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Is the decision in Godfrey a mark of the demise of Debt Relief Orders?

The Court of Appeal heard joined appeals considering the impact of insolvency on the right to make an order for possession and order for money judgment. Sharples concerned a possession claim brought under Ground 8 Housing Act 1988 (a mandatory ground for possession) and was a case in which the tenant had become bankrupt.  Godfrey was a case in which possession was sought on discretionary grounds and the court of first instance had made a suspended possession order on terms of repayment of the arrears and granted money judgment; the order was made although the arrears were included within a debt relief order “DRO”.

While the bankruptcy provisions may be widely known, “Debt Relief Orders” are a relatively new innovation.  The debt relief order scheme is aimed at those with low level debt (less than £15,000), and who could not afford bankruptcy.  It was introduced by the Tribunals, Courts and Enforcement Act 2007, which amended the Insolvency Act 1986.  By a new Part VIIA IA86, representatives from the Advice Sector act as “approved intermediaries” in making an application to the Official Receiver, on behalf of the debtor.  The application must include a list of the debts to which the debtor is subject and the amounts.  “Qualifying debts” include a debt for a liquidated sum although certain sums (such as secured debts were excluded).  Rent arrears are a liquidated sum and so can be included within a DRO.  The circumstances in which the Official Receiver could refuse to make an order are extremely limited and there was only a very limited scope for a creditor to object to such an order being made.

The Scheme provided that the debts included within a DRO were discharged at the end of the moratorium period.  During the moratorium period there was no “remedy in respect of the debt” and a creditor could not commence or continue proceedings without permission of the Court.  Accordingly 3 primary questions arose for consideration: (1) was a possession order a “remedy in respect of a debt” so that permission of the Court was required?  If not would a “suspended” possession order fall within this definition (2) was it reasonable to make an order for possession in cases where a tenant had included arrears in discretionary cases? (3) could the Court make an order for money judgement where the arrears were included within the Debt Relief Order?

The issue had been considered in the context of forfeiture in Ezekiel v Orakpo [1977] 1 QB 260,   and bankruptcy after termination of a tenancy in Harlow DC v Hall [2006] EWCA Civ 156; [2006] H.L.R. 27 C.A.  in which the Court of Appeal unanimously dismissed an appeal by a bankrupt tenant to set aside a possession order obtained before his bankruptcyture and the case the Court of Appeal was considering as well as arguments which did not arise in the Sharples case. 

The Court of Appeal held that neither a possession order nor a suspended possession order was a “remedy in respect of a debt” and so the existence of bankruptcy or a debt relief order did not impact upon the right to possession.  It further held that the inclusion of arrears within a debt relief order would not render it unreasonable for a Court to grant possession on discretionary grounds.  However, the Court did hold that there was no basis for recovery of arrears included within a Debt Relief Order.  An application for public funding has been submitted for an appeal to the Supreme Court.

In the meantime the Supreme Court is due to hear the appeal in the case of Secretary of State for Work and Pensions v Payne and Cooper [2010] EWCA Civ 1431 in the first week of November.  That case was relied upon heavily by the Appellant Godfrey in his appeal and was a case in which a strong dissenting judgment from Mummery L.J. was relevant, not least as Mummery L.J. was the Presiding Judge in Sharples and Godfrey. 

While the questions of statutory construction, which in the Godfrey case focused upon the intention behind a suspended possession order and contention that the aim was to recover arrears are significant, perhaps the most surprising element of the Judgement was the decision that it would be reasonable to make a possession order although the arrears were included within a DRO.  This appears to be a first step away from the historic position of all relevant matters being considered.  It also, effectively renders DRO’s entirely ineffective; after all the main debt of low income families are rent arrears.  Further, it is somewhat difficult to reconcile the decision in this case with the approach to Article 8 recently adopted by the Supreme Court, and, if the Supreme Court does not give permission in Sharples/Godfrey  it appears to merely be a matter of time before a fresh appeal will proceed on the basis of Article 8 and so for the meantime the position remains uncertain.

Article by Kerry Bretherton