Debt Recovery Disputes A realistic alternative to the Courts Diana Ennis – Manager Dispute...
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Transcript of Debt Recovery Disputes A realistic alternative to the Courts Diana Ennis – Manager Dispute...
Debt Recovery DisputesA realistic alternative to the Courts
Diana Ennis – Manager Dispute Resolution
Terms of Reference Expedited dispute resolution process Dispute data Jurisdiction Hot topics:
– Preservation of assets– Settlement agreements
Case studies
Discussion Points
Legal proceedings and debt recovery action – The Circular Issue 3 www.fos.org.au/publications
Defined as:
“a proceeding commenced in a court by the FSP to obtain judgment for a debt, or for recovery of
possession of an asset provided by a debtor or guarantor as security for a credit facility”
While FOS is dealing with a Dispute lodged by an App the FSP must not instigate legal proceedings against the App relating to the subject of the Dispute (13.1(a)(i))
TOR paragraph 13.1
While FOS is dealing with a Dispute lodged the FSP must not pursue legal proceedings relating to debt recovery instituted before lodgement unless the Applicant has taken a step in those proceedings beyond lodging a defence or defence and counterclaim (13.1(a)(ii))
The FSP must not seek judgment in those proceedings
TOR paragraph 13.1
A step beyond lodging a defence/defence & counterclaim includes App:
- defending application for summary judgment
- issuing notice for discovery or subpoenas
- issuing application for further and better particulars of the claim
- serving interrogatories
- issuing a notice to produce
A step beyond lodging a defence/defence & counterclaim does not include:
- lodging an amended defence
- directions hearing/consent orders of procedural nature
TOR paragraph 13.1
While FOS is dealing with a Dispute lodged the FSP must not take action to recover a debt that is the subject of the dispute, to protect assets securing that debt or to assign any right to recover that debt (13.1(a)(iii))
This includes:
- taking possession of secured property
- appointing a Receiver & Manager
- serving of demands or notices
- collection calls
- assigning the debt
- making a credit listing
TOR paragraph 13.1
Two exceptions subject to FOS consent and terms: FSP may issue legal proceedings where the
relevant limitation period will shortly expire (13.1(b)(i))
FSP may exercise any rights to freeze or preserve assets the subject of the Dispute (13.1(b)(ii))
TOR Paragraph 13.1
FSP obligations arise out of membership contract and FOS Constitution (clause 3.7)
FSP failure to comply with FOS requirements concerning legal proceedings and debt recovery action can result in:
- serious misconduct reported to ASIC (11.3)
- cancellation of FOS Membership
- requirement that legal proceedings be discontinued at no cost to App
TOR obligations
Background December 2009, ASIC approved the FOS TOR
subject to certain conditions, including:
Identify: Early identification where debt recovery legal proceedings commenced
Expedite: Treat the dispute as urgent and expedite the dispute resolution process
Dispute data: Provide data to ASIC for a review in July 2011
1
2
3
Date and time of lodgement of dispute with FOS or other EDR scheme (if referred on from other EDR scheme) - 6.5 TOR
Legal proceedings must be issued and filed in a Court prior to lodgement
Default notices/letters of demand alone are not legal proceedings
Legal proceedings must relate to the repayment of a debt which is the subject of dispute
Criteria for LPPI
Assessed upon lodgement of dispute:– Information provided by App relied upon– Documentation or verbal information– Online dispute form
Onus on FSP to tell us not LPPI– You know, we don’t– We will assume LPPI unless told otherwise
We rely on you to provide: – Relevant Court documentation– Current status of proceedings
Identify1
Registration
Acceptance Case Management
• Recomme
ndation
• Determination
• Review
• Negotiation
• Conciliatio
n
• Investigation
• Internal
Dispute Resolution
Expedite Initial IDR period (21/45 days) waived
2
Immediately progressed to Acceptance– Referral within 2 business days
Prioritised over other disputes– Expedited referral to FSP and review of response– Expedited allocation to compulsory TCC– Expedited decision
Only where shorter timeframes met by FSP
Expedite2
Expedite2
Upon initial referral of dispute FOS will request:– Relevant Court documentation:
Defence or defence and counterclaim Notice of discontinuance dated prior to lodgement of dispute Judgment (if applicable to demonstrate OTR) Interlocutory applications/documentation
– Documentation relevant to the issues raised by App including response to App
Copies of prior settlement agreements /repayment arrangements important
This will not occur when:– Incomplete FSP response received– FSP response not received within 14 days– FSP requests extension of time to respond
If de-expedited usual dispute resolution process timeframes apply
TCC still compulsory LPPI $1,000 surcharge applies from Review
status regardless of when or whether dispute de-expedited
Expedite2
• Initial case management
fee
$500
• LPPI surcharg
e
$1,000
• Usual case fee$....
