adhere to the OFT’s guidance on debt collection guidance? Here is hoping that the recent changes to allow the FOS to investigate consumer credit complaints and the forthcoming changes to the Consumer Credit Act assist in preventing growth in this current oppressive trend.
Things to check
- Was the Statutory Demand served correctly?
- Are there any possible grounds to set the Statutory Demand aside?
- Does the Debt Collection Agency have the right to chase the debt?
- Is it likely that the DCA will issue a Creditor’s petition?
- Is it possible to oppose the Creditor’s petition?
- Is it possible to arrange an alternative to bankruptcy? (i.e. Voluntary Charge)
Forms needed to set aside a Statutory Demand
http://www.insolvency.gov.uk/pdfs/forms/6-4.pdf
http://www.insolvency.gov.uk/pdfs/forms/6-5.pdf
Yes this is a CAG rip but Sequenci and I spent alot of time on this subject.
Debt Collection Agencies Statutory Demands, a few strategies - The Consumer Forums
We are going to be seeing more and more of these coming through when the DCA's realise that they are on to a looser with dodgy agreements.
SD's used to be the preserve of Connaught Collections for 1st Credit, but now RED debt and Capquest are getting in on the act. I'm not even going to mention GoDebt as I don't really have alot of experience with them.
