Debt advice: recent developments (Sep 22)
Louise Heath
Description: Debt_Pexels_Alaur Rahman
Michael Agboh-Davison highlights important debt cases and legislative and policy changes.
Delegation of powers to draw down a pension to recover a fraudulent debt
Bacci and others v Green
7 March 2022
A peer-to-peer lender obtained judgment for £3.2m against Mr Green in January 2019 in respect of a loan obtained fraudulently. Mr Green was declared bankrupt the following month. The original lender went into administration in October 2019 and the claimants had taken assignment of the debt. Insolvency Act (IA) 1986 s281(3) provides that on discharge, a bankrupt is not released from debts incurred through fraud.
Under Welfare Reform and Pensions Act 1999 s11, Mr Green’s rights under his pension scheme were excluded from his bankruptcy estate, and worth approximately £8.5m with a 56 per cent share due to his wife on completion of divorce proceedings. The claimants therefore sought to recover the judgment post-discharge by means of directions under Senior Courts Act (SCA) 1981 s37(1) – effectively an injunction – ordering Mr Green to delegate to the claimants’ solicitor:
(a)his power to request that HMRC revoke his enhanced protection, which was required to enable access to a taxable lifetime allowance excess lump sum; and
(b)his rights to draw down tax-free and taxable lump sums and an annuity under his pension scheme.
The claimants intended to use these delegated powers to direct the lump sums and annuity into Mr Green’s bank account when he reached the age of 55 in October 2022, and then access these by means of a third-party debt order if Mr Green did not transfer them voluntarily.
The claimants relied on Blight and others v Brewster [2012] EWHC 165 (Ch), in which an injunction was granted under SCA 1981 s37(1) compelling Mr Brewster to delegate the power to draw down a 25 per cent lump sum to the claimants’ solicitor, in respect of enforcing a judgment for a fraudulent debt.
Mr Green argued that this case was ‘an impermissible extension of the principle in Blight v Brewster’ (para 48). The delegated power to draw down a lump sum or annuity was conceded, but the revocation of enhanced protection was argued to change Mr Green’s position ‘so as to create (at a cost to him) an asset on which execution can be levied’ (para 52).
The court found that revocation of enhanced protection was an integral part of obtaining access to Mr Green’s assets, and not an isolated step. There was a public policy of excluding pensions schemes from a bankruptcy estate, but the overriding public policy issue was in IA 1986 s281(3), and as in Brewster, ‘[f]raudsters should not prosper’ (para 56). The court therefore made the orders as requested by the claimants.
Retrospective variation of an income payments agreement
Re Lorrell (in bankruptcy); Atkinson (as trustee in bankruptcy of Mark Harvey Lorrell) v Lorrell
[2022] EWHC 443 (Ch),
10 March 2022
Mr Lorrell was made bankrupt on 28 January 2019 and an income payments agreement (IPA) was made on 23 October 2019 for £100 per month for 36 months, to begin on 1 December 2019. This included an obligation to inform the trustee of any increase in income within 21 days and a provision for the IPA to be varied by written agreement or court order.
Mr Lorrell was 10 months late making the first IPA payment. The trustee had requested financial information from Mr Lorrell and on 18 June 2021 made an application to vary the IPA to not less than £1,500 per month, with this change to take effect from the start of the IPA. By the hearing on 22 February 2022, Mr Lorrell was £1,500 in arrears.
The evidence Mr Lorrell provided to the court was ‘incomplete and unsatisfactory’ (para 18), so the court made its own calculation of his income since resuming work in April 2021, finding he had a net monthly income of £5,402.
Mr Lorrell’s declared expenses included outgoings for two children at university and one who lived abroad. The court did not accept these as ‘reasonable domestic needs of the bankrupt and his family’ under IA 1986 s310(2), since a bankrupt’s family is restricted to ‘the persons (if any) who are living with him and are dependent on him’ under IA 1986 s385(1). However, the court exercised its discretion to allow £450 maintenance per month in respect of the three children.
He also claimed payments were required to other loans from individuals, but without evidence of these the court made no allowance for them. No evidence was produced of current housing costs, so the court followed the previously agreed figure of £2,000 monthly rent. Including a further £765 in general living costs, this resulted in a disposable income of £2,187 per month since April 2021.
On the date at which the variation was to take effect, the court considered that backdating a variation to December 2019 would require a more detailed examination of Mr Lorrell’s means than was possible with the evidence provided. The trustee had initially been content to accept £100 while Mr Lorrell re-established his income, so it was appropriate to backdate the variation only to the point that the application was made. The court varied the IPA to £2,100 per month with effect from 18 June 2021 to its expiry on 23 October 2022.
