Your monthly news and views from the expert advice team

May 2019

Welcome to the May update form Graham and Lorraine. This month we're covering some useful resources in fuel debt, allegations of dishonesty and a new resource on bailiff rights of entry.  
Oh, and advisers in local Citizens Advice, do sign up the 'quality hub.'

Vulnerable people who fall behind on energy bills struggle to get the support they need from suppliers
Local Citizens Advice helped over 43,000 people with energy debt problems last year - a 12% increase on the year before - and nearly half of these people had long-term health conditions or disabilities. Citizens Advice is calling on energy regulator Ofgem to be ambitious in its Vulnerability Strategy, to make sure vulnerable people are better supported. 

Most common allegation in bankruptcy and debt relief restriction cases is ‘neglect of business affairs’
For the 441 restrictions orders and undertakings obtained in 2018/19, 455 allegations were recorded. The most common allegation made was neglect of business affairs (132), new Insolvency Service stats show, followed by incurring debt without reasonable expectation of payment (88) and dissipation of assets (67). 

FCA publishes its business plan and feedback statements
The regulator unveiled its 19/20 business plan, with cross-sector priorities including supporting “a smooth transition” after Brexit and stopping “the UK financial sector being used to facilitate financial crime”. The FCA also published feedback statements on:

Insolvent man’s bankruptcy restrictions extended for 8 years after he spent £48,000 on luxury items
In one day, 34-year-old Sharaz Iqbal bought a £10,000 watch, a holiday to Turkey and £18,000-worth of Euros. The Insolvency Service’s press release continues that Iqbal has now signed a Bankruptcy Restrictions Undertaking, further extending his bankruptcy restrictions to 2027. Restrictions include borrowing more than £500 without telling a lender he is bankrupt and acting as a director of a company without the court’s permission. 

FCA’s mortgages market report finds some consumers aren’t able to switch
The study found the mortgages market works well in many aspects, but falls short in others. For example, the study finds that a number of people - coined ‘mortgage prisoners’ - are unable to switch despite being up-to-date with their mortgage payments and not seeking to borrow more. This is mainly because of changes in lending practices due to the 2008 financial crisis, but a similar situation could occur in the future for different reasons. The FCA says it has “committed to removing potential barriers in our rules to customers switching to a more affordable mortgage”, and is consulting on delivering a modified affordability assessment. 

Complaints about payday loans up 130%
The Financial Ombudsman Service’s annual review reveals almost 40,000 new complaints were made about payday loans in 2018/19, compared to just over 17,000 the year before. Although small in number, guarantor loans complaints increased by 152% from 210 to 529. 

Blue badges extended to people with mental health conditions from August
Although people with non-physical disabilities aren’t currently excluded - The Department for Transport notes “that the application of the Blue Badge Scheme to people with non-physical disabilities was not clearly understood or administered consistently across the country”. The new statutory instrument explicitly extends the eligibility criteria to people with non-physical impairments which impact their ability to walk during the course of a journey. 

Minor changes to interest on judgments
A new statutory instrument amends The County Courts (Interest on Judgment Debts) Order 1991 so a court can order interest to run before the date of judgment if it’s fair to do so. This will come into force on 27 May and won’t impact on any agreements regulated by the Consumer Credit Act 1974.

Legal update 

Insolvency Practitioner (IP) acted dishonestly
In Varden Nuttal Ltd and another v Nuttal and another [2019] EWHC 3868 (Ch) the High Court found an IP acted again statements of insolvency practice (SIPs) and amongst other things, ‘enhanced’ fees payable in IVAs.

What the case was about
In August 2015, 2762 IVA accounts were in deficit. When Varden Nuttal entered administration in 2016, new IPs were appointed supervisors to the IVAs. They explored the reasons for the deficits, and found that the Mr Nuttal (one of the directors) had engaged in a fraud that resulted in a loss of approximately £9 million to creditors.  The administrators made claims on behalf of the company against Mr Nuttal (and also in the IVA of Mr Varden). 

