Voluntary Arrangements – Precedent set at the High Court in Manchester

March 14th, 2015

Important decision for debtors, lenders and insolvency practitioners

A dispute over Voluntary Arrangements which recently went to the High Court in Manchester on appeal before His Honour Judge Hodge QC, will have important implications for banks, lenders, Insolvency Practitioners and individuals who have entered into individual voluntary arrangements (IVA’s).

The question for the court was – when a certificate of completion is issued at the end of an IVA, is that really the end of the story for the debtor, or could unknown or pre-existing assets still come into play, perhaps even years after the individual believes that his debts are cleared and his IVA concluded?

First case of its kind

The case, which is believed to be the first of its kind, involves an individual whose IVA had come to an end in January 2013. Closing documents including the Certificate of Completion were issued and in this case, the certificate confirmed that the individual had no further liability to creditors bound by the IVA.

Following closure it was discovered that the individual had funds owing to him as a result of PPI claims. Such funds were paid to the former Supervisor as they were considered to be assets comprised within the IVA which should be utilised for the benefit of creditors.

Court in favour of debtor

At first instance the court found in favour of the debtor and that decision was upheld by the High Court in Manchester on appeal. The Court has ordered that the proceeds of the PPI claims are due and payable to the debtor. The Court focused on a number of factors and crucially the content of the closing documentation confirming release of the Supervisor and extinguishing the debtor’s liability to the IVA creditors. The former Supervisor now has 21 days to decide whether or not to take this to the Court of Appeal in London.

Dispute will be very costly

Kathryn Maclennan, a solicitor at Stephensons LLP who represented the individual concerned, said:

“With tens of thousands of IVA’s closing, this case will have an impact on the whole insolvency industry, as well as the banks and lenders who are paying out on PPI claims and possibly other claims – are they discharging the funds to the right people? This kind of dispute can be very costly and of great concern to individuals who have entered into IVA’s and also to Insolvency Practitioners who will be concerned to ensure they adopt best practice.”

Stephensons March 2015

Latest Insolvency Statistics

January 31st, 2015

There were a total of 99,196 individual insolvencies in 2014, a 1.8% decrease compared to 2013 and the lowest annual total since 2005. This was the fourth successive decrease in the annual total.

There were 52,190 IVAs in 2014, which was a 6.8% increase on 2013. This was the second successive annual increase, and the highest annual total since they were introduced in 1987. IVAs comprised 53% of all individual insolvencies in 2014, compared with 30% in 2005.

Debt Management Today 30/01/15

Improved help for people struggling with problem debt

January 16th, 2015

Plans to enable easier access to debt relief for financially vulnerable people have been announced by Business Minister Jo Swinson.


The changes will allow approximately 3,600 more people a year with problem debt to enter into a Debt Relief Order (DRO) – a low cost alternative to bankruptcy for those with very low assets and income and debt which they are unable to pay. The maximum amount of debt that can be covered by these plans will increase from £15,000 to £20,000.

The government is also increasing the minimum level of debt for which someone owed money can force a person into bankruptcy from £750 to £5,000. The limits were last revised in 1986.

The changes come against a background of falling insolvency numbers since 2010.

Business Minister Jo Swinson said:

Struggling with unresolvable debt can cause immense stress for families. These changes will ensure that our debt relief schemes are updated so that they still meet their original goal of providing access to those who need them. They also ensure that bankruptcy, which has the most significant consequences, is reserved for those with sizeable debts.”

As always, it is important for people struggling with their debts to seek early advice from National Debtline (0808 808 4000) or other advisors. The changes announced today give them a better chance of escaping from the spiral of indebtedness so they can rebuild their lives.”

The Insolvency Service sought views from industry, debt charities and other interested parties on the operation of DROs and bankruptcy debt threshold last year.

Evidence showed that DROs help some of the poorest and most vulnerable people in society make a new start and improve their mental well being. The new changes will allow more people to get resolution when faced with debts they cannot pay.

The changes will not disadvantage those owed money because eligibility for a DRO will continue to be restricted to those with very low realisable assets and therefore no realistic ability to repay their debts.

Respondents also thought that the debt that can trigger bankruptcy through the courts were disproportionate, as people can be put through the most serious of debt recovery action for a debt as small as £750. There are also other ways for those owed money to recover their debts such as action in the small claims court or attachment to salaries.

