DRO – Debt Relief Order – Changes – July 2021

Thousands more people who are struggling in problem debt will be able to apply for their payments to be written off after an extension on current rules came into force at the end of June 2021. Debt Relief Orders (DROs) can now be used if you owe a maximum of £30,000, up from the previous limit of £20,000.

It means people will be given greater options if they are in arrears, including on bills such as council tax. People in debt with £75.00 or less leftover each month after covering bills and everyday expenses will be able to get a DRO – previously the amount was set at £50.00. Those with savings or assets worth £2,000 or less are now eligible for a DRO, this was previously £1,000.

A DRO means you do not have to repay debts for an agreed period, usually a year, and creditors cannot act against you. Previously the limit to apply for a debt relief order was £20,000 and anyone with debts over this amount had to go for a more complicated individual voluntary arrangement (IVA) or bankruptcy.

It is estimated that around 13,000 people a year will now be eligible for a DRO, although the support costs a one-off payment of £90.00 to access. The change to DRO rules follows a consultation by the insolvency service earlier this year. It also includes a doubling of the limit on the value of assets owned to be eligible.

DROs are aimed at people with relatively low levels of unmanageable debt who have nothing to offer their creditors, such as assets or disposable income, and for whom bankruptcy would be a disproportionate response. The order freezes your debt repayments and interest for a year. If your financial situation has not changed at the end of this period, then all the debts included will be written off.

Commenting on the news, Martin Kingman, CEO with Professional Legal Collections Ltd, said: “A Debt Relief Order is simpler and cheaper than other debt options. It you qualify then it is always a better option for you than an Individual Voluntary Arrangement as you do not have to make any monthly payments in a DRO, compared to paying for five or six years in an IVA”.

To get a DRO you will need to apply through a trained adviser who can make the application on your behalf to the Insolvency Service. The application costs £90.00 and can either be accepted, deferred until there is more information, or declined.

If you are turned down, you will be told why, and you can appeal the decision. If you are accepted, you will not have to make payments on the debts and the creditors will not be able to take any action against you, with two exceptions: landlords if you are in rent arrears and bailiffs who have taken your belongings. Other bills not included in the DRO will have to be paid as usual. If you are searching for more short-term support, you may qualify for a 60-day “breathing space” instead. This protects you from prosecution and bailiffs for up to two months.

A debt charity such as Citizens Advice or the National Debtline can help you. We are also here to offer guidance and support.


When is home time?

Let me ask you a simple question. At what time do you throw in the towel at the end of the working day? When do you think enough is enough and head for home?

Flexi working has encouraged employers and employees to open the mind and think differently about their start and finish times but one High Court judge has given lawyers and clients a warning about setting unrealistic deadlines, after receiving an evening email to say a hearing could not wait.

The Honourable Mr Justice Fancourt explained that his clerk was recently emailed by lawyers at 7.52 pm asking for an urgent hearing that same evening, to deal with the pre-pack sale of Nationwide Crash Repair Centres Ltd. The weighty email comprised of bundles, a skeleton argument, as well as the required certificate of urgency.

Initially, it was thought that applications to appoint administrators would be heard the following morning, but another email from lawyers at 9.16 pm said that a deal agreed with a purchaser would be pulled if not completed by midnight. The hearing was held by telephone that same evening and the order was finally made at 11.56 pm. It later transpired that the midnight deadline had been included in contract documents negotiated over the preceding days.

The High Court Judge involved in the matter said there was nothing in the circumstances that required such urgency, and the deadline was only necessary because of terms agreed outside the court’s control. Honourable Mr Justice Fancourt added: “It is wholly unacceptable for clients and lawyers and other professionals acting for them to negotiate terms that have the effect of presenting the court will (sic) an artificial ultimatum and require important matters affecting the livelihoods of thousands of people to be decided under undue pressure of time.”

He went on to stress that the court was not to be treated as a “rubber stamp” for the appointment of administrators and warned that applicants should allow time for a fair hearing to be held.

Administrators were appointed to handle the sale of the repair business. The court was told that the sale would bring an immediate return to secured lenders of around £26.7m and save almost 2,900 jobs. The only realistic alternative was to force the repair centre into liquidation, with all jobs lost and returns reduced to £19m.

