|
| This survey provides information on the use made of poinding and warrant sale procedure to enforce debts. The research drew on a sample of cases where the diligence was instructed in the years 1991 and 1992. In all, 4682 cases were selected from 5 court districts. The research project was commissioned by Scottish Courts Administration as part of a programme of work to evaluate the reforms made to the procedures for enforcing debts introduced by the Debtors (Scotland) Act 1987. |
|
| Main Findings |
- Of the cases in which poinding and warrant sale procedure was used, the vast majority progressed only as far as a poinding (63%), a further 34% resulted in an application for a warrant of sale being granted, but only 3% of cases resulted in a warrant sale being executed.
- In a slight majority of cases (55%) the debtors against whom the diligence was used were private individuals rather than businesses. However, cases involving businesses were twice as likely to progress as far as a warrant sale.
- The main types of creditor involved in enforcing debts against individual debtors were financial institutions, catalogue firms and professional services. Significantly, while a number of creditor types instructed poindings, they did not carry out warrant sales.
- Debts enforced using poindings and warrant sales tended to be low. Sixty-three per cent of private individual cases involved principal sums of less than £500. Although debts incurred by business debtors tended to involve higher sums, 46% of cases in which the diligence was used were also below £500.
- Overall, goods to the value of one-third of the outstanding debt were attached in poindings instructed against private individuals. In 63% of these poindings, the total value of goods was less than £250. In relation to poindings carried out against businesses, goods with a total value of 78% of the outstanding debt were poinded and in 60% of cases the total value of goods poinded was above £450.
- Overall, warrant sales instructed against private individuals recovered 22% of the total outstanding debt in the cases studied. However, no sale recovered the outstanding debt and 82% made no contribution to the original debt and only partly paid off the expenses of the case. A higher level of recovery was recorded in relation to business warrant sales. Such warrant sales recovered 36% of the total outstanding debt and, on a case by case basis, 8% of sales resulted in all of the debt being repaid and only 46% made no contribution to the debt and only partly paid off the expenses of the case.
- The effectiveness of warrant sales in realising debts seems to have declined since 1977. The most notable decline in effectiveness applied to sales involving individual debtors where the proportion of cases which did not recover all of the expenses (let alone the original debt) doubled from 40% in 1977 to 82% in 1991/2, while the proportion of sales which recovered the total debt declined from 3% to 0%.
|
|
| Introduction |
| This survey forms part of a programme of research designed to evaluate the Debtors (Scotland) Act 1987 (the Act). This Act introduced a series of reforms to debt enforcement by diligence which were designed to address the deficiencies of the existing debt enforcement system 1. The evaluation was commissioned by Scottish Courts Administration and conducted by the Legal Studies Research Branch of The Scottish Office Central Research Unit. |
| The reforms introduced by the Act included reforms to the diligence of poinding and warrant sale which sought to provide greater protection for debtors subject to enforcement by this diligence. These changes included introducing rights given to debtors to seek the release of poinded articles or the recall of a poinding on various grounds; or to object to the grant of a warrant of sale 2. Procedural changes were also introduced to the diligence, including an increase in the types of goods which could not be poinded and a requirement that the written consent of the debtor and any other occupier be obtained before a warrant of sale can be carried out in the debtor's home. |
| Poinding and warrant sale procedure involves a three-stage process culminating in the execution of a warrant sale. These 3 stages are the poinding, the application for a warrant of sale, and the warrant sale. Following the service of the charge, officers of court are instructed by the creditor to carry out a poinding (the first stage). This involves the officers of court entering the premises of the debtor in order to attach and appraise the value of goods for possible disposal at a warrant sale. The second stage, the application for warrant of sale, is where creditors seek the permission of the court to carry out the sale, and the final stage is the warrant sale itself where goods are sold by way of public auction. |
| The aim of the survey of poindings and warrant sales was to provide information about the current use made of the diligence to inform the evaluation of the Act 3. Specifically, the study sought to provide information on the characteristics of cases in which the diligence was used; the outcome of poindings and warrant sales; and any changes in the use made of the diligence following the introduction of the Act. |
| The information reported in this study is limited to that which can be obtained from court records, specifically reports of poinding and reports of sale which officers of court are required to lodge with the court 4. While these data sources provide valuable information about key aspects of poinding and warrant sale procedure, they do not provide information about, for example, why the diligence stops at a certain point. |
|
| Case characteristics |