Changes announced today include:
•Bankruptcy creditor petition level to be increased to £5,000 from £750
•DRO limits raised to £20,000 enabling some 3,600 more people with low level debt to use DROs instead of the more expensive and onerous bankruptcy process
•DRO asset limits raised to £1,000, plus a vehicle (worth not more than £1,000)
•The maximum surplus income a person can have to qualify for a DRO will remain at £50 per month
•A light touch monitoring of the intermediaries to maintain consistency.

The changes come as a survey of DRO users showed 96% would have been unable to deal with their debts without DROs, and 79% said the process had a positive impact on their mental health.

Joanna Elson OBE, chief executive of the Money Advice Trust, the charity that runs National Debtline said:

We are pleased that these new changes will enable us to help more people who are struggling with problem debt. Increases in the debt and asset thresholds for Debt Relief Orders are a welcome step in the right direction, and we are particularly pleased to see more protection from bankruptcy for people with smaller debts.”

This announcement also gives us a good opportunity to raise the profile of Debt Relief Orders and to encourage more people who are struggling to cope with debt to seek the free advice they need.”

At the Money Advice Trust we hope that this will come to be seen as a good first step towards the wider review of debt solutions that we have been calling for. We have to ensure that a viable debt solution is made available to every single person struggling to repay what they owe, and that no-one is allowed to fall through the cracks of a system that has evolved organically over several decades.”

Gillian Guy, Chief Executive of Citizens Advice said:

Today’s changes will help people who are in serious, unmanageable debt to find a way out. Raising the bankruptcy debt threshold and the debt relief order limit will increase options for people who would previously have had no choice but to declare themselves bankrupt.”

Citizens Advice has called for both of these changes in order to protect people who might otherwise have been forced into losing their home, car, business or job over debts worth as little as £750. Under the new rules, creditors cannot begin bankruptcy proceedings until the amounts owed are much higher. More people will be able to make a fresh start by getting a DRO instead of having to file for bankruptcy, which is often more expensive way of dealing with debt.”

Matt Barlow CEO of debt charity Christians Against Poverty said:

Currently, more than a third of our clients, many of whom are vulnerable, are too poor to go bankrupt. They have too much debt to access a debt relief order and they have too little money to afford bankruptcy fees. They are stuck – literally too poor to go bankrupt, which struck us as a real injustice.”

The limit of £15,000 of debt was set in 2009 so we’re delighted the Insolvency Service have brought this bang up-to-date and we’re pleased to hear it will be reviewed again in 2017. We had campaigned for the limit to rise to £30,000 which would have seen more than half of our clients able to afford this debt solution. However, the line had to be drawn somewhere and £20,000 is a good start.”

Giles Frampton, president of R3, the insolvency trade body, said:

We are really pleased the Government has listened to the concerns of the insolvency profession and others about Debt Relief Orders and bankruptcy.”

Insolvency solutions can often be a suitable way for heavily indebted individuals to deal with their debts but it is important that people are in the type of debt solution most appropriate for their situation. The changes will make it much easier for indebted individuals to deal with their debts effectively.”

The rise in the creditor bankruptcy petition threshold is welcome, although £5,000 is far higher than expected. It is right that the petition be increased: £750 was an entirely inappropriate level and the protection it offered debtors had been steadily eroded by inflation over the last three decades.”

The rise in the petition threshold will require creditors to look at other options for the pursuit of low value debts. While a bankruptcy petition is not always the most proportionate tool for this, it’s very important that the insolvency regime maintains a balance between protecting the interests of both debtors and creditors. How the new threshold works in practice should be monitored closely.”

The changes will be subject to Parliamentary scrutiny before coming into force in October 2015.