We bring this story to light because it is important to note the judiciary’s standpoint on these apparent urgent midnight hearings. In our experience, parties use these artificial pinch points to apply unfair pressure to bolster their already unequal bargaining power. We believe the best all-round results arise from situations where due care and attention, together with some reflection time, is afforded to the matter in hand and then planned accordingly in advance. We urge you to contact us to discuss any potential situations you have and consider working alongside us as trusted strategic partners to maximise the benefit to you in your business, rather than the last-minute rush which is often both damaging and costly.

The return of Crown Preference

It has been confirmed that from 1 December 2020 the UK tax authority, HMRC will move back up the creditor rankings in English insolvency proceedings in respect of certain taxes. It means they will rank ahead of floating charge holders and unsecured creditors in respect of certain taxes, including VAT, PAYE income tax and employees’ national insurance contributions. The new change will not affect corporation tax and employer national insurance contributions, in relation to which HMRC will remain an unsecured creditor.

The new regime will not harm secured creditors with fixed security, who will continue to take priority over preferential creditors. It will, however, affect lenders with floating security, especially as the portion of floating charge realisations set aside to be paid to unsecured creditors in an insolvency will increase from £600,000 to £800,000. The payments to HMRC will be made from the proceeds of floating charge assets before amounts owed to the floating charge holders are paid. As a result of this change, smaller businesses may find it harder to have access to significant borrowing if the only security available for borrowing is a floating charge, especially in what is already a difficult economic environment.

Another important consideration is that, with the introduction of the new law, HMRC will have its preferential status even ahead of floating charge holders under floating charges created before the law was introduced. The effect is, therefore, retrospective as there are no time limits or financial caps.

So, what does this all mean? Martin Kingman, CEO of Professional Legal Collections Ltd, is an experienced insolvency lawyer: “Ultimately, the impact is likely to mean less cash for businesses, at a time when businesses need it most. The Regulations will lead to a reluctance in lenders providing corporates with funding, and many lenders will be concerned about the existing loans given the lack of time bar to the Regulations. One benefit may be that there is greater transparency and dialogue between a lender and the borrower. Lenders may consider requiring borrowers to make certain disclosures about the tax position of the borrower, provide financial updates during the duration of the loan, and allow the lender access to the relevant company records. I expect to see a sharp rise in the demands for Director personal guarantees”

At a time when business is still suffering the impacts of the COVID-19 pandemic and access to finance is more crucial than ever to keep cash flowing in business, the re-introducing crown preference is likely to impede the recovery of many viable companies. If you have any queries relating to any of the matters above, or require some further guidance then help is at hand. Please contact us at Professional Legal Collections Ltd for expert advice.

NOTE: Nothing in this article constitutes legal advice or gives rise to an advisor/client relationship. Specialist legal advice should be taken in relation to your specific circumstances. This article is provided for general information purposes only. Whilst we endeavour to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and we do not accept any liability for error or omission as it is based upon our interpretation of the law. Please be aware that the legal circumstances may have changed since this article was first published in November 2020 and you should contact us for specific up to date advice on your circumstances.



Insolvency measures to be extended

Insolvency measures to be extended

Many business owners are breathing a sigh of relief after the recent government announcement (24 September 2020) that measures put in place to protect businesses from insolvency will be extended to continue giving them much-needed breathing space during the ongoing Covid-19 pandemic and economic downturn.

The many changes introduced by the new Corporate Insolvency and Governance Act 2020, designed to protect businesses from insolvency, were due to expire on 30 September. These temporary measures include:

  1. The use of Statutory demands and winding-up petitions will continue to be restricted until the end of the year to protect companies from aggressive creditor enforcement action due to coronavirus related debts.
  2. Termination clauses are still prohibited, stopping suppliers from ceasing their supply or asking for additional payments while a company is going through a rescue process. However, small suppliers will remain exempted from the obligation to supply until the end of March 2021 so that they can protect their business if necessary.
  3. Modifications to the new moratorium procedure, which relax the entry requirements to it, will also be extended until the end of March next year. A company may enter into a moratorium if they have been subject to an insolvency procedure in the previous 12 months.
  4. Measures will also ease access for companies subject to a winding-up petition. The temporary moratorium rules will also be extended for the same period.
  5. Companies and other qualifying bodies, with obligations to hold AGMs, will continue to have the flexibility to hold these meetings virtually until the end of 2020. This means that shareholders can continue to examine company papers and vote on important issues remotely.

