The Tribunals, Courts and Enforcement Act 2007 should enable creditors to enforce their judgments more effectively

When they eventually come into force (see below), sections 95 to 105 of the Tribunals, Courts and Enforcement Act 2007 (the Act) will enable creditors to make a more informed decision as to how best to enforce their judgments.

The Act provides two new mechanisms in addition to the existing procedure (applications for orders to obtain information under Part 71 of the Civil Procedure Rules).

Whilst the new mechanisms represent an interesting departure from the more traditional methods of obtaining information on judgment debtors, the new Act arguably still fails to address the long established criticism of the existing methods; in particular that they are too slow.

background and commencement

Certain provisions of the Act were brought into force with effect from 19 September 2007 but the commencement date for the relevant sections identified above was delayed and is still awaited. The most recent date mooted for this is 1 June 2008. The provisions will be applied retrospectively and will therefore apply to any judgment once the relevant provision of the Act is in force.

new provisions

The Act maintains the existing CPR 71 mechanism, but introduces two further mechanisms:

1. departmental information requests (these relate to the government and public sector and will mainly concern the commissioners for HMRC; see ss.97(3) and (4) of the Act)
2. information orders, (these relate to the private sector and will mainly feature banks and buildings societies; see s.98 (1) of the Act)

The precise (categories of) information required to be produced in response to a request or order will be defined in subordinate regulations yet to be drafted (see Part 4 of the Act).

Departmental information requests are most likely to be used in circumstances where the court and the creditor wish to access the personal details (eg national insurance number / tax code) of the debtor from the Secretary of State. From this information a trail can be created, for instance checking the employment status of the debtor by making a request to HMRC which will assist in seeking an attachment of earnings order against the debtor.

Information orders however, are more likely to be used before applying for a third party debt order under CPR 72. A bank account in credit, for example, represents a debt due by the bank to its customer. In order for a creditor to obtain a third party debt order specific information – such as the balance on a current account – about the debtor's assets is essential.

A response to an information order is obligatory under s.98 (1)(c). The information must be supplied to the court making the order rather than the applicant.

reason for change

The knock on effect of corporate debt remains the single largest cause of corporate insolvency; if a company cannot recover monies owed to it, it may not be able to meet its own obligations and a cashflow crisis will often ensue. Increasingly, private creditors are having to recoup personal debt investments in order to avoid insolvency themselves.

It is anticipated that the provision of detailed information about the debtor by third parties (rather than the debtors themselves) in both the public and private sectors will assist the creditor in making a more effective decision and lead to better rates of recovery. This in turn will – it is hoped – have a knock on effect on business confidence when affording credit.

These mechanisms are designed to complement, rather than replace, the existing procedure.

procedure

It is clear that whatever information the courts will be permitted to seek by request or order, that information will be supplied to the courts and not to the creditor applying. The regulations will no doubt specify in what form the courts are to communicate and/or redact this information to the creditor to assist with their efforts to enforce their judgment.

The creditor must first make an application to the court under s.95(1) of the Act.

Although the court will be informed by the evidence attached to the application, it is for the court – not the creditor – to decide (s.96(3)) which order or request it sees fit to issue, and to whom.

The court will only make an order/request if it is satisfied that to do so will help it to deal with the creditor's application.

If the court decides to make an order/request then it will first notify the debtor as to which order/request it intends to make (s.96(4)).

The debtor will have no right to object to the order/request given.

In making the order/request the court may disclose as much information as it deems necessary in order to assist the third party (s.96(6)), this can even include the identity of the debtor.

implications for banks and insolvency professionals

There has been a certain amount of resistance from finance houses and (to a lesser extent) government agencies to the prospect of yet another administrative burden being placed upon them. This, and any attendant lobbying, may already have contributed to the delay in these provisions being brought into force and the necessary regulations published. The cost of complying with requests and orders, if widely used, will undoubtedly be substantial.

However, it should also be remembered that banks and government agencies are invariably the largest creditors affected by large scale debts, so the potential longer term benefits can also be seen.

Insolvency practitioners appointed over insolvent companies and estates are often adversely affected by having insufficient information on debtors and insufficient monies in hand to investigate the debtor's assets. Insolvency practitioners and their advisors may therefore welcome the new provisions, at least for so long as they seem likely to represent an effective and low cost option. That said, as office holders already have powers to secure and compel most classes of information that the requests and orders are likely to produce, the direct impact of the Act on the profession may be minimal. Its impact may be felt more indirectly, in the business community at large, where it offers the promise of assisting creditors with cashflow difficulties.

It also remains to be seen, however, whether any further resources will be allocated to HM Courts Service, without which the production of the relevant information may be so long delayed as to be unhelpful or less helpful to creditors, the debtor having had an opportunity to move any assets which would otherwise come under his creditors' eye.

For further information on the act, please contact Mike Pavitt of Blake Lapthorn’ Insolvency and Business Recovery team.