Notes to editors
1.There have been 140,861 DROs since 2009.
2.In 2013/2014 26,876 orders were made and 310 were revoked for a variety of reasons including exceeding asset limits.
3.The Call for Evidence and the analysis of responses can be found at: https://www.gov.uk/government/consultations/insolvency-proceedings-review-of-debt-relief-orders-and-the-bankruptcy-petition-limit
4.Debt relief orders (DROs) came into force on 6 April 2009 and apply in England and Wales only.
5.The aim of DROs was to provide debt relief to those excluded from existing procedures – those with low levels of debt with no ability to pay off those debts due to low income and asset levels and without the means to enter bankruptcy. It was also designed to support the financial rehabilitation of debtors as its low cost provided debtors with an incentive to address their debt issues earlier. By having strict entry conditions DROs aimed to maintain the right of creditors to collect against their debts where debtors were able to pay.
6.DROs are an administrative rather than a court based procedure and only debts included (scheduled) in the DRO are subject to the protection from creditors during the course of the DRO and the debts are discharged after the DRO ends which is normally after 12 months.

The Insolvency Service 16/01/15

FCA orders Harrington Brooks to repay 4,500 customers

December 22nd, 2014

Debt management firm Harrington Brooks has been instructed to pay over £185,000 in redress to customers by the Financial Conduct Authority (FCA).

The FCA confirmed the redress order to over 4,500 Harrington Brooks customers after “communications from the firm to creditors on customers’ behalf were delayed”.

Harrington Brooks contacted the FCA in September to advise communications with customer’s creditors had been delayed.

The firm warned that some customers may have been left with the impression it had been in contact with creditors when it had not.

Linda Woodall, director of mortgages and consumer lending at the FCA, said: “Debt management customers are struggling financially and often in difficult situations so it’s important that when people are putting their trust in a firm, they get the service they have paid for.

“When things go wrong we expect firms to put them right for their customers and we are pleased that Harrington Brooks is working with us to do this.”

The firm has confirmed it has cooperated with the FCA order and will be contacting all customers in the coming weeks.

Joanna Elson, chief executive of the Money Advice Trust, commented:

“We are pleased to see the FCA take the first of what we hope will be many interventions in the fee-charging debt management sector. The high fees that these profit-driven companies charge only serve to add to their customers’ debts, and in many cases we have no confidence that they are giving people the right advice.”

Credit Today 18th Dec

Debt management plan left me £500 in arrears as my repayments were swallowed up in fees

December 10th, 2014

Mrs S.I.writes: I was contacted last February by GRF Debt of Manchester and offered a debt evaluation plan that would cut my monthly payments on the amount I owed to First Plus. I signed up and paid £178 a month until May, when I was told my future payments would be £146.

Imagine my horror on receiving a letter from First Plus to say I was £500 in arrears, when I thought GRF Debt had been passing on my payments and cutting what I owe.

Tony Hetherington writes: You have been let down by a company that arguably should not have been allowed to manage your debts, and that got it badly wrong when it tried. And you have been let down by a system of regulation that permitted this and which – unlike much of the financial services industry – offers no compensation scheme.

GRF Debt is a name used by a limited company called Debt and Claims Limited. It was originally called Grass Roots Financial Limited, and The Mail on Sunday sounded the alarm in 2012 when we revealed its close links to a notorious payment protection insurance claims management business, Cartel Client Review. It was closed down by regulators owing millions of pounds to customers.

Grass Roots was allowed to stay in business on condition it ring-fenced customers’ money and did not mix it with the company’s own cash. Bosses were ordered to provide regular financial reports to the Claims Regulator, an offshoot of the Ministry of Justice.

So what went wrong with the debt repayment scheme prepared for you by GRF? Well for a start, you had a secured loan from First Plus. Unlike an unsecured loan, this was not eligible for a newly negotiated repayment scheme, so GRF was wasting both your time and money.

But the real crunch came when regulation of GRF passed into the hands of the Financial Conduct Authority. Within two months, GRF had thrown in the towel, signing a deal with the FCA to freeze customers’ cash and take on no new clients.

There were other strings attached to the agreement, designed to return funds to customers, but the FCA refused to tell me whether GRF had honoured this. ‘Work is ongoing’, was all the watchdog would say. You paid roughly £1,000 to GRF over the months, and you have received £38 back, with a further £2 going to First Plus on your behalf. So, I asked GRF boss Eric Fairweather to justify this.

He told me you had informed GRF that you had a personal loan, not a secured loan, though if this is the case, it is a puzzle how his staff got as far as they did in designing a repayment plan for you. What is clear is that almost every penny you paid was swallowed up in fees, and not in paying off your debt.