Injunction to prevent successive breathing space applications for a joint debt
West One Loan Limited v Salih and others
Case No H10CL170,
County Court at Central London,
30 March 2022
In March 2019, West One obtained a possession order in respect of a bridging loan secured against the Salihs’ jointly-owned property. By July 2021, £4.4m was owed, and a warrant of possession was issued to be enforced on 28 September 2021. Application to suspend it was dismissed the same day, and permission to appeal refused. The defendants then said they had COVID-19, the bailiff refused to enforce the warrant, and the eviction failed. A second eviction date in October 2021 failed as the defendants said they again had COVID-19, and a third was scheduled for 24 November 2021.
On 23 November 2021, the first defendant started a 60-day breathing space moratorium under the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020 SI No 1311 ) (Breathing Space Regs), on application by debt advice charity StepChange. The relevant effects of the moratorium here were:
(a)it prevented enforcement of the possession order in respect of the applicant (reg 7(6)(c)); and
(b)this protection extended to the other three joint debtors (reg 7(7)(n)).
Before this moratorium ended on 22 January 2022, the fourth defendant also applied for a 60-day moratorium through StepChange, beginning on 19 January 2022. The cumulative effect of the moratoria would prevent the eviction for almost four months. The claimant applied to StepChange for a review, but it refused to cancel the second moratorium.
On 1 March 2022, the claimant applied under Breathing Space Regs reg 19(1) for an order cancelling the moratorium, and also an injunction preventing the second and third defendants from making breathing space applications. On 2 March 2022, three of the defendants applied to set aside the possession order on the grounds that they were not present or represented at the initial hearing or later appeal. On 16 March 2022, the injunction was made, and a hearing listed for the set aside and moratorium cancellation to be decided.
Two arguments were made for cancelling the second moratorium. First, the fourth defendant had been subject to the first defendant’s moratorium within the 12 months before applying, and was therefore not eligible under Breathing Space Regs reg 24(3)(g). The court found that only the applicant was subject to the moratorium, and while joint debtors benefit from its protection from enforcement, they are not ‘subject to’ it, and had the regulations intended to prevent consecutive applications by joint debtors, they would have stated this (paras 57–58). The fourth defendant was therefore eligible for a moratorium at the point of application.
Second, the moratorium unfairly prejudiced the claimant’s interests. The court referred to the purpose of the moratorium outlined in Axnoller Events Ltd v Brake [2021] EWHC 2308 (Ch), which is ‘to provide sufficient protections for individuals to allow them to enter into a sustainable debt solution, and to encourage more individuals to seek debt advice’ (para 60). Unfairness is ‘to be assessed objectively’ and is ‘particularly fact sensitive’ (para 61). As there was no evidence that the first or fourth defendant had attempted to explore a debt solution, and given the history of the case, the court concluded that the moratoria were not obtained for this purpose, but instead to delay enforcement. It was inevitable the other two defendants would seek successive moratoria for the same reason.
It was not necessary to cancel the second moratorium, as by the time of the hearing on 23 March 2022 this had already expired. However, the injunction preventing any of the four defendants from applying for a moratorium ‘of either sort’ (ie, breathing space or mental health crisis moratorium) was continued until January 2023 (para 62). The application to set aside the possession order was refused, as was the application to appeal either decision. This would leave the claimant able to continue eviction proceedings.
Comment: While only a county court case, this provides useful guidance that joint debtors could make successive moratorium applications to gain, more typically, 120 days of protection from enforcement on a joint debt. However, if the purpose of this is not to explore a debt solution, the risk of cancellation must be borne in mind. That the injunction prevented application for either type of moratorium will also be of interest, since the restriction on reapplication within 12 months does not apply to the mental health crisis moratorium.
Return of third-party goods taken into control
Alenezy v Shergroup Ltd and Willsher
1 April 2022
On 22 February 2022, an enforcement agent, Mr Willsher, visited Mr Alenezy’s brother at his home to execute a High Court writ of control. At the property, a vehicle that cost over £120,000 belonging to Mr Alenezy was clamped. No DVLA check was done to establish ownership of the vehicle. Mr Alenezy arrived at the property, and showed the log book and other documents proving the vehicle belonged to him and not the judgment debtor. Mr Willsher refused to release the vehicle, and Mr Alenezy handed over the keys and the vehicle was removed for sale. A camera crew was present throughout filming for a TV series.