Commenting, Business Minister Lord Callanan said: “It is vital that we continue to deliver certainty to businesses through this challenging time, which is why we are now extending these important and necessary measures to protect companies from insolvency. Through this measure, we want to ensure businesses are able to not only come through this testing period, but also to plan, adapt and build back better.”

So, what does this all mean in brief?

  • Statutory demands made between 1 March and 31 December 2020 are void.
  • Winding-up petitions presented from 27 April to 31 December 2020 are suspended where a company’s inability to pay is the result of the Covid-19 pandemic.
  • Restrictions on the court’s jurisdiction to make a winding-up order will apply until the end of 2020.
  • Small business suppliers are exempt from the prohibition on enforcement of ipso facto clauses until the end of March 2021.
  • Landlords are prevented from using commercial rent arrears recovery (CRAR) before the end of this year.
  • Commercial leases cannot be forfeited for non-payment of rent or other sums due between 26 March and the end of December 2020.


Martin Kingman, CEO of Professional Legal Collections Ltd, observes that this will be a double-edged sword: “It will give some businesses certainty and protection but it could also damage others whose debtors are not paying up and using the protection not to keep their business afloat but as a mechanism to avoid and delay payment as long as possible. Despite these restrictions, we urge any struggling businesses to contact us for specialist advice and protection in these uncertain times.”

Information correct as of 25 September 2020

Dishonoured Cheques and Direct Debits

Dishonoured Cheques and Direct Debits


With the increased use of debit cards and chip and pin technology, the humble cheque is being accepted by fewer and fewer retail outlets as a means of payment. It remains, however, a popular method of payment for business. Cheques are written orders from account holders, instructing their banks to pay specified sums of money to named beneficiaries. They are not legal tender but are legal documents and their use is governed by several Acts of Parliament. The law relating to cheques has remained in force and relatively unchanged since the passing of the Bills of Exchange Act 1882. The Cheques Act 1957 and 1992 have slightly amended the Bills of Exchange Act 1882, which remains otherwise fully intact. The introduction of the 1882 Act sets out the law that had previously been developed by the Courts of Exchequer in over 2,500 cases since the Industrial Revolution.

Read on as we take a closer look at exactly what a cheque is and how it may be of benefit to your business.

A cheque is a promise of payment by a specified bank for a sum on a date. If the cheque is not honoured upon presentation, for whatever reason, the debt will be honoured if it is not discharged. Therefore, once you have a cheque received, the chances of having a claim defended can only be defended in a few limited ways:

  1. Duress:

    The person signing the cheque is made to do so because of unlawful pressure, brought to bear against them. The law relating to duress, which has developed largely through the courts on a case-by-case basis makes the burden of proof very difficult for the person alleging duress and it is quite rare for this to succeed unless good cause can be shown.

  2. Fraud:

    The person who signed the cheque was not the signatory or the person purported to be. Again, the person who wishes to rely on the defence faces a difficult task in proving their claim as the evidential burden is once again high.

  3. Failure of consideration:

    This means that no bargain is given in return for the cheque. Providing there is some consideration, however small, then this defence will fail as the courts are not there to determine whether you have got a good deal, but just to determine whether there was sufficient consideration.

  4. In respect of an illegal contract:

    A contract which is illegal to enter into and, therefore, unenforceable. Once you have received the cheque, the chances of not receiving payment are relatively small as this is an unequivocal promise to pay.