| The survey found that very few cases involving poinding and warrant sale procedure actually resulted in a warrant sale being carried out. In 63% of cases a poinding only was carried out, in a further 34% of cases an application for a warrant of sale was granted and in only 3% of cases was a warrant sale executed. Cases in which the diligence was used were slightly more likely to involve individual debtors (55%) as compared to business debtors (45%). However, cases instructed against individual debtors, as compared to cases involving business debtors, were half as likely to progress to either the point where an application for a warrant of sale was granted or a warrant sale was carried out. For both types of debt, however, the proportion of cases resulting in a warrant sale being carried out was low. |
|
| Enforcement of private individual debts |
| The main creditors who used the diligence to enforce debts against private individuals were financial institutions, catalogue firms and professional services, which together were responsible for two-thirds of all poindings instructed. It is interesting to note that while a number of creditor types did instruct poindings, they did not carry out any warrant sales. These cases involved catalogue firms, utilities, fine enforcement cases and public bodies, and may reflect a reluctance by these creditors to use warrant sales for public relations reasons. 5 |
| A high proportion of cases involving poinding and warrant sale procedure were for relatively low principal sums. Three-quarters of all debts enforced against private individuals were sued under small claims procedure for amounts of £750 or less. A comparison made with the principal sum of actions raised in the sheriff court suggested that creditors were more likely to enforce small claims decrees using poinding and warrant sale procedure than higher value cases raised under ordinary cause procedure. However, despite this observation, cases raised under ordinary cause procedure (with value in excess of £1500) were slightly more likely to result in a warrant sale being carried out. Overall, however, nearly two-thirds of warrant sales which were carried out were raised under small claims procedure and as a consequence were for a principal sum of £750 or less. |
| The research was also able to measure the time taken for cases to progress through key stages of the diligence. The average time taken for cases to progress from the charge to the poinding was 19 weeks. The length of time between the date of the poinding and the date the warrant of sale was granted was also 19 weeks. Finally, the average time period between the warrant of sale being granted and the date of the warrant sale was 9 weeks. There was a tendency for cases which resulted in a warrant sale being carried out to progress more quickly than those cases which stopped at an earlier point. |
|
| Enforcement of business debts |
| In cases involving business debtors, a different range of creditors was identified. Main users were retailers/wholesalers, manufacturing/commercial suppliers, or professional services. This suggests that debts enforced using the diligence arose in the course of normal trading activities rather than arising from the use of credit as in the case of individual debts. All creditor types involved in enforcing business debts carried out warrant sales. The largest category of business debtor subject to enforcement by poinding and warrant sale procedure was retailers who were involved in about half of all cases. The next biggest category was construction/trades firms. |
| Against business debtors, the diligence tended to be used to enforce higher value debts compared to the use of the diligence against private individuals. However, analysis of the value of the principal sum sued for shows a majority of cases were nevertheless raised under small claims procedure and involved principal amounts of £750 or less. A comparison with actions raised in the sheriff court supports the trend identified above _ that creditors were more likely to seek to enforce decrees for principal sums of £750 or less by poinding and warrant sale procedure. |
| The length of time taken by business debt cases to progress through the diligence was much less than that shown for debts enforced against private individuals. Cases took an average of 9 weeks to progress from the charge to the poinding, and also from the date of the poinding to the granting of an application for a warrant of sale. The time between the granting of the warrant of sale and the actual date of the sale was 8 weeks. No relationship between the speed of progress and the stage at which the diligence concluded was identified for these cases. |
|
| The outcome of poindings |
| The research collected information about poindings, including the types of goods which were attached and their appraised values. |
| On average, each domestic poinding resulted in 4 articles being attached, valued at £71 each. The vast majority of goods poinded from individuals were either household electrical goods valued on average at £55 or household furniture valued at £32. Two-thirds of the poindings had a total appraised value of less than £250. Typically, a larger number of goods with higher appraised values were attached in business poindings. On average, each business poinding resulted in 5 goods being poinded, valued at £251 per item. The vast majority of goods were either business furniture or business equipment. In over half of all business poindings (60%), the total appraised value was over £450. |
| The above differences between domestic and business poindings, in the types of goods poinded and their appraised value, affected the likely recovery rate of the diligence as judged at the point of the poinding. Both overall, and on a case by case basis, business poindings were more likely to have the potential to realise the outstanding debt at this point. In overall terms, business poinding resulted in goods to the value of 78% of the total outstanding debt being poinded compared to 34% in the case of domestic poindings. On a case by case basis, the total appraised value of goods in business poindings covered all expenses and some of the principal sum in 96% of cases compared to 72% in domestic poindings. For both domestic and business poindings, the likelihood of the diligence realising sufficient money to cover the outstanding debt was not a good predictive tool for the stage to which the case would ultimately progress. |
