Enforcement Restriction Orders - UK

Quick Notes Abut the Enforcement Restriction Order.

• The Enforcement Restriction Order is a derivative of the Administration Order (AO) currently in place.
• The Administration Order (AO) allows a debtor with less than £5,000 of debt to seek protection from their creditors through the court. At least one of the debt must be a judgment debt against the consumer by the creditor.
• The current AO scheme is not clear as to the nature and type of debts that can or cannot be included. This has led to different implementations of the AO by different courts.
• Once an AO is made by the court the creditors named in the Administration Order cannot enforce their debts or proceed with any collection efforts without court permission.
• Some debts will not be eligible for inclusion under an Enforcement Restriction Order. These debts include:
  • Fines
  • Amounts due under orders made in family proceedings.
  • Amounts due under orders made in maintenance assessments made under the Child Support Act 1991.
  • Government student loans will also be excluded.
  • Secured debts that were secured against an asset when the loan came into being.
  • Business debts.
• Included debts will be better defined.
• The AO will increase to 15,000 to fall in line with the Debt Relief Order.
• The current AO scheme has not definable endpoint and low monthly instalments. Without a clear endpoint, consumers are less likely to reach full debt repayment or compliance with the order.
• Provisions common to both the AO & ERO schemes:
  • No need for there to be a judgment debt
  • Introduction of an absolute duty on the court to revoke orders in defined circumstances.
  • Introduction of a power for the court to revoke orders where there is non-compliance.
  • No right to apply for an order to be reinstated or to make an application for a further order within 12 months of revocation (unless revoked because other debt management arrangements were put into place.)
• Provisions specific to the ERO scheme.
• Orders limited to a maximum of 12 months during which enforcement action by creditors would be barred, except with the permission of the court.
• Consideration must be given to creditors’ objections to an order.
• A repayment requirement to be included in the order where appropriate if the debtor has surplus income, to be calculated on the same basis as the reformed Administration Order.
• Introduction of a discretion for the court to require the debtor to provide updates abut his/her financial position and proposed disposal of goods.
• Excluded debts should include:
• Rent arrears where the debtor is still in the property.
• Council Tax.
• Future payments in respect of ongoing commitments like tax liabilities, utilities, etc.
• Debtors surplus income should be more than £50 p.m. before allowed to enter scheme.

Available ERO Documents

• Administration and Enforcement Restriction Orders consultation paper
• Annex A: new parts 6 and 6A of the County Courts Act 1984
• Annex B: equality impact assessment
• Questionnaire

Executive Summary

Part 5 of the Tribunals Courts and Enforcement Act (TCEA) 2007 included a package of measures designed to improve and extend the range of options available to assist the over-indebted. It was aimed at those with multiple debts but with relatively low levels of overall debt.

Chapters 1 and 2 of Part 5 dealt with the:

• reform of the Administration Order (AO) - effectively a long-term debt management scheme administered by the court; and
• introduction of an Enforcement Restriction Order (ERO) - to provide short-term assistance (via enforcement relief) to those who encounter a sudden and unforeseen change to their financial circumstances from which they are likely to recover within a relatively short period.

Section 106 of the TCEA 2007 substitutes a new Part 6 of the County Courts Act (CCA) 1984 (in respect of AOs) and clause 107 inserts a new Part 6A into the same Act (in respect of EROs). Copies of the new Parts are attached at Annex A for ease of reference.

Provision was made within these Parts allowing secondary legislation to define the parameters for each scheme. Sections 112AI and 117X provide for the Lord Chancellor to make regulations and the Government confirmed during Commons consideration that there would be consultation on the detail of the regulations to
underpin the revised AO and ERO schemes during 2007.

This paper therefore seeks views on the various limits that will apply to the AO and ERO schemes.

Current Situation

The AO scheme is a court administered debt management scheme and is currently restricted to those with maximum debts of £5,000, one of which must be a judgment debt. Once an order is made creditors named in the order cannot enforce their debts without leave of the court nor can they add interest or other charges to the debt. However, the lack of clarity about the nature of debts that can or cannot be included has led to differences of approach between courts.

This lack of consistency has been a cause for concern.

Proposed Changes

We intend to specifically exclude debts classed as non-provable in bankruptcy. These are fines, sums due under orders made in family proceedings or maintenance assessments made under the Child Support Act 1991. We also intend to exclude Government student loans. The Higher Education Act 2004 and consequent Regulations specifically prevent student loans being written off on discharge from bankruptcy. Monthly repayments on student loans are related to the borrowers income rather than the amount of the loan outstanding.

These provisions confirm the position taken during consultation and in Parliament. It will provide consistency with current insolvency practice and the Insolvency Services Debt Relief Order (DRO) scheme introduced by Chapter 3 of Part 5 TCEA 2007.

Additionally, provision has been made in the TCEA 2007 to allow debts that cannot be brought into either of the AO or ERO to be defined. For example, all secured debts (i.e. debts secured against an asset when the loan came into being) and business debts are excluded from both schemes by statute. Regulations may exclude other types of debt. Additionally, under the new provisions, orders must be revoked where a business debt is incurred during the currency of the order or where it is shown that any of the entry criteria were not, or are no longer met.

The TCEA 2007 also gives the Lord Chancellor the power to review and set a limit for the total amount of debt that can be included in an AO by secondary legislation. As stated in Parliament, we intend to set this at £15,000 initially. This is in line with the majority view from the consultation and aligns with the DRO.

Full Consultation Paper

The full consultation papger can be found online via this link. Administration and Enforcement Restriction Orders consultation paper

The following information was initially reported by the TimesOnline on the release of the Enforcement Restriction order. Excerpts of the article are below and the full article can be found online, “Government’s court order plan will allow people in debt to keep their creditors at bay“.

Excerpts:

Borrowers will be allowed to stop repaying debts by taking out a court order, under radical plans outlined yesterday by the Government.

The plans, which were outlined in a consultation paper yesterday by the Ministry of Justice, would allow consumers who fall into financial difficulties through a change of circumstance, such as losing their job or divorce, to stop making repayments on personal loans, credit cards and other debts for up to a year by applying for an “enforcement restriction order” (ERO).

Bridget Prentice, the Civil Justice Minister, said: “We want to ensure that people who run up debts are given every opportunity to pay them off.”

There would be no upper limit on the debts on which a borrower could stop making repayments under the terms of an ERO but the borrower would have to show that he or she could start to make repayments when the ERO came to an end. The fee for setting up an ERO has not been decided.

The interest on borrowers’ debts would, in most cases, continue to accrue during an ERO but borrowers would not be charged penalty charges or other fees while an order was in force.

A spokesman from the Ministry of Justice said: “It is not the Government’s intention that the ERO will provide an interest ‘holiday’.”