451.Administration Orders (“AOs”) are a court-administered debt management scheme for those with multiple debts totalling no more than £5,000, one of which must be a judgment debt. The provisions governing AOs are set out in sections 112-117 of the County Courts Act 1984.
452.The 1985 Civil Justice Review recommended a number of changes to the AO scheme and these were taken forward in section 13 of the Courts and Legal Services Act 1990 (“the CLSA 1990”). The changes included removal of the need for a judgment debt, an increase in the debt limit and the introduction of a strict three-year limit to the order. Section 13 also included, for the first time, an explicit power for the court to grant an order restricting enforcement where it considered that this would be more appropriate than an AO. Such an order, once made, would provide temporary relief from enforcement for those unable to meet their commitments for a period to be defined by each order. However, as concerns were raised about the viability of section 13, it has never been brought into force.
453.So, in July 2004 the Government consulted on a range of targeted options to offer better assistance to people with multiple debts (the Choice of Paths Consultation), including reform to the existing AO scheme and a revised and targeted Enforcement Restriction Order (“ERO”) scheme. The Government’s response paper on the consultation, published in March 2005, committed to a number of changes to the AO scheme including an increase in the debt ceiling and a time limit to orders. The paper also committed to a revised and more workable version of the ERO to address the deficiencies identified in section 13 of the CLSA 1990. Part 5 of the Act takes forward these changes.
454.At present if an individual encounters difficulty paying his debts, the remedies that are available to him either require him to have assets or funds available to distribute to his creditors on a regular basis (for example IVA, county court AO or a non statutory debt management plan) or, as with bankruptcy, there is a fee to access the remedy. This means that the procedures that are currently available are inaccessible to some people, since they do not have the financial means to use them.
455.Such people often have relatively low levels of liabilities, no assets over and above a nominal amount and no surplus income with which to come to an arrangement with their creditors.
456.The DRO has been devised following the Choice of Paths consultation, which determined that there was a perceived need for a remedy for people who are financially excluded from the current debt solution procedures, and a further consultation by The Insolvency Service in 2005 (“Relief for the Indebted – an Alternative to Bankruptcy?”) on the detail of how it might operate. It is a procedure that will enable some individuals, who meet specified criteria as regards liabilities, assets and income, to seek relief from certain debts.
457.The DRO will be made administratively by official receivers (who will operate the scheme) and will not routinely require any judicial or other court intervention. The effect of the order will be to prevent creditors from enforcing their debts and the debtor will be discharged from the debts after a period of one year. Creditors will be notified of the making of an order and will have a right to make objections on certain grounds if they believe the order should not have been made.
458.The debtor will need to pay an up front entry fee to cover the administration costs but this will be significantly less than the deposit required for bankruptcy proceedings to be initiated. In order to keep costs to as low a level as possible, approved intermediaries from the debt advice sector will help an applicant decide if the DRO procedure is right for him before he applies to the official receiver, and assist the debtor in making his application. Again to maintain a low level of administrative costs (and therefore entry fee) the facility to apply for a DRO will be available only online.
459.To be eligible for an order the debtor will need to meet criteria as regards the level of liabilities, the level of assets and the level of surplus income, and these levels will be set in secondary legislation to enable them to be updated when necessary.
460.While the order is in force the debtor will be subject to the same restrictions and obligations as in bankruptcy, and will be subject to a similar regime of restrictions orders or prosecution if his conduct in relation to the insolvency is found to be culpable. There will be a right of appeal to the court for both the debtor and creditors who are dissatisfied with the way the official receiver has dealt with the case.
461.There is a facility to account for windfalls and increases in income during the period when the order is in force.
462.Many organisations currently offer advice and assistance to debtors. This can include negotiation with creditors to agree an acceptable schedule of repayments and drawing up plans to help debtors manage their finances and make those repayments. It is estimated that over 25,000 such debt repayment plans were arranged in 2004 and there are currently around 70,000 active plans.
463.Such schemes depend on the voluntary participation of the debtor and creditors, and operate without any form of regulation. There is currently no power to compel creditors to adhere to the terms of a debt repayment plan (that is to accept the planned repayments without taking enforcement action). Therefore a single uncooperative creditor can effectively block the creation of a repayment plan that would benefit the debtor and all the other creditors in the long run. Nor is there any power to compose debts that cannot be repaid within a reasonable period as an incentive for the debtor to maintain the required repayments.
464.Measures in Part 5 of the Act make it clear that business and secured debts cannot be included in these schemes. The measures also enable scheme operators to exercise powers to compel creditor participation, by preventing enforcement action, and to write off a proportion of the debts where a debtor complies with a DRP but simply cannot repay the full amount in a reasonable timescale. Additionally, the measures give the Lord Chancellor power to prescribe in regulations the circumstances in and the extent to which these powers may be exercised. For example, regulations might define the minimum and total repayments for which plans must provide, thereby defining the maximum proportion of the total debts that could be written off. Within these limits, individual schemes could make greater or lesser use of such powers.
465.The Act also provides creditors with a right of appeal to a county court against the making, their inclusion and terms of a DRP.
466.Before making regulations to bring this Chapter into effect, the Government intends to undertake further research into existing statutory and non-statutory schemes for assisting the over-indebted and those in multiple debt situations (including the working of the reformed AO scheme). This would inform detailed proposals that would then be subject to a full public consultation exercise and regulatory impact assessment to confirm their benefits and cost effectiveness.
467.The Choice of Paths consultation sought views on whether it would be desirable in principle for a scheme similar to the court-based AO scheme to be operated in the private and voluntary sectors. A majority of respondents thought that a non-court scheme could offer advantages over the AO scheme. The paper did not discuss the details of such a scheme. The provisions in this Chapter are intended to take powers to give effect to such a scheme or schemes through regulations, subject to further consultation on the details.