What the court decided
In a complex case, the claimants alleged that Mr Nuttal had channelled funds from the IVA estate. Mr Nuttal made arrangements with other firms, including a firm of solicitors who would pursue PPI claims on behalf of debtors.  A separate agreement was made between the solicitors and Release Money Group Ltd (RMG) whereby fees would be paid to RMG where PPI claims were successful. Mr Nuttal owned RMG, so was in fact making referrals to raise commissions he would benefit from. Three other similar scheme were also alleged. 

The court found he’d acted dishonestly as an IP, and also against his duties owed as a director to the company. He’d breached SIP 9 and the claimant administrators would be entitled to judgment of £1.3 million, or an inquiry into the real value of the claim. Mr Nuttal had raised secret commissions and this was a loss to creditors. 

What this means for advisers
The administrators may be able to claim from insurers, but it was very unlikely they would recover funds for creditors from Mr Nuttal. 

In the short-term there’s little benefit for the IVA clients. However, commentators have added that this case is likely to increase the intensity of supervision by Recognised Professional Bodies (RPBs) for IVA providers. This must lead to more transparent arrangements for clients. One sign might be if debts are simply not reducing as quickly as they should be in an IVA. Here funds were redirected from creditors to RMG.

Clients can be helped to complain about insolvency practitioners.

As you were in ‘Can’t Pay...’ privacy case
In Ali and another v Channel 5 Broadcasting Ltd [2019] EWCA Civ 677, neither party gained anything at court when appealing the judgment in the first instance decision (see here for the outcome of that)

What the case was about
The claimants had been filmed being evicted for ‘Can’t Pay We’ll Take it Away’ and had been awarded £10,000 each in damages by the High Court. They appealed as they felt this was not enough to compensate for the upset caused by the invasion of their privacy. They failed to take into account the impact on the couple’s children, and that the High Court was wrong to say social media posting of the eviction made by the landlord and his son, posted before the episode was screened on Channel 5, lessened the impact of the programme itself. 

Channel 5 appealed liability saying the High Court had interfered with editorial discretion. Having accepted there was public interest in the screening, the High Court should have balanced this against the claimant’s right to privacy in a more proportionate way. Instead of considering every piece of information shown they should have considered the issue in a more generic sense. 

What the court decided
The appeal for greater damages failed. The High Court were right to consider the postings on social media had already caused damage before Channel 5 screened the show. This reduced the distress directly caused by the programme as they’d already been caused greater distress in their community by the postings. The posts will already have caused distress to the children too and the High Court found about right on balance. 

The appeal over liability was also dismissed. Although the court felt a different High Court judge might have decided to be less particular when balancing the public interest argument with privacy, the Judge had not been unreasonable. The Court of Appeal should therefore not interfere. 

What this means for advisers
Although this case is not typical, it is worth considering the earlier High Court decision and comments made by the High Court affirming the National Standards as an important code of practice for enforcement agents.

Fraud and duty to disclose address in council tax
In R v D [2019] EWCA crim 209 (sorry no link for you on this one), the Court of Appeal agreed that there’s no implied offence of not telling a council where you live...but there is if you actively lie.

What the case was about
In October 2008, the defendant told the council that she’d moved out of her home and was subsequently billed at different address with her 25% single-person discount applied.  It was alleged that she’d in fact not moved, remained in the first property, and wasn’t alone. Counts 1 - 5 of the prosecution fell under s1 - 2 of the Fraud Act 2006, (dishonest representation) and were not appealed. Count 6 was made under s3 of the Act, ‘fraud by failing to disclose.’ The prosecution said there was an implied legal duty to disclose where you do live and the defendant committed a crime by not disclosing (as opposed to making a positive misleading statement, covered by counts 1-5). 

What the court decided
Expressing surprise that there was no duty in either the Local Government Finance Act 1992, or the Council Tax (Administration and Enforcement) Regs 1992, the prosecution’s appeal over count 6 failed. They also stated that the law relating to council tax recovery did make disclosure a legal duty in some circumstances, so a separate legal duty to volunteer information, could not be implied. 