Fairweather also said that ‘we had a visit from the FCA which resulted in us voluntarily surrendering our licences’. He added: ‘Mrs I has been desperately unlucky to have entered into an agreement only several months before we ceased to trade, and we are extremely sorry she is now in her current predicament.’

I pressed Fairweather – who was also part of the disreputable Cartel Client Review organisation – to let me have a copy of any forms you completed that would show how you described your First Plus loan. But he replied: ‘The company is no longer trading and all the operational staff have left. The company will now be liquidated. I regret I cannot help you any further.’

There is no happy ending. You were struggling to repay a debt. You were offered help by a firm that had a question mark against it. And now you are deeper in debt. Thirty years after we began proper regulation of financial services in the UK, this should not happen. That it has, and with nothing to stop it happening again elsewhere, is simply shameful.

Daily Mail 6th Dec

Read more: http://www.thisismoney.co.uk/money/experts/article-2807611/TONY-HETHERINGTON-Debt-management-plan-left-500-arrears-repayments-paid-swallowed-fees.html#ixzz3LWIoLhHv
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New mortgage crackdown by lenders

April 14th, 2014

Homebuyers who want a mortgage may have to endure interviews lasting up to three hours with bank staff.

New rules mean that from April 26 all customers who apply directly to a bank or building society for a home loan must be given full financial advice.
It is part of a crackdown on irresponsible lending by City regulator the Financial Conduct Authority.
In the spotlight: New rules mean that from April 26 all customers who apply directly to a bank or building society for a home loan must be given full financial advice
Under the new process, borrowers will have to attend a lengthy grilling at a branch or have an in-depth conversation conducted over the phone.
During this interrogation, applicants will be asked about their spending habits, including how much they lay out on essentials such as childcare, household bills, food, travel, entertainment and holidays.
This will be in addition to the credit checks and form-filling that mortgage customers already have to go through.
This week, Nationwide and Santander confirmed that potential borrowers could expect interviews to last two-and-a-half hours.
Lloyds Bank, Leeds BS, Halifax and Yorkshire BS say interviews will take about two hours, while at HSBC it is likely to last 90 minutes.
Barclays offers customers an hour-long interview slot, but says this can be shortened or lengthened as necessary.
All these banks and building societies stress that these are the average time interviews will last – more complicated applications will take longer.
Mortgage experts have confirmed they have already seen cases lasting three hours.
On top of this, the length of time it takes to have a loan approved from the moment you first apply is also likely to increase as bank staff come under strain from the new rules. Some lenders are already reporting delays of up to six weeks.
And this won’t just affect those applying for a loan for a house move or extra borrowing, but also those who simply want to get a new deal with their existing lender.
Andrew Montlake, director of mortgage broker Coreco, says: ‘In regions where demand is high we could see some lenders’ service start to creak.
A long wait for an appointment could mean buyers miss out on the home they want. We just have to hope lenders are ready and have enough qualified staff on hand to deal with the demand.’
Under the new rules, which come after the Mortgage Market Review by the FCA, banks will have to ask for more detailed information from customers.
Borrowers will have to declare any outstanding credit card and loan balances plus the amount they spend on insurance policies, ground rent or service charges, as well as pension contributions.
And they will have to be honest about any future plans to spend money; for example, if they are intending to take out a loan to buy a car, renovate the property or are planning to start a family.
The regulator is also asking banks to make a new calculation on borrowers to see if they can afford a rise in interest rates.
This stress test will ensure that all homeowners are able to meet the possibility of higher monthly repayments. Some may even split the interview into two meetings.
There are concerns these regulations will put huge strain on banks – particularly as many have been closing branches. Last week, NatWest announced it was to shut down another 44.
Staff will have to allocate three hours for a single interview and each will be able to conduct a maximum of three per day.
This is expected to be a boon for mortgage brokers, who can do all the paperwork for their customers and guide them through the process.
In a speech in London last week, Paul Smee, director general of trade body the Council of Mortgage Lenders, said: ‘Certainly the extra time that customers will need to take out a mortgage or vary an existing home loan contract has the potential to cause a backlog – not to mention customer irritation from those who wanted a slicker banking service.’
Many banks and building societies claim to have already implemented the new process in advance of the April 26 deadline and say staff have been retrained in preparation.
However, teething problems are to be expected.
To help speed up matters, customers need go to mortgage interviews with their paperwork.
Many lenders have free budget mortgage planners available online, which will take you through exactly what you need to bring with you and the sort of questions you’ll be asked.