A further problem for the party who dishonours is when they dishonour a cheque for over the insolvency limit (£750 for companies, £5,000 for individuals), where the cheque is marked “refer to drawer” as there are insufficient funds in the account. This, therefore, gives the creditor (the person to whom the cheque is made payable to) the legal right to present a winding-up petition, if against the company, or a bankruptcy petition, if against an individual or sole trader, as they have an inability to pay their debts as set out in Sections 123/222 of the Insolvency Act 1986. The cheque must be for more than the insolvency limit for a petition to be presented and creditors can join their debts together to reach this threshold. Where there is a dishonoured cheque over the limit, the need for a statutory demand is extinguished. Interestingly, the law relating to dishonoured cheques now applies to dishonoured direct debits and, therefore, providing a direct debit is a promise to pay in the same way that a cheque is. This was confirmed by the Court of Appeal in the case of Esso Petroleum Co. Limited v Milton [1997].

Nowadays, it is also common practice to have a cheque supported by a cheque guarantee card. This can also strengthen your position as the bank is obliged to honour the cheque up to the value of the cheque guarantee card, whatever happens. The bank is only obliged to pay you once you have complied with the following conditions:

  1. That the cheque was from a pre-printed chequebook.
  2. That the cheque was signed in your presence.
  3. The transaction occurred before expiry of the cheque guarantee card.
  4. The details of the card, card number, expiry date etc., must be written on the back of the cheque.
  5. The amount of the cheque must not exceed the total of the cheque guarantee card.

Where you have, for example, a £100 cheque guarantee card limit and you have a transaction worth £200, multiple cheques cannot be guaranteed by the bank in the same transaction and, therefore, you are only protected up to the value of the first cheque as the bank is not obliged to pay beyond this value. A point to note, you should be careful to ensure that you carefully check the level of the cheque guarantee card.

The use of cheques and direct debits offers the seller greater protection if they are used in the appropriate way.

So, what should you do if a cheque has been dishonoured?

Upon receiving the notification from your bank of a dishonoured cheque, you should immediately contact the provider of the bounced cheque with notice of dishonour, pursuant to Section 48 of the Bills of Exchange Act 1882. Once notice of dishonour has been provided, and a reasonable time has elapsed, you then have the option of whether to issue Court proceedings, followed by an application for summary judgment, or as outlined above you can issue a petition if you believe the debtor is insolvent. Legal costs are only recoverable, save for fixed legal costs as specified by the court, where the sum outstanding is £10,000 or more.

We recommend you contact us for specialist legal advice as this article is written for information only and should not be used as a substitute for substantial advice on the facts of your case.

The information is correct as of August 2020.



Expert advice

Beware of the Rogues

Beware of the Rogues

We have recently become aware that there is a scam going around where an individual who has recently had a County Court Judgment (CCJ) receives a phone call from an alleged Bailiff who is pretending to work on behalf of The Northampton County Court.

All judgments entered are a matter of public record and therefore the information about whom has had a judgment against them is freely available.

The purported Bailiff calls and says that he will be attending the premises in a number of hours and that he is phoning to take a card payment to clear the judgment.  Of course, the payment is taken but this does not clear the judgment as this is merely an opportunist third party who is pocketing the proceeds.

We first became aware of this in what we believed to be a ‘one off’ last year, but in fact owing to our membership of the Civil Court Users Association, we have become aware that this is a much bigger fraud.  The purported Bailiff goes by the name of John Foster and it is very important to know there is a certified Bailiff who is called John Foster who is not involved at all in this matter.

Should you receive any call in relation to a judgment then we advise you to pick up the phone and speak to us to obtain immediate legal advice as to what options you have.

We also offer credit monitoring services as part of our monthly retainers so please contact us for further information if this is of interest.

Martin Kingman

How do I stay of the top of money owed to my business as the economy takes a downturn?

The main purpose of any business is to make a profit. In any downturn as work becomes scarcer, there is a temptation to lower the price you charge in order to maximise your share of the dwindling demand. This can become a race to the bottom; you need to consider whether you are competing on the right basis, especially for a long-term sustainable business.

As Aldo Gucci, the fashion designer said: “Quality is remembered long after the price is forgotten.”

You need to reframe your business so that you are concentrating on providing a quality service with value-added and not just a cheap, lowest price wins offering. Otherwise, longer-term, you are more and more susceptible to minuscule changes in the market.

As we look into the future, the next 3-6 months seems very uncertain for many of us, and many businesses have gone into survival mode as they try to prepare themselves for the storm which has for the first time affected the global economy worldwide almost instantaneously.

