(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)

Judges, optimistic claimants and large financial institutions are becoming something of a regular combination for this blog.

News has emerged this week that judges in England and Wales are considering putting on hold up to 100,000 claims for the cancellation of credit card and other consumer debts. Many of the cases have been generated by claims-handling firms advertising in newspapers and on TV.

The firms argue that the debts cannot be enforced if lenders have not kept the right paper work and needless to say many debt ridden hopefuls have leapt at the chance to have their burden lifted from them.

Apparently the judiciary is planning to select a few claims for a test case in the High Court to decide the issues involved. The aim is to find a way of dealing with a very large number of claims in a sensible time.

The intention of the judiciary has been revealed in a recent letter written by Judge Derek Halbert, the head civil judge in Cheshire.

Part of the letter reads, “It is apparent that there are a number of claims to be commenced nationally in which the main claim will be for a declaration of the invalidity of a credit agreement for non-compliance with the Consumer Credit Act (CCA).”

Estimates vary but up to 100,000 claims may be involved. No deadline has been set for any decision on the test case, which will be decided by Lord Justice Moore-Bick, the deputy head of civil justice.

Last year, a Staffordshire couple gained widespread publicity for managing to persuade lenders to write off more than £65,000 of assorted credit card debts and other loans.
They relied on various arguments, including that the lenders had not produced accurate paperwork to back up their loans, or had not complied with other requirements of the CCA.

However, when they went to the High Court to challenge further debts, and establish a legal precedent, they lost.

Judge Simon Brown accused them of lying, and said their arguments were factually and legally flawed, describing some of them as “pure sophistry” or “totally without factual or legal merit”. So it would seem that there is still some way to go in establishing the exact stance of the law.

The idea that some borrowers might be able to renege on some of their debts hinges on the wording of the 1974 CCA, which covers agreements struck before the advent of a new Act in 2006. The purpose of the 1974 Act was stop unscrupulous lenders exploiting unsophisticated borrowers.

But according the Consumer Action Group (CAG), it also contains requirements that can be used by some borrowers. If you write to the lender under the CCA asking for a ‘true copy’ of loan agreement and they are unable to supply it in the required time, then it becomes an unenforceable agreement.
It is now clear that tens of thousands of such claims, based on this and other requirements of the 1974 Act, have been building up, garnered in many cases by claims-handling firms, and threatening to swamp the county courts.

Claims-handling firms are regulated by the Ministry of Justice. In February, as discussed here on this blog, the ministry and the Office of Fair Trading (OFT) warned they would close down any firms which made misleading claims about their ability to get their clients’ debts written off.

The CCA issue has clear parallels with that of the bank charges saga, in which tens of thousands of claims for the return of bank overdraft charges were put on hold in the summer of 2007 pending the outcome of a High Court test case.

That has still not resolved whether overdraft charges are fair or not, and the first part of the litigation between the banks and the OFT reaches the House of Lords for an appeal in June.

The Commercial Court, part of the High Court, has agreed to hear any CCA test cases. From the bank charges saga it would seem that there is hope but it is distant. The courts take an awfully long time to decide these things so anyone hoping for instant relief will be disappointed.

(For more future updates, kindly subscribe to this blog's feeds via RSS reader or via e-mail.)

In some gloomy but significant news, the number of people being declared bankrupt in England and Wales has hit a new record, according to the government’s Insolvency Service.

In the first three months of the year there were a record 19,062 bankruptcies and 10,713 individual voluntary arrangements (IVAs).

There was better news from the business figures, the number of companies going bust in England and Wales fell back in the first three months of the year. However the figures were still 54% higher than a year ago.

Insolvency specialists have predicted that personal insolvencies might rise above 125,000 this year. This reflects both the stresses of high levels of personal debt and rising unemployment and a record number of entrepreneurs going bankrupt on the back of their business’s failure.

In the first quarter of 2009 there were 29,774 personal insolvencies in total, 1.6% up on the previous quarter and 19% up on a year ago.

The annual number of people being declared insolvent was steady during 2006, 2007 and 2008. But the figures started to rise in the middle of last year, reflecting the plunge of the economy into recession.

A personal insolvency expert at KPMG has said the numbers will grow, especially when Debt Relief Orders for people with debts of below £15,000 were taken into account.

Debt Relief Orders were introduced about a month ago and are going to add to these insolvency figures and take them to even higher levels.

One analyst has suggested that when the figures are all put together we shall be faced with record levels of personal insolvency.

In addition to the personal bankruptcies there were also 1,783 corporate insolvencies such as receiverships and administrations in the first three months of the year, 27% fewer than in the last quarter of 2008.

Insolvency specialists warned, however, that this dip was not the start of a new downward trend. “Today’s statistics firmly squash the notion that there are any green shoots of recovery out there.”

Since last autumn many of the companies declaring themselves insolvent have suffered significant drops in turnover that they have been unable to replace. It is difficult to foresee there being a slowdown in the rate of company insolvencies until the middle of next year.

The number of company liquidations in England and Wales, the end stage of the process for companies, saw a continued increase. There were 4,941 compulsory liquidations and creditors’ voluntary liquidations. That was 7.1% more than in the previous three months, and 56% more than a year ago.

This is the sobering news that provides the realistic alternative to those government ministers parroting the clichéd and yet implausible rubbish about green shoots and immediate recovery. It also paints last week’s budget in a darkly comic light.