|
| The outcome of warrant sales |
| One in 50 domestic poindings and one in 25 business poindings resulted in a warrant sale. In the warrant sales instructed against private individuals, nearly two-thirds of the goods were sold and just over one-quarter were adjudged to the creditor. In warrant sales instructed against commercial debtors, just under half of the goods were sold (45%) and a similar proportion were adjudged (42%). Of note is the fact that warrant sales instructed against businesses resulted in a lower proportion of goods sold and a higher proportion of goods adjudged than warrant sales instructed against private individuals. This situation may partly be explained by the fact that no warrant sales instructed against private individuals took place on the debtor's premises, while 72% of warrant sales instructed against business debtors took place on the debtor's premises. In the SOCRU Study of Facilitators (Fleming, 1998), officers of court expressed the view that warrant sales were more successful when they took place in premises other than those belonging to the debtor. |
| Part of the task of officers of court in the poinding is to give a value to the poinded goods equivalent to what they would get if sold on the open market. This aspect of the procedure is one which officers of court have reported finding very difficult. However, the research data show that, by and large, officers of court predict with reasonable accuracy the price goods will achieve at auction. |
| An important measure of the effectiveness of poinding and warrant sale procedure is the extent to which any sale covers the outstanding debt. In warrant sales instructed against private individuals, the proceeds of all sales amounted to 22% of the total outstanding debt, while in relation to sales instructed against businesses the proceeds amounted to 36% of the outstanding debt. On a case by case assessment of those personal warrant sales which went ahead, none realised the outstanding debt and 58% made no contribution to the original debt and realised less than half the expenses of the sale. A higher level of recovery was recorded for business sales: 8% of sales recovered the total debt while only 28% recovered less than half the expenses. |
| In the course of the diligence, payments were recorded as being made towards the debt by 40% of individual debtors and 20% of business debtors. The sums involved amounted to 10% of the total individual debt and 20% of the total business debt. It is likely that these figures do not show the full picture of payments made by debtors since they do not record payments which result in cases dropping out of the system. |
|
| Changes in the pattern of use |
| It is possible to compare the use of the poinding and warrant sale diligence as outlined in this research study with the use made prior to the introduction of the Act. Connor's research 6 looked at all the characteristics and outcome of all warrant sales which occurred in Scotland in 1977. By comparing this 1977 information with that collected for this study in 1991/2, it is possible to see how the use and impact of the diligence has changed. |
|
| Creditor types |
| Slightly different creditors use poinding and warrant sale to enforce debts incurred by private individuals now compared to 1977. Although lending organisations remain the most active organisations in instructing warrant sales, their activity in this area has declined slightly; lending organisations were responsible for 27% of warrant sales in this survey compared to 31% of such actions in 1977. Other organisations show a decline in use of warrant sales: retailers were responsible for 22% of actions involving a warrant sale in 1977 but in 1991/2 this had declined to 7%; the utilities and catalogue firms were, respectively, responsible for 15% and 8% of warrant sales in 1977 but made no use of warrant sales in 1991/2. The use of warrant sales by professional services seems to have increased, in contrast to the other creditor types: professional services instructed 2% of warrant sales in 1977 compared to 27% of warrant sales in this research. |
| Examining changes in the different creditors instructing diligence against businesses was more difficult because of the different categories of creditor type identified in the 2 surveys. However, a number of trends emerge. Firstly, the use of poinding and warrant sale by financial institutions to enforce debts incurred by businesses has declined from 13% in 1977 to 3% in 1991/2. Secondly, a slight increase in the use of the diligence by private individuals to enforce debts is indicated: from 0% in 1977 to 3% in 1991/2. |
|
| Outcome of warrant sale |
| In relation to the use of warrant sales to enforce debts against individual debtors, a decline in the effectiveness of the diligence was observed. In 1977, warrant sales were reported as realising assets equal to 40% of the value of the overall debt studied, while in 1991/2 this figure had declined to 22%. In terms of individual cases, the proportion of cases which did not pay off the expenses of the cases (let alone the original debt) had doubled from 40% to 82%. |
| A similar assessment of the effectiveness of the diligence in relation to the enforcement of business debts provides a slightly mixed picture. On an overall basis, a comparison between the research data sets suggests that there has been some improvement in the overall recovery rate of warrant sales: from 23% of the debt to 36% of the debt. However, analysis on a case by case basis suggests that this improvement may be the result of a few very successful warrant sales rather than an improvement across all warrant sales. |