Longer-term advice includes ensuring you have a proper electronic accounting system – these are so easy to use from anywhere there is no excuse for you now not to have clear records of money you owe and invoices you have outstanding. You should ensure you have terms of business and have agreed when you will be paid for the work done. Finally, know who you are contracting with and understand legal entities such as limited companies and sole traders. We urge you to seek advice if you are unsure as it can be a costly mistake.

Here are my top 10 tips for you in these challenging times to stay on top of your money in the short term:-

  1. Issue the invoice as soon as you have done the work, follow up in the next 24/48 hours with confirmation it has been received and there are no issues being raised with the work.
  2. Produce a weekly aged creditors/receivables report to highlight who owes you money.
  3. From that report, call and follow up by email anyone who is overdue and get a confirmed payment date. If they are having an issue making the payment, try to agree to repayment by instalments.
  4. Contact anyone who is due to pay in the next few days to confirm the date and amount you will be paid.
  5. If an account is in arrears and beyond terms, when calling, always get debtors to take some action – and set a deadline of what has to be done by when.
  6. Where you know you are going to be encountering a cash-flow problem, talk to your suppliers and agree time to pay if necessary.
  7. Keep a close eye on your costs and outgoings to ensure you can maximise the amount of cash you have within the business, try to retain this money where you can for as long as possible.
  8. Remember to thank those who pay you on time, sounds simple and is, but stands you in good stead with the client.
  9. Be persistent but always remain polite, he who shouts loudest often gets paid first!
  10. Take expert advice either when the deadline set by you has passed or where the debtor goes quiet and be prepared to take action.


As debt recovery and insolvency experts, I and my team at Professional Legal Collections are happy to help. We offer a range of specialist services from Credit Control and debtor management, issuing letters before action and the legal process where necessary to get the rightful money paid to you. Contact us for a no-obligation conversation.


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I’m a director of a limited company – can I be pursued personally if it all goes wrong?

I’m a director of a limited company – can I be pursued personally if it all goes wrong?


On Saturday 28 March 2020, the Government announced that they would be modifying the Insolvency Act 1986 to allow businesses breathing space and allow them to continue to trade whilst options for recovery are explored. This is by looking to suspend a director’s personal liability for wrongful trading under that Act, amongst other steps. The detail is not yet known as the legislation has not yet been drafted and passed through Parliament, we understand it will be drafted and passed at the earliest opportunity.


Let’s explore the law as it stands at the moment, we can provide further Covid-19 specific advice as and when the details are released by HM Government.


Firstly, if you are a director of an incorporated company Ltd, PLC or LLP (that is a Private or Public Limited Company or Limited Liability Partnership) then you may think you are personally protected – that’s why you were advised to form the company in the first place, right?


Yes, well your personal liability usually is limited to the paid-up share capital that you may have put in as a shareholder. Directors are not usually personally liable for the acts and omission of the company which is a legal entity in its’ own right.


But, (yes there is a but), in certain circumstances you can be held PERSONALLY liable for the debts of a limited company or partnership. There are a range of circumstances where you will be held liable:


  1. You’ve signed a personal guarantee;
  2. You’ve pledged a person asset as security for a company debt;
  3. You’ve overpaid yourself from the company money and created an overdrawn Director’s Loan Account (DLA);
  4. You’ve paid yourself an illegal dividend from the company as a shareholder, when the company has not made a profit;
  5. You’ve permitted the company to dispose on an asset below its true market value;
  6. You’ve permitted the company to pay a creditor of the business in preference to another and the business is insolvent;
  7. You’ve permitted the company to continue to trade beyond the point that it ought to have known that it was insolvent and past the point of no return;
  8. You’ve misrepresented the facts or fraudulently applied for credit or taken deposits on behalf of the business knowing you would not be able to deliver;
  9. You’ve not acted in the best interests of the business and someone has suffered a loss as a result.


