Debt Recovery Newsletter - Summer 2009
In this edition:
New European Procedures For Recovering Debts
There has not been a great deal of publicity about new European procedures that were introduced at the beginning of this year. The procedures are intended to make it easier to pursue debts in other European countries.
European Payment Orders
The European Community recognised the need for quick cross border dispute resolution and created the European Order for Payment procedure. The purpose of this procedure is to provide a uniform, quick and efficient way of recovering debts for undisputed claims throughout the European Union. The procedure can be used for a claim of any value, from a few hundred pounds to a high value debt. There are standard forms to be used and the idea is that claims will be dealt with by written procedure, without the need for court appearances.
A claimant who has obtained a European Payment Order can enforce this automatically in any European Union country. No further steps are necessary to make the Order enforceable. The downside is that the debtor can frustrate the procedure simply by denying the claim and, if that happens, the procedure can no longer be used.
The European Order for Payment procedure does not replace the systems available for recovering outstanding sums under the national law of the various member states, but can be used as an alternative.
European Small Claims Procedure
A cross border European Small Claims procedure was also introduced at the beginning of this year. Its aim is to reduce costs and speed up and simplify the process for making low value claims. The procedure can be used as an alternative to raising Court proceedings against a party in another member state. This procedure can only be used in cases where the value of the claim does not exceed 2000€ at the time when the claim form is received by the Court that has jurisdiction. That amount excludes interest, expenses and outlays. This procedure cannot be used to recover a number of types of payment, including payments under bankruptcy and the winding up procedures, as well as social security and employment law matters.
The procedure is based on a number of standard forms and, as with European Payment Orders, the idea is that the matter will be dealt with as far as possible through written procedures. After an Order has been granted, it can be enforced automatically in any other European Union country. The law of the member state where enforcement takes place will govern the enforcement procedures.
European Enforcement Order
European Enforcement Orders were also introduced in January this year. These Orders are in a standard form and can be used for undisputed claims. They are designed to implement a Judgement obtained from a domestic court and allow this to be enforced across Europe. This involves a two-stage process, as opposed to the one stage European Payment Order procedure.
A claimant can make an application for a European Enforcement Order in the Court that dealt with the original undisputed claim. After it has been granted, the EEO makes the original national Court Order enforceable in any other European Community member state. There is no need to register the Order or convert it into a domestic Order. The outstanding sums will be recovered based on the rules of enforcement in the relevant member state.
As the procedures were only introduced in Scotland at the beginning of this year, it is too early to tell whether they will make cross border debt recovery more straightforward or quicker.
We are currently involved in what appears to be one of the first cases in which the European Order for Payment procedure has been used.
If you wish to discuss any of the above or require further information please contact Lindsay Ogunyemi on 0141 228 8000 or by email to logunyemi@biggartbaillie.co.uk.
To read more about Lindsay click here.
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Debt Arrangement Scheme – Is Your Debtor On The Register?
The Debt Arrangement Scheme (DAS) is a statutory scheme run by the Scottish Government. Its aim is to help debtors pay multiple debts by giving them more time to pay without the pressure of facing Court proceedings. The Scheme is designed to help individuals or sole traders who owe more than one debt. In order to be eligible, the debtor must live in Scotland. The Scheme is not open to a debtor who has signed a Trust Deed or Protective Trust Deed or has been sequestrated.
The Scheme can also help individuals or companies who are owed money to recover the debts they are due.
The Scheme freezes interest and charges on the debts with effect from the date on which the DAS payment programme is approved. Essentially, the DAS is a debt management tool to help debtors pay the sums they owe in a manageable way.
Under DAS a single regular payment is made and, provided the debtor makes the regular payments, creditors cannot take any enforcement action. In addition, creditors cannot take enforcement action against a debtor who has intimated the intention to apply for a Debt Payment Programme (a DPP) or has an application waiting for approval. The regular payment is made to an approved payments distributor who then shares this out among the various creditors.
Before a DPP can be brought into effect, all creditors must be told about this. The DPP will contain details of the debt and the payment proposal being offered. Creditors must respond within 21 days. If all creditors agree, the DPP will be approved automatically. If a creditor does not respond, they will be presumed to agree. If some creditors do not agree, the DAS administrator can dispense with consent and approve the DPP if it is fair and reasonable.
Except in exceptional circumstances, enforcement action cannot be taken against anyone who has an approved DPP and they cannot be sequestrated. It is in a creditor’s best interests to find out whether a potential customer is using DAS or has intimated that they intend to do so.