On 23 February, Mr Alenezy instructed solicitors, who wrote a letter before action to Shergroup requiring return of the vehicle. Shergroup failed to acknowledge that the vehicle was third-party goods, so on 28 February Mr Alenezy applied for an injunction ordering that the vehicle could not be sold and must be returned. At a hearing the following day, an interim injunction was made, ordering return of the vehicle by 3 March with liberty to apply to vary the injunction by 8 March.
Following this, the defendants’ solicitor denied that Mr Alenezy had proved his ownership of the vehicle, asserted that it was not appropriate for the vehicle to be returned despite the court order, agreed not to sell it only if Mr Alenezy paid the full value of the vehicle into court, and asserted that the claim should have been under the Civil Procedure Rules 1998 (CPR) Part 85 process rather than by injunction. The defendants refused to release body cam footage of the incident to Mr Alenezy’s solicitor.
On 4 March, after Mr Alenezy’s solicitor stated that it would apply to court for committal, Shergroup returned the vehicle and admitted that having reviewed body cam footage, it found that Mr Willsher had falsified notes of the incident. However, the defendants maintained that they were not liable for costs and that Mr Alenezy should pay their costs. The hearing on the return date went ahead to address this issue.
The defendants argued that the process in Tribunals, Courts and Enforcement Act 2007 Sch 12 para 60 did not apply, since the goods were not taken into control lawfully. This process prevents the sale of controlled goods claimed to be owned by a third party from the point that the application is made regarding the dispute. The court held it applies equally to goods taken lawfully or unlawfully and to goods owned solely by a third party or jointly with the judgment debtor.
The defendants also argued that the process in CPR Part 85 was not followed and the injunction was an abuse of court. The court held that Mr Alenezy had complied with the pre-action requirements of Part 85 and sought an order the court could make under its broad powers in r85.10. Further, as there was no genuine dispute over ownership, the Part 85 process should have resulted in the defendants immediately returning the goods instead of manufacturing a dispute with the aim of Mr Alenezy having to make payments into court.
The court was critical of the defendants, who had ‘behaved with cavalier disregard for their obligations as officers of the court’ (para 71), and the conduct of the Shergroup High Court enforcement officer, Claire Sandbrook, along with that of the defendants, was referred to the Senior Master. This follows her previous referral in Rooftops South West Ltd and others v Ash Interiors (UK) Ltd and others [2018] EWHC 2799 (QB), a similar case of repeated breaches of enforcement law filmed by a TV crew. The court was also critical of the defendants’ solicitor for writing to Mr Alenezy stating compliance with the injunction would be conditional on making no claim for costs.
In view of this conduct, costs were awarded against the defendants on an indemnity basis up to and including 4 March 2022, and a standard basis from 5 March 2022 onwards.
Comment: This case underlines the steps that enforcement agents must take to establish ownership of vehicles, and the dim view that the court takes of poor conduct. Taking control of a third-party vehicle (or threatening to do so) is not uncommon and advisers will find this case helpful to cite in those cases or in subsequent complaints.
Amigo Loans scheme of arrangement approved
Re ALL Scheme Ltd
30 May 2022
In early 2021, guarantor lender Amigo Loans Ltd applied to court for sanction of a scheme of arrangement under Companies Act (CA) 2006 Part 26 to limit its losses in the face of high volumes of upheld Financial Ombudsman Service (FOS) complaints about irresponsible lending. The court’s sanction was refused following intervention by the Financial Conduct Authority (FCA) on grounds including that it disproportionately shielded Amigo’s shareholders from losses (Re ALL Scheme Ltd [2021] EWHC 1401 (Ch)).
Two alternative schemes were then devised as alternatives to administration. A hearing in March 2022 convened meetings to vote on these (Re ALL Scheme Ltd [2022] EWHC 549 (Ch)). The first option, the ‘New Business Scheme’, would return an estimated 41p/£ to creditors if Amigo could resume lending within nine months, or 33–37p/£ if it could no longer lend but could collect its existing loans. The second option, the ‘Wind-Down Scheme’, would return an estimated 33p/£ to creditors, whereas administration would return around 31p/£.
Meetings were held on 12 May. The turnout for the New Business Scheme meeting was 145,523, around 15.6 per cent of customers and guarantors, with a lower turnout of 134,677 for the Wind-Down Scheme meeting. Ninety per cent of creditors by value voted for the New Business Scheme, while 81.7 per cent by value voted for the Wind-Down Scheme. Both exceeded the threshold in CA 2006 s899(1) of 75 per cent by value.