These are dealt with under either the Companies Act 2006 or the Insolvency Act 1986. If you have signed a personal guarantee or pledged a personal asset as security for a company debt or liability then generally you are bound by this and you will be obliged to honour the debt. We urge you to take professional advice before entering into such an agreement and also if you believe you have and you need to explore whether it is valid. There are some legal hurdles which have to be completed so we suggest you contact us to take professional advice on your particular issues today.


Where you have overpaid yourself as the company cannot afford to pay you or where you have paid yourself as shareholder and the company has not made a profit is an area we frequently see company directors falling foul of the law. This is dealt with under Part 23 (sections 829-830) Companies Act 2006.


Where you’ve permitted the company to dispose on an asset below its true market value, this is technically known as a transaction at an undervalue, covered under s238 Insolvency Act. Where the company undertakes a transfer of an asset as a gift or at significantly less than the true value of the item in the time up to 2 years before the company entered into insolvency. The transaction can be reversed by the court and you can be liable for the costs of the court proceedings.

Where you’ve paid one creditor of the company and not paid another this is called a preference payment as where there is an insolvent situation (or you ought to have known there was one) then you can attract personal liability if the transaction occurred within 6 months of the company becoming insolvent, there the party to whom the payment is made is a connected party then the time limit extends to 2 years. When money is tight, and an insolvent situation may occur you should seek professional advice and only pay all creditors on a pari-passu basis. That is in equal amounts as a percentage of the total debt.


Fraudulent or Wrongful trading are covered under sections 213 and 214 Insolvency Act respectively.  The wrongful trading section is likely to be suspended following the Government announcement. Fraudulent trading will more than likely not be as this involves the element of intent. Any person found guilty are liable to make contributions to the companies’ assets as the court thinks proper. This could have a serious and far reaching impact on you as a director, s993 of the Companies Act 2006 was extended by the Fraud Act 2006 to increase the penalty to up to 10 year’s imprisonment.


Where you knew or ought to have known that there was no reasonable prospect that the company would avoid going into insolvent liquidation and you as a director continued to allow the business to trade beyond that point then you can be personally liable for the losses from that point in time. You need to take expert legal advice from us on your position immediately if this is the case.


The final time is known as misfeasance, under s212 Insolvency Act 1986. This is a wide provision and can snare many unsuspecting directors who do not take advice when the business performance downturns and cashflow become tight. The section covers where a director (or former director) has misapplied or retained or become accountable for any money or property of the company.


In summary, the points above can be daunting and scary to the average director who is just trying to earn a living. We strongly recommend that you take expert advice to understand your liability and any downsides to any action you chose to take, it can save you a lot of money, heartache and stress in the future. As we move in very uncertain times, we urge you to make contact with us to ensure you are protected, and your personal position is not put in jeopardy.


The above is intended as a guide to our interpretation of the law and the Government announcements, it is not intended and should not be used in lieu of specific legal advice which we recommend you take before taking any further action.


Sharp rise in County Court Judgments (CCJ) against businesses in Q1/2019

The Registry Trust has released statistics for January to March 2019 which show a 12% increase in County Court Judgments (CCJ) against businesses. 35,779 judgments totalling £107.2m against businesses were registered in that 3-month period. This is a 6% rise from the level in Q1 2018.

The average value of the CCJ’s was £2,997 which is a 5% reduction from the value in Q1 2018.

Mick McAteer, deputy chairman of the Registry Trust commented:

“Business judgment data is an important indicator of the state of the economy. The numbers and value of judgments have risen for the third year in a row. But it is worth noting that these levels are still well below the peaks seen just after the financial crisis in 2009”

Martin Kingman CEO of Professional Legal Collections Limited notes:

“The increase is a worrying trend for UK plc as a whole. Businesses need to ensure that they are protecting themselves and carrying out due diligence before offering lines of credit.”

Our top 5 tips to help you protect your business are:-

1. Ensure you know who it is you are entering into an agreement with;

2. Carry out a credit check to give you a recommended contract limit and overall trading credit limit.

3. Do not offer credit beyond the recommended limit without getting additional security (such a a retention of title clause or personal guarantee in place).

4. Ensure you have up to date and signed terms of business or a bespoke contract in place to offer your business maximum protection.

5. Act quickly if the account goes beyond terms and speak to us as specialists if you are in any doubt about the best steps to take.