The Accountant in Bankruptcy is currently considering changes to a number of areas of the DAS. One proposal is that any DPP exceeding 10 years is unlikely to be fair and reasonable and that a minimum payment of £100 per month should be introduced. It has also been proposed that the DAS should be opened up to debtors with a single debt.
More information about DAS can be found on the MoneyScotland website.
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Latest On The Bankruptcy & Diligence Etc (Scotland) Act 2007
Parts 5 and 10 of the Act, which we highlighted in our Autumn 2008 Debt Recovery update, came into force on 22 April this year.
Click here to read the update.
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Are You Owed Money? – What We Can Do For You
If you are owed money, do not despair - there are lots of steps we can take to try and recover the outstanding sums for you.
Credit Enquiries
You might be wondering whether it’s worth taking steps to try and get payment. The debtor may simply not be in a position to pay you and there is no point in throwing good money after bad as the saying goes. We can arrange for enquiries to be carried out to try and establish whether the debtor has assets and is worth pursuing. Are you having trouble tracking down elusive debtors? If so, we can arrange for enquiries to be carried out to trace them.
7-day warning letter
We can write to the debtor on your behalf demanding payment of the outstanding sums. You would be amazed how often a strongly worded letter is all it takes to encourage the debtor to make payment. When the consequences of failure to make payment are clearly set out, debtors often pay up. At the very least, they may be encouraged to make an offer to pay what they can towards clearing the debt, or perhaps paying the outstanding sum by instalments.
Winding up proceedings
If the debtor is a limited company, we might suggest threatening to instigate winding up proceedings, provided it can be established that the company is unable to pay its debts as they fall due. This can be very effective.
Court action
If all other steps fail, you can always consider raising a court action against the debtor. We will not suggest this course of action unless there are reasonable prospects of making a recovery at the end of the day. If you decide to go down that route, we can discuss the options available for raising court proceedings for recovery of the sums due and the cost implications. Actions would normally be raised in the Sheriff Court and the procedure involved depends on the amount that is due.
Diligence on the dependence of Court proceedings
There are a number of steps that can be taken to try and protect your position while Court proceedings are underway and before a Decree has been granted against the debtor. These include arresting funds and obtaining an Inhibition, which has the effect of preventing the debtor disposing of any land or buildings he owns. We will always be looking for ways to maximise your chances of getting what is owed to you.
Enforcement
Sometimes, even after the Court has granted a Decree against them, debtors do not pay the sums they owe. The situation is far from hopeless at that stage, however, as there are lots of steps that we can take on your behalf to try and recover the sums due. As well as the debt itself, you are entitled to recover interest on the outstanding sum, together with the expenses incurred in the Court proceedings and the cost involved in taking enforcement action.
In our next newsletter we will look at these steps in more detail. In the mean time, we would be happy to talk to you about any of the services we can provide. Please contact Alison Grant, Partner on 0141 228 8000 or email agrant@biggartbaillie.co.uk.
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Bankruptcies Up On Last Year
The Accountant in Bankruptcy recently published statistics for insolvencies for the 3 months to the end of March this year. These figures show that 5,807 people were declared insolvent during that period, a 75% increase on the same period in 2008.
Nearly 4,000 of these cases were bankruptcies and there was also an increase in the number of Scots entering into credit plans where trustees manage their assets.
It has been suggested that the rise in bankruptcies is a result of the introduction of the "Low Income, Low Asset" (LILA) route to bankruptcy.
In the past, some debtors could not make themselves bankrupt unless they were apparently insolvent, (i.e. a creditor was taking legal steps against them to pursue what was owed) or they had the agreement of a creditor.
The Bankruptcy and Diligence etc. (Scotland) Act 2007 introduced the LILA procedure that allows people who meet the relevant criteria to apply for their own bankruptcy without proving apparent insolvency or having a creditor’s agreement.
The Accountant in Bankruptcy also received 228 notices of Scottish companies entering liquidation or receivership in the quarter to the end of March this year. This figure includes 8 receiverships, 166 compulsory liquidations and 54 creditors' voluntary liquidations. Perhaps surprisingly, this represents a drop of 15% on the figure for the same quarter last year.
For further information please click here to go to the AIB website.
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The information contained in these articles is given for general information only, reflects the current law on the date of the article, and does not constitute legal advice on any specific matter
Contacts for Debt Recovery Newsletter - Summer 2009