At the final hearing on 23 May 2022, the court was satisfied that the alternative to a scheme was administration and no objections to the making of a scheme were offered by the FCA. The New Business Scheme was therefore sanctioned.
Subsequent developments
The scheme opened on 26 May 2022, and current or former customers and guarantors can submit complaints until it closes on 26 November 2022. Complaints will be assessed by Amigo and FOS can no longer accept these. Redress for upheld complaints will be paid from late 2023.
Obligation to allow vulnerable debtors to seek advice during enforcement
Progressive Property Ventures LLP v Mrozinski
24 May 2022
The claimant, Progressive Property Ventures, enforced an £11,000 judgment against Mr Mrozinski by High Court writ of control through the two respondents to the case (a High Court enforcement officer and enforcement agent). Notice of enforcement was served on 15 September 2021 and, on 14 October 2021, Mr Mrozinski emailed the enforcement agent requesting a hold on the grounds of vulnerability arising from mental distress and physical ailments, but no application was made to stay the writ. On 4 November 2021, his car was clamped and then removed for sale the following day, at which point Mr Mrozinski requested time to seek advice on setting aside or varying the judgment and provided evidence of prescription anti-depressants.
Taking Control of Goods (Fees) Regulations 2014 SI No 1 reg 12 states:
Where the debtor is a vulnerable person, the fee or fees due for the enforcement stage (or, where regulation 6 applies, the first, or first and second, enforcement stages as appropriate) and any disbursements related to that stage (or stages) are not recoverable unless the enforcement agent has, before proceeding to remove goods which have been taken into control, given the debtor an adequate opportunity to get assistance and advice in relation to the exercise of the enforcement power.
Mr Mrozinski sought to have fees of £685 disallowed on the basis that he had evidenced vulnerability but had not been given adequate opportunity to seek advice. The court noted that ‘vulnerable person’ has no statutory definition, but the Ministry of Justice’s Taking control of goods: national standards (April 2014, para 70 onwards) and para 3.4 of the explanatory memorandum to the 2014 regulations give it a broad meaning. Mr Mrozinski’s prescription and medical note were sufficient to show his depression, anxiety and sleep problems amounted to vulnerability, despite his apparent ‘sophistication’ and ‘familiarity with the rules’ (para 14).
The respondents argued that the obligation in reg 12 related to the whole period from service of the notice on 15 September, so adequate opportunity had been given. Para 3.5 of the explanatory memorandum states that best practice guidance on the timing and type of advice will be issued, but this has never been published. The court made a distinction between the arising of the enforcement power and its ‘exercise’ (para 12). An enforcement power is only exercised at the point goods are taken into control, in this case when the car was clamped, so the obligation to allow adequate time to seek advice began at that point, not at the initial notice.
One day was not an adequate period to seek advice and practical assistance, for example, with a court application. The court stopped short of specifying an appropriate period but noted that, in this case, ‘a working week, or at least several days’ would not be unduly long (para 21).
The respondents had therefore not met the obligation in reg 12, so their fees for the case were disallowed.
Comment: Advisers will be familiar with the often narrow and prescriptive interpretation of vulnerability taken by enforcement agents, and the high bar on evidence often demanded. This judgment provides clarity on both issues, which will be helpful to cite in practice. Common mental health issues were found here to amount to vulnerability. Prescriptions and other medical notes were sufficient evidence, and will often be readily available to debt advice clients in their home.
The court’s suggestion of a few days or a week as a reasonable period to obtain advice and assistance does not take into account the reality of access to advice services, especially for clients who need community-based, face-to-face help. Clients and advisers should argue that an adequate opportunity should be determined by the time it takes to get an appointment with a suitable service.
Deadline for Financial Ombudsman complaints following a bankruptcy order
Shop Direct Finance Company Ltd v Official Receiver
6 June 2022
The FCA Handbook specifies the deadlines for bringing unresolved complaints to the FOS at DISP 2.8.2R. A complaint must be referred to FOS within six months of receiving a final response and either within six years of the event being complained about or within three years of the date the complainant became aware (or should reasonably have become aware) that they had cause to complain.
In 2017, a deadline of 29 August 2019 for payment protection insurance (PPI) complaints was introduced in DISP 2.8.9R. The right to receive any redress from such complaints meets the definition of property in IA 1986 s436(1), so where a bankruptcy order has been made, this right vests in the trustee.