There was a duty under reg 3 of the ‘Admin and Enforcement regs to disclose where you live amongst other things. This is only created after a request from the local authority. There is a requirement under reg 16 to disclose if you know your entitlement to a discount ends (which actually wasn’t argued by the prosecution here). There is no written legal duty to volunteer your whereabouts unless you are asked. The rights to recover the debt are different from an implied legal duty to notify, and those rights are contained in the regs. 

What this means for advisers
Under no circumstances are we to advise a client not to disclose where they live. However, if you are faced with a client saying they’re worried they might be prosecuted, it’ll be important to backtrack to offer guidance on the implications. Have they made a positive statement to say they live elsewhere, or that they don’t live somewhere when they do. That could be fraud under s1 - 2 of the Act. Have they been asked for information under reg 3? If so, it’s an offence not to provide it. 

However, if it’s an innocent situation where someone has moved and is now scared to tell the council, this case may help and we might support a client to disclose. On a broader note, unless written in relevant law, there should be no ‘implied legal duty’ to disclose something, particularly where other aspects of the relevant law are clear where a duty does arise. Clients will need a criminal lawyer if facing prosecution.

Hot topic 

Energy debts on the increase
As reported in ‘News’ you’re all helping more people with utility debt now, and many of these clients are vulnerable. The standard license conditions are pretty big, but Ofgem recently published some key guides on treating vulnerable customers fairly and billing and payments. The SLCs contain much more, but the guides cover the following:

Standards of conduct
This guide looks at the overarching need for suppliers to be fair in what they do. It focuses on SLC 0 and how Ofgem sees it working in practice. The condition starts with an overriding objective: 

The objective of this condition is for the licensee and any Representative to ensure that each Domestic Customer, including each Domestic Customer in a Vulnerable Situation, is treated Fairly. 

The ‘standards of conduct’ are how the objective will be met and are found at SLC 0.3 (a - d). The guide explains how suppliers must go beyond taking reasonable steps to be fair, and must consider how they ‘behave, provide information and carry out customer service processes.’ There is a close focus on identifying vulnerable customers and those in vulnerable situations. The decision (but not the amount) of whether to charge any fees in any activity is covered by the standard. 

The table on page 5 is a quick guide to the themes of the standards of conduct and notably includes a ‘limb’ that suppliers not only identify, but understand the needs of vulnerable customers, and treat them fairly. The customer in turn should feel their vulnerability is being considered and they’re able to participate in the energy market. 

When testing whether firms have behaved well, Ofgem will consider four strands; the ‘customer objective’ the ‘broad principles,’ the ‘fairness test’ and the ‘compliance threshold.’

  • So we start by considering the objective above and whether the action of the supplier were fair. Clearly this is broad and subjective. That’s arguably a good thing, so we can cast our net wide
  • Then a more concerted look at what the supplier did or did not do. Which of the four principles in 0.3 (a-d) were breached - behaviour towards customers, how they provided information, customer services or treatment of vulnerability
  • Next the ‘fairness test’ is applied - i.e, did it give rise to detriment. Ofgem consider this proportionately recognising suppliers have duties and rights too
  • Finally, they consider ongoing compliance, and this will involve the supplier being given a chance to justify what they did (or didn’t do)  

Ofgem will consider enforcement action which can include redress, where breaches occur. 

This is a broad condition, and Ofgem will not intervene in singular disputes. However, like the FCA principles, we should use them in complaints. Suppliers, and the Ombudsman, should consider the standard license conditions when settling disputes. 

Guide on vulnerable customers
This guide focuses on expanding the principles in condition 0, to other relevant conditions. Notably then, when helping vulnerable clients:

  • Standard License Condition (SLC) 31G requires suppliers to provide appropriate information on debt management advice, according to circumstances
  • SLC 26 requires suppliers to operate a priority services register and publish who can access the register, and what services it provides
  • SLC 27 importantly covers affordable arrears arrangements, debt recovery and payment options, as well as how and when security deposits are payable  

On security deposits the actual condition states a supplier must not charge one where a prepayment meter (PPM) is agreed or if it would be otherwise unreasonable to charge one. Again this is broad, but vulnerable circumstances clearly should be considered. 