Thisismoney 9th April

RBS pre-tax loss tops £8bn

February 27th, 2014

The Royal Bank of Scotland (RBS) has announced a pre-tax loss for 2013 of £8.2bn as it pledged to build a bank which is trusted by customers.

In its full-year results for 2013, RBS confirmed an investment of £700m over the next three to five years to establish the “best” retail and commercial bank in the UK.

During the year, the bank made £180m of investment in initiatives aimed at improving customer service and simplifying its products and services.

In its UK retail operations, operating profit increased by 3% to £1.9bn which it attributed to a 39% decline in impairment losses to £324m as a result of lower customer defaults across all products.

Customer deposits climbed 7%, above the UK average of 4%, due to growth in current accounts of 13% and in instant access savings accounts of 15%.

Chief executive of RBS Ross McEwan said: “Our customers like and trust the people they deal with, but not the bank itself.

“We can change this by moving more of the appropriate decision making and process management closer to the people who deal with customers.”

It revealed that while 30% of its employees currently deal directly with customers, this is set to increase to more than half by 2017.

The banking group also indicated that demand for credit among small and medium-sized enterprises (SMEs) has “picked up”, as SMEs drew down £6.4bn of new loans in 2013, up 2% from 2012.

It reported that business’ cash generation remained “strong” last year, with SME current account balances 13% higher compared to the end of 2012.

Business customers increased their loan repayments and reduced overdraft utilisation, which dropped to 37% from 42% a year earlier.

Group chairman Philip Hampton acknowledged the accusations faced by its Global Restructuring Group (GRG) of “systematic and institutional behaviour” in artificially distressing otherwise viable businesses.

He added: “No evidence has been provided for that allegation but it has, nevertheless, done serious damage to RBS’s reputation.”

It has asked law firm Clifford Chance to conduct an independent review.

According to the bank’s results, its £8.2bn loss included regulatory and redress provisions of £3.8bn, and impairments and other losses of £4.8bn related to the establishment of RBS Capital Resolution (RCR).

In a statement, RBS said: “RCR was set up from 1 January 2014 and will manage a pool of £29bn of assets with particularly high capital intensity or potentially volatile outcomes in stressed environments, aiming to accelerate run-down of these exposures to free up capital for the bank.”

The Group set aside a further £465m in provision for payment protection insurance (PPI) compensation in the fourth quarter of 2013m, taking its total for the year to £900m out of a cumulative PPI provision of £3.1bn, £2.2bn of which had been utilised by the end of the year.

Credit Today 27th Feb

Controversial lender collapses

January 23rd, 2014

A controversial loan firm which targeted bankrupts has gone into administration.

Consolidated Finance Limited collapsed last week with David Rubin and Henry Lan of David Rubin & Partners LLP appointed to handle the case.

The business went under following a winding-up petition presented at Manchester District Registry Court by a Mr P McCluskey acting on behalf of the estate of a Miss Emma McCluskey, now deceased.

Consolidated Finance Limited targeted bankrupt individuals for business, offering them loans in exchange for having their bankruptcy annulled.

In a 2013 court dispute between two former customers of Consolidated Finance and its sister firm the Bankruptcy Protection Fund, a judge lambasted the business for the high interest rates it charged despite securing its loans against equity held in the property of its customers.

The RT. Hon Sir Stanley Burnton said that this practice effectively wiped out any risk Consolidated Finance faced, as it only lent if the bankrupt customer had sufficient equity in their property to secure the loan repayments and the charges for their services.

The Bankruptcy Protection Fund was subsequently wound up in August 2013 after the Court of Appeal ruled that the loan agreements were not drafted properly by sister firm Consolidated Finance Limited and were thus unenforceable.

Both businesses and a non-trading subisidiary called Alpha Mortgages Manchester – all run by an individual named Christopher Holmes – were also subjected to sanctions from the Office of Fair Trading in 2010.

In a statement issued by the OFT at the time, the regulator criticised each business over a lack of transparency in its dealings with customers and for failing to adequately outline the risks involved in taking their loans.

It also said the companies had also misled consumers about cancellation rights and, in one instance, failed adequately to take account of the needs of a consumer with limited mental capacity.

