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Is returning to debt enforcement necessary?

22 June 2020

Creditors can still issue judgments in the Court, and enforcement suppliers can even assist those creditors in issuing an order for enforcement or Writ. They are also authorised to send notices of enforcement to obtain payments and where the debtor is a business, they are allowed to visit in the normal way (with suitable PPE). The Government has however, stepped in and enforced a temporary restriction on physical visits to non-business debtors. 

What’s the impact on creditors 

At the moment, the impact on most creditors is minimal, as common sense would have led to a temporary restriction on physical enforcement anyway. There are other creditors however, that are in financial difficulty themselves and desperately need to have their judgments enforced. There is also the added issue that without enforcement, compliance reduces, which takes years to recover. 

We have reviewed some typical creditors and the impact the restriction on enforcement is having: 

  • Utility firms – these creditors are sensitive to the COVID-19 situation and their customers needs. While a temporary restriction on enforcement is financially painful in a sector with single-digit profit margins anyway, in the most, they would have voluntarily enforced this restriction anyway. The critical thing now however is, how do they justify a return to enforcement and when? Each month that passes increases their debt provision rate and reduces profitability, which will in turn lead to them having to request price increases from those that do pay. This sector needs the support of effective recoveries and the enforcement of debt to enable them to keep energy and water prices low.
  • Private creditors and small businesses – these creditors, for the most part, are less sensitive to the COVID-19 situationthey need to collect every penny they are owed and swiftly. Their survival depends on getting people to pay, and any reduction in revenue leads to a direct reduction in their own money or their business ability to pay and keep people employed. These creditors, for the most part, want to see a return of enforcement to enable the process of collections to continue. Without it, their own businesses and personal lifestyles will erode. These creditors need access to enforcement but it’s vital that the enforcement services they procure, are sensitive to the situation created by COVID-19 and don’t just start enforcement using the same processes and procedures as before.  
  • Government, Criminal Courts – while sensitive to COVID-19, the Magistrates Court has been handing out fines to replace prison sentences for many years. It is vital that enforcement commences and swiftly as, without enforcement, compliance will decline in an area where any reduction in compliance could result in severe impacts on people’s lives. If enforcement fails to continue, then the Government will need to remove the highly successful process of issuing fines in replacement of community programs and prison time.
  • Local Government – are very sensitive to the situation, and for the most part, are usually issuing Orders for enforcement against their customers, e.g. taxpayers. A reduction in money generated immediately affects the delivery of local services, and as such, it is vital to maintain a level of compliance. Parking and moving traffic debts are a little less critical, and there might be some argument that returning to enforcement for taxation before penalties is a sensible approach.

It’s clear that effective enforcement is vital. Getting access to justice where the Court grants an order against a debtor and that debtor refuses to pay is vital for an effective economy to continue. COVID-19 however is real, and the effect on the community should not be ignored.   

What’s the impact on the debtor?   

If you restrict enforcement for a considerable period, debtors are likely to pay any surplus money they do have, to those people that are chasing them anyway and are not so forbearing. The funds that were set aside to pay their backlog of utility bills or Council Tax, for example, will be used to pay non-priority catalogue bills or private parking fines. When enforcement does then recommence, they quickly find themselves in a more considerable amount of debt with less ability to pay. It’s therefore responsible that, rather than extending the restrictions on enforcement, a sensible approach to a return of enforcement is considered.  

The sensitivity of COVID-19 needs to be considered, just as the financial and health situation of debtors will need to be considered. A return to enforcement is however, inevitable and the processes of how it is performed should be reviewed.   

What’s the impact on the enforcement sector? 

Enforcement firms for the most part are well prepared for managing business downturns. Some years ago, this was not the case, and enforcement firms would frequently go bust and in some cases with debtor and creditor money; the majority of enforcement firms are reliable businesses now. They have the financial processes and procedures in place to keep debtor and creditor funds safe and a balance sheet that is suitable to deal with economic downturns. They are, however, just like any other business and the longer restrictions last, the more likely they are to close, and jobs will be lost.    

more significant risk to the enforcement industry is the enforcement staff themselves. Some are self-employed, and while the Government have created schemes of support, many would have sat outside the parameters to qualify. These Agents may well be financially vulnerable themselves by the time they are authorised to return. 


Summary  

The enforcement of court orders is vital to the economy and to ensure compliance is maintained. Without enforcement, price increases would take place for the Utility sector, or even worse; bankruptcies would happen. Removing the ability for private businesses to get access to justice would see them reduce or eliminate payment terms and this would make doing business between two parties substantially more difficult. Local Government would struggle to pay for and deploy vital services and the criminal court system would need to return to small prison sentences or costly community services for more minor crimes.  

The enforcement of debts using enforcement agents has been vital since the dismantling of debtor prisons in around 1869. What’s important now is that we use COVID-19 as an opportunity to refresh how enforcement is performed rather than if enforcement should be used. In the meantime, creditors should continue to issue Orders as this creates an order of priority of when they will be paid. When enforcement returns, I am positive it will be more sensitive to the environment that has been created by COVID-19  


Just.

Find out more about the enforcement market integration approach we take and read testimonials from some of our customers who are the largest creditors in the UK.  


About the Author: Jamie Waller

Jamie Waller is an entrepreneur, investor, author, and philanthropist. In 2018 he was awarded the prestigious Cranfield Business School, Entrepreneur of the Year and has been responsible for the formation, development, and sale of two previous businesses in the financial services industry.

Jamie is the Chairman of the Arum Group of companies.