In Focus Commercial Credit
Left-right: Alan Smith; Allan Poole; Jackie Ray; Jayne Gardner; John Burke
What trends are apparent in the use of legal collections? FJ: Court fees in England and Wales are too high, although they are significantly lower in Scotland. The figures going through Registry Trust reflect that there has been a significant increase in creditors resorting to litigation. In the third quarter of 2017, 317,793 county court judgments were registered in England and Wales against consumers, which represents a 24% increase compared with the same period in the previous year. In fact, there were more county court judgments against consumers in England and Wales during 2017 than any other year on record. It would be interesting to have more data as to the nature of those creditors – are they water companies, car-parking cases, it would be interesting to know.
LT: The figures would suggest that people are generally only issuing proceedings as a last resort, probably when the debtor is not engaging. A creditor, in my experience, only wants to become involved in the new Pre- action Protocol (PAP) process as a last resort, so perhaps when they are not hearing from the debtor and they want a default judgment to be able to enforce it.
DK:Whilst judgments have gone up, insolvencies have gone up as well because, once you have a judgment against the firm, they are then just filing for liquidation. There is a feeling that the insolvency numbers are going to rise because, to wait for 30 days and then the debtor makes contact on the 29th day and says ‘oh, I have to take legal advice’, you then have to go through another cycle. Whereas, to jump out of the PAP cycle, some will choose to simply go down the bankruptcy route.
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PS: Following on from the PAP, we have seen commercial clients go the other way, and look to the insolvency route of bankruptcy. This means they can move ahead more quickly, rather than having to give them at least 30 days.
LT: I wonder if many people are using the PAP process immediately to try to recover a debt. We, as a firm, are doing everything we can to recover a debt before we send a PAP- compliant letter. We essentially get to a point where we have exhausted every other method of collection and the only realistic way to make a recovery is to issue proceedings, so we have to send a PAP-compliant letter. With almost all of the PAP-compliant letters that we have sent, we have been able to issue proceedings after 30 days, because we have done the work at the front end, and tried to use alternative ways to get the debt in beforehand. So, the debts that we are sending PAP-compliant letters on, are debts where the debtor is generally not going to engage and we need a default judgment.
DK: On smaller debts, they are successful, they are being paid, but on the larger debts, we find we are having contact after the 21- day period. So, in effect, it is as if they start to know that, if they edge towards the end of
the 30-day period, they can have another extension. So then we do try to be a little firmer, but you have to be careful because it does state that you have to be a bit lenient if they then ask for legal advice. So how lenient can you be? Because you can go back to them on, say, day 40 and ask them about the situation, and they may come back and say ‘I have an appointment on this day’. So how far do you take it on from there? I think that there are an awful lot of debtors who are going to start to know the system.
With almost all of the PAP-compliant letters that we have sent, we have been able to issue proceedings after 30 days, because we have done the work at the front end
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RT: I have seen an appetite amongst clients to get debts to a legal placement quicker, and I think that is driven, both by collections effectiveness, and a regulatory point of view. This might sound somewhat contradictory, but I think that there is a limit, these days, to the number of times that you can keep putting a debt through collections agencies, and keep telephoning, without actually doing something. I am no defender of PAP, but we are seeing mixed results from the feedback we have received on it so far. Some people say it is increasing response rates, and some others say it is having the directly opposite effect. You can see some bizarre situations where people believe they are being misled because they feel creditors are pretending that it is the claim itself. So you get letters of complaint, although I do suppose that is engagement in some form. Overall, it is early days and the big thing I am keeping an eye on is what the district judges will make of compliance. Because, quite often, creditors will have a genuine reason to deviate from the process, to some extent, and it will be interesting to see how that will be viewed by district judges down the line. I have heard from a couple of senior judges recently, and they both came at it from the perspective that
April 2018
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