In mid-2019, the Official Receiver (OR) made a bulk complaint about mis-sold PPI policies relating to bankrupt former customers of Shop Direct. Shop Direct sought declaratory relief on the constructive or actual awareness of the cause for complaint in relation to the three-year period in DISP 2.8.2R(2)(b) and whether the relevant ‘complainant’ is the bankrupt or the trustee (in this case, the OR).
The deadlines in DISP 2.8.2R are for the ‘complainant’ to bring a case, but the term ‘complainant’ is not defined. Shop Direct argued that the OR was the complainant, by virtue of having brought the complaints, as it is entitled to do in DISP 2.7.2R, being ‘authorised by law’ to do so.
The OR argued unsuccessfully that it could not be the complainant because it does not meet the description of any of the categories of ‘eligible complainant’ in DISP 2.7.3R. Its awareness of the cause for complaint was irrelevant, and it only acts to refer the bankrupt’s complaint and receive any redress.
The court found that:
The ‘complainant’ whose awareness matters in the context of limitation is, therefore, the person who refers the relevant complaint with requisite capacity and who (therefore) has the relevant cause for complaint as the vested holder of the statutory right or rights relating to such complaint and any ensuing award (para 45).
Following bankruptcy, this would apply and the trustee or OR would be the complainant, even if the bankrupt themselves had earlier actual or constructive awareness of the complaint. This means that following the making of a bankruptcy order, if the event being complained about occurred more than six years ago, and the trustee had been aware – or ought to have been aware – of the cause for complaint for more than three years, FOS will not usually be able to investigate it.
Statutory Debt Repayment Plan draft regulations and consultation
On 13 May 2022, HM Treasury published a draft of the Debt Respite Scheme (Statutory Debt Repayment Plan etc) (England and Wales) Regulations 2022 and an accompanying consultation: Statutory Debt Repayment Plan: consultation.
The Statutory Debt Repayment Plan (SDRP) is a new debt solution that will extend similar protections against enforcement and interest to those in the breathing space scheme for the duration of the plan. A SDRP must last no more than 10 years, and there is no element of composition so debts must be repaid in full. Final regulations are expected in early 2023, and following an implementation period of around 18 months, the SDRP will be fully launched in May 2024.
As well as implementing the SDRP, the draft regulations clarify and amend the Breathing Space Regs. This includes treating contingent liabilities that will become due in the moratorium as qualifying debts (reg 75(7)(b)), reversing the position confirmed in Axnoller Events Ltd v Brake and another (Costs) [2021] EWHC 1500 (Ch) at para 22 that contingent debts could not be included.
The consultation closes on 5 August 2022.
Review of the personal insolvency framework
On 5 July 2022, the Insolvency Service published Call for evidence: review of the personal insolvency framework. This is the most wide-ranging review of insolvency since the 1982 Cork Report (Cmnd 8558), which led to many of the changes in the IA 1986.
The call for evidence asks for opinions on the purpose of the insolvency framework, funding of insolvency, and how effective the current suite of insolvency options is in practice. The questions were compiled in a series of meetings chaired by insolvency academics, and attended by insolvency practitioners, creditors and debt advice providers. The consultation closes on 24 October 2022.
Enforcement action to begin on misleading IVA adverts
On 23 June 2022, the Advertising Standards Authority (ASA) published Enforcement Notice: debt management (IVA/PTD) ads by insolvency practitioners and lead generation companies in response to the widespread problem of misleading online advertising of individual voluntary arrangements (IVAs).
The ASA started targeted monitoring of adverts on 25 July 2022, referring cases to Trading Standards or insolvency professional bodies where necessary. The notice does not apply to FCA-authorised advice providers or adverts for other debt solutions.
The notice prohibits practices including:
brand names that mimic charities, for example, ‘Step To Change’;
brand names implying government approval;
exaggerating the speed or ease of application;
targeting advertising at specific demographics, for example, women;
making unevidenced claims about the potential for debt write-off;
using fake reviews; and
claiming that a service is free, where a potential IVA would include fees.
This follows a guide published in May 2022 by Money Advice Trust, How to report misleading adverts for debt advice: a short guide, which explains how to make complaints about misleading debt advertising to social media providers, the ASA, the FCA and the Insolvency Service.

About the author(s)

Description: Michael Agboh-Davison - author
Michael Agboh-Davison is money advice specialist at the Institute of Money Advisers and co-chair of Yorkshire & North Lincolnshire Money Advice...