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This is not the first time controls have been imposed on enforcement and it probably won’t be the last

30 May 2020

As we wrote about in our previous blog, secondary legislation was laid by the UK Government on Friday, April 24, 2020, to address the impact of coronavirus on matters relating to enforcement.

Following this, I decided to look back through history to see if the Government had ever stepped in and imposed emergency controls over enforcement before, and to see if there were lessons that could be learnt. My research took me straight to the period of the two World Wars.

World War controls on enforcement

During World War I, sweeping powers had been imposed covering mortgage interest rates, rent levels, enforcement and bailiff activity. Although the right to enforce debt was restored to its pre-war position quickly, housing shortages meant that controls over rents remained in place but were progressively relaxed over the next twenty years. However, the outbreak of World War II reversed the decontrol of the previous two decades and re-imposed state control over rents and enforcement.

In September 1939, two Bills went through their Parliamentary stages and passed into law:

  1. The Increases in Rent and Mortgage Interest Restrictions Act 1939
  2. The Courts (Emergency Powers) Act 1939

This repeated the restrictions that had been imposed in 1914, requiring the need to seek leave of court upon creditors wishing to enforce judgments. The court was able to refuse leave or impose conditions if the inability to pay immediately was attributable to the war, either directly or indirectly.

The secondary regulation that was laid last Friday by the Government due to COVID-19 did not go as far as requiring leave of the court to enforce judgements, instead, it relied on a temporary suspension. This is a sensible approach considering the closure of most courts at this time.

Some debtors tried to use the war as a reason not to pay

As you would expect, some debtors used this as an excuse not to pay, even though their inability was not related to the war. It was stressed in several cases that the purpose of the statute was not to relieve people of their obligations, nor to act as a sort of bankruptcy. Rather, it was to protect debtors from over-aggressive enforcement action and to allow the creditors a route to continue enforcing their debts.

When considering an application for leave, the courts had to consider whether the inability to pay could be ascribed to the war, and the onus was on the debtor to prove this. The debtor had to demonstrate a direct impact upon his or her finances and could not argue that enforcement might prejudice its other creditors more generally.

Following the end of the war, the emergency powers over the enforcement of judgments ended and the enforcement of debts quickly returned to pre-war conditions after 1945. Based upon various forms of litigation and reports in the national press, it seems apparent that debtors believed creditors ought to allow more leeway in a time of and immediately after a national emergency. Interestingly, though, the evidence suggests that creditors did not take the same view and opted instead for a ‘business as usual’ approach.

What can we learn from the past?

  • The Government will (as witnessed already) step in and enforce controls if they see the need to prevent unnecessary enforcement action.
  • When the Government implements controls, it can take many years for those controls to relax again.
  • Debtors will use a crisis as a reason not to pay, even if they are not directly affected by it.

In 2020, we are much more liberal than what we were when fighting a war.

This time it will be different; the Government will not need to step in and put such strict rules on the future of enforcement and prejudice the rights of a creditor to enforce its judgment, right? Let’s hope so, although the early signs aren’t looking positive with the Government intervention already having taken place within the first few weeks.

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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.