On repayment options, it is clear at all points that affordability must be considered. Instalments as an option (i.e. not just deduction from benefits or a PPM) should arguably always be offered.

  • Warrants and costs are covered at SLC 28B  

Where vulnerability may mean a warrant would be severely ‘traumatic’ the warrant should not be enforced. Charges must be reasonable but should not exceed £150. Where a client is vulnerable, including financial vulnerability, and that has caused a lack of engagement, then costs should not be applied. In all cases disconnection must be proportionate to what is owed. 

When we apply the broad principles under the standards of conduct, to any of the SLC conditions here, it’s clear suppliers have a lot of discretion and should consider all customer’s needs individually. 

Guide on metering, billing and payments
This guide looks at how effectively bills are communicated and payment options explained. It highlights some of the key SLCs as:

  • SLC 28 - this requires suppliers to fully explain the pros and cons of, and how to use, a PPM. This is so customers can make informed choices. They should also offer alternatives if they are aware a PPM is not working right
  • SLC 21BA - backbilling is limited to 12 months unless the customer is at fault; for instance through fraud or blocking access to the meter
  • SLC 27, 28BA - payment difficulties, warrants and warrant charges are also a focus of this guide
Anecdotally, advisers have reported some improving outcomes for clients, and Ofgem’s focus on vulnerability over recent years is really welcome. As Citizens Advice reports though, there is more to do.
Useful resources 

Debt advice quality hub
Expert Advice has created guidance for advisers on enforcement agents and their rights of entry; it includes a glossary and further resources.  It can be found on the Debt advice quality hub on Workplace (for local Citizens Advice). The guide is intended to help advisers give relevant advice to clients and to confirm the advice that's been given.  This guide is not intended to be given to clients.

The hub is being filled with guides, templates, and resources for clients and advisers, so there’s more to come. Plus it’s a good way to ask questions and communicate with us, and colleagues across the network. There are nearly 500 members and counting.

Stop Loan sharks funding
The England Illegal Money Lending Team has funds available to bid for. Up to £5000 may be awarded for initiatives that meet their criteria.

DRO Toolkit update and power of attorney (POA)
We’ve also updated the DRO Toolkit in respect of power of attorney, here and here. The DRO Team are also looking at their DRO A-Z. 

When a person holding POA over property and financial affairs enters a DRO, POA ends. However, where they assist their donor (the person granting them POA) to enter a DRO, the POA also ends, and this is less well-known (s.13 Mental Capacity Act 2005). So there are two big issues here:

  1. Someone holding the POA will have to advise the donor of the fact POA will terminate, so the donor can find a replacement or make an informed choice
  2. Where the donor has already lost capacity the person holding POA will have to be part of the advice process. They may decide a DRO is not in the donor’s best interests as it will end the POA  

Intermediaries will need to point the implications out to anyone holding POA, or any donor seeking advice. After the DRO has ended, the donor may appoint the POA again. 

Form to challenge adjudicator refusing a bankruptcy order
Under Insolvency Rule 2016 a client can apply to challenge an adjudicator’s decision to refuse a bankruptcy order. This template ensures the applications will comply with Insolvency Rule 10.44. We think this will cost £25 as it does not require notice - i.e. the client can apply without prior notice to the adjudicator. The client does have to tell the adjudicator after applying, as per the form. 

Full list of bankruptcy restrictions
Here’s a handy guide to all bankruptcy restrictions flowing from a bankruptcy restrictions order, and not just the headline ones. May are very specific but if it appears a client is at risk of  BRO, do check.

Ask the experts 

Second tier advice is available to local Citizens Advice from the Expert Advice Team.

Thank you for reading,
Debt Expert Advice team

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