Expedite - LPPI costs
Expedited referral
Payable even where no LPPI or OTR
Cost if documented resolution within 14 days
Payable if progressed
Applies to all LPPI disputes (expedited/de-expedited) at Review status
Determined at closure
Depends on closure status and complexity level
2
Expedited disputes result in speedier outcomes 59% dealt with expeditiously
– 56% resolved within 60 days– 25% resolved between 60 - 90 days– Overall resolution 81% within 90 days
41% LPPI disputes de-expedited– 16% resolved within 60 days– 20% resolved between 60 - 90 days– Overall resolution 36% within 90 days
Expedite2
No. of Days Expedited De-expedited< 30 23% 4%
31 - 60 33% 12%61 - 90 25% 20%
91 - 120 10% 17%121 - 180 6% 27%
Above 180 2% 20%
Expedite
< 30
31 - 60
61 - 90
91 - 120
121 - 180
Above 180
0% 5% 10% 15% 20% 25% 30% 35%
De-expedited
Expedited
Days
2
Facilitated negotiation prior to TCC – this is where FSPs need to focus
Settlement agreement reached during/post TCC Where no resolution expedited to decision within
7 days Recommendation Ombudsman’s Case Conference
Outcomes2
Expedited Determination (8.6)– proceed to final decision where appropriate– all parties to the dispute notified– reasonable opportunity for parties to make
submissions and exchange information Criteria to expedite
– dispute involves financial difficulty issues only– property securing debt may need to be sold– App has not agreed to or taken any steps to repay
outstanding debt
Outcomes2
Marc
hApril
May
June
July
August
Septem
ber
Oct
ober
Novem
ber
Decem
ber0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Not resolved
Resolved
Compulsory TCC - 83% resolution rate in 2010
Expedite2
Conciliated outcomes:– repayment
arrangements 61%
– agreed sale timeframe 26%
Expedite - TCC outcomes2
Repayment a
rrangem
ent / v
ariatio
n
Timefra
me fo
r sale
of a
sset o
r refin
ance d
ebt
APRA rele
ase
Debt waive
r
Oth
er Com
merc
ial R
esolu
tion
0%
20%
40%
60%
Expedited V De-expedited
(%)
Expedite
Jan-1
0
Feb-10
Mar-1
0
Apr-10
May-
10
Jun-1
0
Jul-1
0
Aug-10
Sep-10
Oct
-10
Nov-10
Dec-10
Jan-1
1
Feb-11
Mar-1
1
0%
10%
20%
30%
40%
50%
60%
70%
80%
De-expedited Expedited
2
FOS has collated data on:– LPPI disputes received– Number of days dispute open– Whether App is individual or small business– OTR reason– Nature of dispute– Numbers of disputes expedited and de- expedited
Quarterly reports provided to ASIC ASIC review post 30 June 2011
Dispute Data3
Dispute Data
0
20
40
60
80
100
120
140
160Volume Received
Growth of LPPI disputes
Increasing challenge for all to expedite
Feb 201061 per month
March 2011141 per month
3
Dispute Data3
Jan-1
0
Feb-10
Mar-1
0
Apr-10
May-
10
Jun-1
0
Jul-1
0
Aug-10
Sep-10
Oct
-10
Nov-10
Dec-10
Jan-1
1
Feb-11
Mar-1
10
20
40
60
80
100
120
140
160
Opened Closed
Open V Closed
Dispute Data3
Jan-1
0
Feb-10
Mar-1
0
Apr-10
May-
10
Jun-1
0
Jul-1
0
Aug-10
Sep-10
Oct
-10
Nov-1
0
Dec-1
0
Jan-1
1
Feb-11
Mar-1
10
10
20
30
40
50
60
70
80
Closed: expedited V de-expedited
Expedited closed De-expedited closed
Who lodges disputes?