|
| Conclusion |
| The survey indicated that most cases involving poinding and warrant sale procedure progressed no further than a poinding, and only a small minority (3%) progressed as far as the execution of a warrant sale. Enforcement of business debts was more likely to progress beyond the execution of a poinding than the enforcement of personal debts. |
| In a majority of cases involving private individuals, the diligence was used to enforce debts arising out of the use of credit while, in relation to business debtors, the diligence tended to be used to enforce debts arising out of normal business activity. For both categories of debt, the sums involved tended to be small. Overall creditors were more likely to instruct a poinding in relation to a debt sued under small claims procedure (equal to £750 or less) than they were for an ordinary cause action (equal to £1500 or more). |
| The diligence tended to be executed faster in relation to commercial debts than private individual debts, although cases involving private individuals where a warrant sale took place tended to progress faster than those which did not involve a warrant sale. The research revealed no obvious patterns in relation to the progress of the case and the value of the poinded goods. |
| From the information available from this survey, it is possible to comment on one important measure of the effectiveness of the diligence in recovering debts _ its ability to realise assets when a warrant sale is executed. The survey suggests that when warrant sales are executed, the number of occasions on which they fail to cover the expenses of the actions has increased since 1977. Significantly, in relation to enforcement of individual debtors, warrant sales would seem to continue to be instructed in situations where the proceeds of the sale are very low, so low that they fail to cover the actual sale expenses. The Act sought to prevent the use of the diligence in such situations. |
|
| About the study |
| The Debtors (Scotland) Act 1987 aimed to strike an equitable balance between the interests of creditors and debtors by providing effective machinery for the recovery of debts, while at the same time ensuring that debtors were protected from undue economic hardship and personal distress. The Act dealt with 3 main areas: firstly, it introduced 2 new procedures - time to pay directions and time to pay orders - to give debtors time to pay their debts free from the threat of diligence; secondly, it introduced reforms to the procedures for poindings and warrant sales; and thirdly, it introduced 3 new diligences against earnings - the earnings arrestment, the conjoined arrestment order and the current maintenance arrestment - replacing the previous system of arrestment of earnings and action of furthcoming. |
| Scottish Courts Administration commissioned a programme of research to evaluate how the Act was working in practice and the extent to which it was meeting its main objectives. The research consisted of 7 separate studies. Four qualitative studies sought information on the views and experiences of commercial creditors, individual creditors, debtors and facilitators (solicitors, advisers, sheriffs, sheriff officers) and 3 quantitative studies examined the characteristics of payment actions, the characteristics of poindings and warrant sales, and trends in the use of the measures introduced by the Act. Findings from each of the studies, as well as an Overview, have been published by The Scottish Office Central Research Unit (SOCRU) as follows: |
- Headrick, D. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Individual Creditors. (Report and Research Findings No.10)
- Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Commercial Creditors. (Report and Research Findings No.11)
- Whyte, D. (1999) Evaluation of the Debtors (Scotland) Act: Study of Debtors. (Report and Research Findings No.12)
- Fleming, A. (1999) Evaluation of the Debtors (Scotland) Act: Study of Facilitators. (Report and Research Findings No.13)
- Fleming, A. (1999) Evaluation of the Debtors (Scotland) Act: Survey of Poindings and Warrant Sales. (Report and Research Findings No.14)
- Fleming, A. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Survey of Payment Actions in the Sheriff Courts. (Report and Research Findings No.15)
- Fleming, A. and Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Analysis of Diligence Statistics. (Report and Research Findings No.16)
- Platts, A. (1999) Evaluation of the Debtors (Scotland) Act: Overview. (Report only)
|
|
| 'Evaluation of the Debtors (Scotland) Act 1987: Survey of Poindings and Warrant Sales', the research report summarised in this Research Findings, is available priced £5. Cheques should be made payable to the Stationery Office and addressed to: |
The Stationery Office Bookshop, 71 Lothian Road, Edinburgh, EH3 9AZ.
Telephone: 0131-228 4181
or Fax: 0131-622 7017
http://www.thestationeryoffice.co.uk |
|
| This Research Findings may be photocopied or further copies may be obtained from: |
The Scottish Office Home Department,
Central Research Unit,
Room J1-0,
Saughton House,
Broomhouse Drive,
EDINBURGH EH11 3XA |
|
| This document and other Research Findings and Reports may be viewed on the internet at http://www.scotland.gov.uk/cru/ |
|
| Footnotes |
| 1 Report on Diligence and Debtor Protection (1985), Edinburgh: The Scottish Law Commission, No. 95. |
| 2 The Debtors (Scotland) Act 1987, Sections 16(4), 23(1), 24(3), 30(2). |
| 3 The study did not examine the use of poinding and warrant sale procedure in relation to the enforcement of summary warrant debts arising out of the non payment of various taxes. |
| 4 No such requirement exists for summary warrant debts. |
| 5 See Platts (1998) Study of Commercial Creditors, Edinburgh: SOCRU. |
| 6 Connor, A. (1980) The Characteristics of Warrant Sales, Edinburgh: SOCRU. |