Credit Today has contacted the administrators and solicitors acting on behalf of Mr P McCluskey for comment, and will update this story should comment be forthcoming.

Credit Today 22/01/14

Equifax snap up TDX

January 16th, 2014

TDX Group has been sold to credit reference agency Equifax for £200m.

The sale marks the exit of TDX Group’s private equity backer, Investcorp Technology Partners, which acquired a substantial minority stake in 2008 alongside the three founders of the business.

TDX Group provides businesses with technology, data and advisory solutions to improve debt recovery rates and the fair treatment of consumers in financial arrears

It was founded in 2004 and is headquartered in Nottingham, UK.

TDX employs approximately 345 people globally.

Gilbert Kamieniecky, principal at Investcorp, said: “With our support, TDX has been able to realise its potential and has evolved from being a UK-focused operation to one with a growing international footprint.

“The fact that the company has attracted the interest of a strong trade buyer in Equifax is testament to the quality of solutions and services TDX offers to its clients in recovering delinquent debt.”

The transaction marks Investcorp’s third exit of its technology portfolio in 12 months following its agreement to sell the Skrill Group, an online payment system, to CVC Capital and the flotation of Fleetmatics, the Irish-based global provider of fleet management solutions for commercial fleet vehicles, on the New York Stock Exchange.

Investcorp was advised on the transaction by Canaccord Genuity (financial advisor) and King & Wood Mallesons (legal).

Credit Today 16/01/14

RSM Tenon sold to Baker Tilly in pre-pack deal

August 23rd, 2013

Troubled accountancy firm RSM Tenon has today (22 August) entered administration, after sole lender Lloyds Bank withdrew its support.

Upon the appointment of administrators, rival firm Baker Tilly has immediately acquired trading subsidiaries of RSM Tenon, after announcing to the London Stock Exchange today it would not be making a formal offer for RSM’s share capital.

Matt Smith, Nick Edwards and Clare Boardman of Deloitte have been appointed as administrators to RSM Tenon Group plc.
Smith said: “RSM Tenon is a well-known accounting and advisory business serving a wide variety of businesses.

“Immediately following our appointment, a sale of RSM Tenon Group plc’s trading subsidiaries to Baker Tilly was agreed and is expected to complete within two weeks, following regulatory and internal approval at Baker Tilly, which we are advised is a formality.

“We believe the proposed sale to Baker Tilly represents the best outcome for the RSM Tenon group. The management of the group have stabilised the business, returning it to profitability over the past 18 months and making this transaction possible to secure its future.

“In the meantime we are working closely with the directors of the trading entities and their management and staff to continue to support the business until the sale is completed. We appreciate the cooperation and support from the staff, customers, suppliers and landlords during this period.”

Lloyds this morning informed RSM Tenon that should it, as expected, be in breach of its banking covenants, it would not be willing to grant a covenant waiver.

In a statement to the London Stock Exchange, RSM Tenon said: “In the absence of any other available facilities, the company does not expect to continue to be able to meet its liabilities as they fall due.

“The trading entities of the company have not entered into insolvency proceedings and will continue to trade as normal. As a result no employees, clients or suppliers (other than Lloyds) are expected to be materially affected.”

RSM Tenon employs approximately 2,300 staff across its 35 offices.

Laurence Longe, Baker Tilly’s national managing partner, said: “As a people business, the key asset of RSM Tenon has always been its highly skilled and professional workforce of partners and staff.

“Baker Tilly and RSM Tenon are businesses of a comparable scale operating in similar markets across the UK and internationally, and so combining our strengths and skills will provide us with new opportunities for growth, as well as further strengthening and expanding our offering to the market.”

The sale of RSM Tenon’s assets to Baker Tilly is expected to be completed within two weeks, following regulatory and shareholder approval, and includes RSM Tenon, RSM Tenon Investment Solutions, RSM Tenon Financial Management, RSM Corporate Transactions and RSM Tenon Corporate Finance.

Earlier today, Baker Tilly confirmed that it would not be making a formal offer for the entire issued share capital of RSM Tenon, after announcing its interest last month.

However, RSM Tenon announced that due to its level of debt, investors would likely only receive “minimal value” in the event of the deal going through.

By John Brazier
Insolvency News 22/08/13