Which products?– 93% consumer credit products– 6% business finance
What is the nature of the dispute?– Majority Financial Difficulty (81%)
Dispute Data3
6%
93%
1%
Business Finance
Consumer Credit
Guarantees
Within TOR
Dispute Data
60%40%
Within TOR
OTR
61%18%10%
Dealt with by CourtMore appropriate placeNot a current FOS member
OTR Outcome
3
Where dispute assessed as within TOR documentation must be provided to show otherwise– FSP written submission with reasons for why considered OTR– App provided 30 days to object
Misguided Terms of Reference submissions result in delays
Common misconceptions to exclude:– A dispute which is lacking in merit is not necessarily frivolous or
vexatious– Complex factual and legal issues– Eroding security – court timeframes apply equally where defended
in court
Jurisdiction
Preservation of Assets We recognise it may be necessary for FSP to preserve
assets that are subject of dispute FSP to request in writing & provide supporting
documentation explaining:– What action it wants to take– Why it is more likely than not asset will be lost or
destroyed if consent not given – erosion of equity alone not generally sufficient
Each application considered on individual merits
App small business which operated real estate agency. FSP entered into various facilities one of which was to assist in the purchase of rent roll
FSP had fixed and floating charge over business (including rent roll), personal guarantees & mortgage over property
Deficiency in trust fund relating to the rent roll, estate agents licence cancelled and guarantors bankrupt
FOS dispute concerning financial difficulty lodged. Substantial arrears and App seeking time to refinance
FSP provided full details of loans and current status, documentation about trust fund deficiency and documentation to show discussions had been held between App and third party about sale of rent roll
FOS consented to appointment of Receiver & Manager on basis rent roll at risk of sale to third party. FOS did so on condition that R&M take no action to sell asset while FOS file open
Case study
App lodged a dispute concerning financial difficulty in relation to a car loan which was in arrears. The car had been in the possession of a repairer for a year because App could not afford to pay for the repairs. FOS consented to the FSP taking possession of the car on the basis that the car not be sold while the FOS file remains open
App lodged a dispute with FOS concerning financial difficulty in relation to a car loan. The car was insured and registered and in the possession of App’s mother who was his authorised representative. FSP said that loan was in arrears and App in jail. FSP requested consent to repossess the car on basis no repayment arrangement could be made while App in jail. FOS did not consent to repossession on the basis that the car was at no additional risk of loss or damage.
Case Study
FOS will not generally consider a dispute which has previously been settled unless exceptional circumstances apply. This is because liability of FSP is discharged at law
Exceptional circumstances may apply if agreement harsh or unconscionable, FSP induced/misled App to enter into agreement/App agreed to enter into settlement under duress (illegitimate pressure)
Informing an App that an FSP intends to exercise its contractual rights if the agreement is not met is not in itself considered duress
Each dispute assessed on a case by case basis.
Settlement agreements
Provide finality
Bendigo and Adelaide Bank Limited v Tombs and Anor [2010] NSWSC 1427 at 40
Must reflect agreement between parties without addition Deal with consequences of non-compliance Deal with current legal proceedings:
– Discontinue– Should not require consent to judgment
Reflect resolution is in full and final settlement of FOS dispute
Settlement agreements
App lodged a dispute concerning financial difficulty and seeking time to sell security properties. App had been in financial difficulty for some time and negotiations had been entered into resulting in a Moratorium Deed being signed by the parties prior to lodgement of the FOS dispute
The Deed set out the terms of settlement which included the following:
- various payments to be made on specific dates
- App acknowledgment that legal advice had been obtained by App prior to entering the deed/opportunity had been provided to obtain
such advice
- App acknowledgment that if he failed to make payments FSP entitled to enforce its rights in full in accordance with the T&Cs of securities
FOS assessed the dispute as OTR by applying the general exclusion under 5.2 TOR on the basis that the dispute had previously been settled.
Case study
Ensure the dispute remains expedited:– Provide substantive responses– Provide timely responses– Increased chance of resolution within 90 days if
expedited Be commercial and flexible
– Exhaust opportunities to resolve - don’t wait for a TCC!– Think creatively and laterally– Approach dispute with fresh eyes
Document settlement agreements
Timely and cost effective resolution
Questions?
Resolution