Poinding and Warrant Sale Should Not Be Abolished Remain Valid
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Scottish Law Commission Discussion Paper No 110 Poinding and Sale: Effective Enforcement and Debtor Protection November 1999 This Discussion Paper is published for comment and criticism and does not represent the final views of the Scottish Law Commission The Commission would be grateful if comments on this discussion paper were submitted by 28 January 2000. Comments may be made on all or any of the matters raised in the paper. All correspondence should be addressed to: Dr David Nichols Scottish Law Commission 140 Causewayside Edinburgh EH9 1PR Tel: 0131 668 2131 Fax: 0131 662 4900 NOTES 1. In writing a later report on this subject, the Commission may find it useful to be able to refer to, and attribute, comments submitted in response to this paper. If no request for confidentiality is made, the Commission will assume that comments on the paper may be used in this way. 2. Those who wish copies, or further copies, of this paper for the purpose of commenting on it should contact the Commission at the above address. SUMMARY OF ARGUMENT 1. This discussion paper implements our obligation to consult on a reference under the Law Commissions Act 1965, section 3(1)(e), from the Minister for Justice of the Scottish Executive in the following terms: "To reconsider, as a matter of urgency, whether the conclusions, as set out in the Report on Diligence and Debtor Protection (1985) Scot Law Com No 95, that the diligence of poinding and warrant sale should not be abolished remain valid. To consider whether there are alternative measures that might replace and be no less effective than this diligence within the existing structure of the diligence system while still protecting the legitimate interests of creditors in the recovery of legally constituted debt and the interests of debtors. To consult relevant interests and have regard to subsequent developments, research and other relevant factors." The reference is a response to the Abolition of Poindings and Warrant Sales Bill (SP Bill 3) (introduced by Mr Tommy Sheridan, MSP on 24 September 1999) or rather to an earlier similar Bill now superseded. 2. The roles of poinding and sale. The diligence of poinding and sale, whether under court decrees or summary warrants for recovering central or local taxes, is not merely a method by which a creditor can attach and realise moveable goods in the debtor's possession to satisfy his debt (the realisation role). That is its best known function. In practice, it has three other roles. * In those many cases where the creditor is unable to identify arrestable assets (eg funds in bank accounts) or earnings of the debtor but does know the debtor's private or business address, he may identify and poind non-exempt goods located at that address with a view to sale (the identification role). * It is also a means of preventing debtors from evading their creditors' legally constituted claims by converting their assets into corporeal moveable property (the deterrent role). * Finally, the use and the threatened use of the stages of poinding and warrant sale frequently operate as a more or less effective spur to payment without the final stage of a warrant sale being reached (the spur to payment role). See paras 2.2 and 3.2 3. How poinding and sale under court decrees and summary warrants work. All these roles are important. The last role is often overlooked but it is very important for reasons explained in Part 2. To understand this role, it is necessary to pay regard to the inter-dependent nature of the stages of debt recovery. These are illustrated by the flow charts at Figure 1 (court action and diligence) and Figure 2 (local authority summary warrant diligence) in Part 2, pages 9 and 16. At each stage of the debt recovery process, there are fewer cases than at the previous stage. (See Tables A to F in Part 2). This decrease in numbers results from the settlement of the debt or the creditor's decision to abandon pursuit. Only a very small proportion of default debts reach the stage of diligence, and in the case of charge, poinding and warrant sale only a tiny fraction reach the final stage of warrant i sale. This decrease occurs in diligence under both court decrees and summary warrants for recovery of central and local government tax arrears. It is found in other legal systems, eg England: paras 2.55 – 2.66. The stages of debt recovery are inter-related: the early stages would be ineffective in eliciting payment if the later stages did not exist. If the early stages were ineffective, more cases would proceed to the later stages. The use or threatened use of poinding, or of warrant sale, or of both, is still regarded by many creditors as an effective spur to payment. 4. Having regard to these different roles of poinding and sale, the abolition of poinding and sale could impact on the general effectiveness of enforcement not only in the relatively few cases at the poinding and sale stage but also in the much larger number of cases at the earlier stages of court action or summary warrant procedures. The criteria for assessing effectiveness are complex. Poinding and sale has high transaction costs so that in the case of poinded household goods, it is more effective when used as a spur to payment than as a means of realisation through warrant sale. 5. Assessment of poinding and sale. The main question is whether poinding and sale attains the twin objectives of a good law of diligence (ie methods of debt enforcement), namely effective enforcement and debtor protection. Poinding and sale was reformed by the Debtors (Scotland) Act 1987 which attempted to strike a reasonable balance between these two objectives. Part 2 shows that: * in enforcement of debts due under court decrees, the use of poindings has declined by over half since the Act (about 14,200 in 1987 to under 6,300 in 1998: Tables B and C at p 12); * in enforcement of both court decrees and local tax summary warrants, poinding and sale has become a diligence of last resort. Poindings are no longer the most commonly used diligence being outstripped by earnings arrestments (introduced by the 1987 Act and generally recognised as successful) and arrestments of bank accounts and other funds; see Table D at p 17 showing about 23,000 poindings; 85,000 earnings arrestments; and 101,000 arrestments in 1998. * local authorities pursuing council tax use orders for deductions at source of income support and jobseeker's allowance in preference to poinding and sale; * poindings, however, remain the most commonly used diligence under Inland Revenue and Customs and Excise summary warrants Tables E and F ( p 18); * diligences including poindings for ordinary debts are now less numerous than diligences under summary warrants for tax and rates arrears; * in 1998 there were 513 warrant sales consisting of 394 under court decrees of which it is estimated only about a third (132) may be against private individuals and the rest against commercial debtors; 40 for council tax or community charge (all private individuals); and 79 for rates and central taxes : see Table D and para 2.48; * poinding and sale is much more effective when used against commercial goods than against household goods; ii * debtors are not applying for time to pay directions as much as was hoped; are using time to pay orders hardly at all; and under-use rights to oppose warrant of sale and to obtain recall of the poinding for undue harshness. 6. There are conflicting views on whether the 1987 Act has achieved its aims. Part 2 shows that: * some creditors and their agents criticise poinding and sale as having lost much of its former effectiveness blaming mainly the increased exemptions introduced by the 1987 Act. Nevertheless commercial and public authority creditors, including local authority revenue officers, generally regard poinding and sale as still effective in appropriate cases; * debtors and some bodies representing them criticise poinding and sale severely on grounds that it fails to attain either of its objectives of debtor protection and effective enforcement. In particular it causes undue economic hardship and undue personal distress to debtors who are generally unable rather than unwilling to pay their debts. The emphasis is on protecting those debtors, generally consumer debtors or council tax defaulters and often the poorest and most vulnerable members of society, from poinding and sale of goods in their dwellinghouses. The criticisms rest mainly on considerations of morality and social policy. Comparative law 7. In the debate on reform, appeal has rightly been made to the laws of other nations. These provide standards of law reform obtainable in no other way. The paper shows that: * all 42 legal systems outside Scotland so far examined (22 in Europe and 20 in the Commonwealth) make available to unsecured creditors an analogous method of enforcement against moveables in the debtor's possession. See paras 2.67, 2.68 and the Appendix. * In English law (see paras 2.55 – 2.66), warrants for execution against goods (almost 590,000 in 1998) enforcing court orders are at least nine times more numerous than warrants for all the other methods of enforcement put together (para 2.55; Tables I, J and K). Attachment of goods is used far more in England and Wales than in Scotland where it is a diligence of last resort: less than 6,300 poindings of goods under court decrees compared with over 10,800 earnings arrestments and over 4,500 arrestments of bank accounts and other funds in 1998.