Court of Appeal decision brings reassuring clarity for judgment creditors on debtor instalment orders

We are all used to seeing legislation and court rulings favouring debtors. In recent years, changes to enforcement rules and the new debt pre-action protocol are just a couple of examples of debtors being given extra time and protection, meaning that the credit terms that you provide can be significantly extended against your will.

However, there is finally some positive news to report for judgment creditors. The recent Court of Appeal ruling in Diana Loson v Brett Stack, Newlyn Plc [2018] EWCA Civ 803, on a debtor’s right to request payment of a judgment by instalments, will provide reassurance to many businesses offering credit terms.

What was the situation with instalment orders before?

Before this ruling, many debtors would make an offer to pay by instalments and the County Courts would often rubber-stamp the request based purely on the income and expenditure position of the debtor.

Instalment orders often mean that it can take years to pay off a debt that creditors had originally relied upon to be paid in a short period of time. This can be extremely unfair, particularly if creditors have had to pay their own suppliers within a short period of time.

What did the Court of Appeal find wrongful about instalment orders?

In this case, the debt due to the organisation would have taken around 13 years to pay on the basis of the instalment order. The Court of Appeal held that this was the wrong approach as, amongst other things, it “failed to properly balance the interests of the judgment creditors.”

What should an instalment order comprise of and what should be considered when placing one?

It was held that an instalment order should comprise of a realistic repayment schedule where the debt would be discharged within a reasonable period of time.

Importantly, the Court of Appeal stated that where the debtor could not afford to pay much towards the order, the court should not interfere with the “right to seek enforcement of the judgment by whatever means are available” to the creditor.

The Court of Appeal also confirmed that, once an instalment order is made, there is no right to take further enforcement action, including insolvency action, on the judgment debt because the instalment order varies the obligation to make payment in accordance with the instalments. This, in turn, means there is no debt immediately due or owing and therefore action could only be taken on any missed instalments (rather than the full judgment sum) unless the whole instalment order was varied or set aside.

What does this Court of Appeal ruling now mean to creditors?

This ruling helps creditors by giving them a genuine and important right to oppose an instalment order in the first place. Given the rising court application fees, the cost of applying to set aside or vary a low instalment order could be completely prohibited.

Going forward, this will provide creditors ammunition to object to all but the most sensible instalment order requests on the basis that the judgment will not be satisfied in a reasonable period of time and that a creditor’s right to seek alternative methods of enforcement should not be interfered with.

The County Courts, faced with a binding Court of Appeal judgment, should then apply much more scrutiny to any instalment order requests and will hopefully move away from the rubber-stamping exercise that they have perhaps previously been guilty of.

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