The Government has recently released two sets of proposals that are likely to have an impact on any person or business wanting to bring a claim in the courts.

Inflation beating Bankruptcy changes

From October 2015 the minimum debt level above which you can petition for bankruptcy is to increase to £5,000. The level was set in 1986 at £750 which applying inflation rates to the present day the threshold would need to be lifted only to £1,984 to be kept at par in real terms. Whilst an increase was overdue the level at which it is now pegged shows an intent on the part of the government to stem the use of bankruptcy as a debt collection tactic for small debts. This will likely hit individuals and small business creditors the most.

Expect an increase in creditors issuing statutory demands threatening bankruptcy shortly before the limit changes. After the change the number of actual bankruptcies may not alter greatly because the relative high cost of bankruptcy has meant that petitions based on sums less than £5,000 were comparitively rare and often a statutory demand was not followed through with a petition. Nonetheless bankruptcies will fall in some areas, petitions based on council tax arrears being one amongst others.

Credit controllers will mourn the loss of the quick and cheap statutory demand in relation to sub-£5,000 debts. Instead they will have to look to the comparative complexity of securing a court judgment and take appropriate enforcement action. This has the potential to significantly impact on the speed of debt collection, and actual recovery rates. Despite rising court fee income (see below) the anecdotal evidence is of a court system that is getting slower as it struggles to get to grips with modernisation changes.

Court fees to rocket

Court fees have increased steadily in recent years. At one time the fees barely covered the cost of issue let alone the many hearings and subsequent administration that was involved in bringing the case to a conclusion. Last Friday the Ministry of Justice announced the forthcoming introduction of fees for the issue of all claims above £10,000 based on 5{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} of the value of the claim. Big price hikes for interim hearings are also to be implemented. No date is fixed as yet.

Most senior judges in a letter to the Ministry have expressed concern over this “dramatic” change thinking it likely to have a disproportionately adverse effect on small and medium enterprises and litigants in person bringing claims.

Interestingly the Ministry commented in its report that the normal rule “is that fees for public services should be set at a level designed to meet the full cost of those services” making it clear that access to justice should now be considered something that has to be paid for privately without subsidy from the state.

Long term this could herald dramatic changes as litigants seek not only mediation as an alternative method of resolving disputes (something which is already well in trend) but also arbitration or expert determination. Hitherto arbitration has seemed costly compared to the court process but may now more often be the cheaper option although it can only be pursued if the parties agree or did agree when forming a contract.

The 5{ba3215b0bf35eaeb06be458b3396ffbfc50bb9db10c9ff1594dfc3875e90ea48} fee on issue and other announced increases are heralded to reap £120 million per annum for the government’s coffers. Even more price hikes are under consideration and up for consultation, for instance in relation to possession of property claims and if implemented could raise an additional £55 million.

If these extra funds are re-invested to ensure the modernisation of the courts is successful in delivering quick and efficient justice then perhaps the doubters will be silenced. We can but hope.

If you are concerned about any of the matters mentioned in this blog, please feel free to contact me or any other member of Paris Smith’s Dispute Resolution Department.