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Administration Orders and Composition Orders
What is an Administration Order?
If you are experiencing financial difficulties and you are unable to pay your creditors (the people you owe money to), an Administration Order may help you.
An Administration Order is a court order that allows you to make one payment to the court each month, who will then distribute this payment to each of your creditors on a ‘pro rata’ basis (e.g. each creditor gets a percentage of the monthly payment based on the amount they are owed).
You will usually be expected to repay the whole amount you owe to each creditor, although the court can also make a ‘composition order’ (see below), which means that only a proportion of the debt must be repaid.
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| Alternatives to Administration Orders...
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Depending on your circumstances, an Administration Order may not be a suitable strategy for dealing with your debts, and we would strongly recommend that you seek professional advice before deciding whether or not to apply for an Administration Order. To apply for an Administration Order, you must:
- Have two or more outstanding credit debts; and
- Have at least one County Court Judgement against you; and
- Have debts totalling no more than £5,000
What is a Composition Order?
A Composition Order is a variation to a normal Administration Order where, instead of being ordered to repay the full amount of your debts, you will be ordered to only pay a percentage of what you owe, with the remaining amount being written off.
A Composition Order may be granted if it seems unlikely that you will be able to pay off your debts within a reasonable time, and is generally more appropriate for people who are on a low income, such as the sick, disabled, elderly, unemployed and lone parents.
Only a District Judge will have the power to make a Composition Order, and should consider whether a Composition Order is appropriate when considering an application for an Administration Order. However, it is unlikely that a Composition Order will be granted straight away, and the usual practice is that a Composition Order will be made at a review of the original Administration Order, usually after the first year.
How do I get an Administration Order set up?
In order to get an Administration Order set up, you must apply to the court by filling in a form (N92), which can be obtained from your local County Court office. Each form should come with guidance notes (form N270) to help you complete it.
You will need to complete the form, giving your name, address and personal details, a list of all of your creditors (you may also have to supply proof of each debt, such as a letter from your creditors stating the balances outstanding), your employment details and information regarding your financial situation, such as your regular income and expenses (your personal budget sheet should provide you with this information). You will also have to state how much you can afford to pay to the court each month (if you do not state an amount, the court staff will decide for you). You can get an idea of how much you can afford to pay after completing your personal budget.
It is important that you list all of your debts on your application, even if they are in joint names. If you accidentally miss out a creditor on the form, the details can be inserted by the court at a later date (providing the court agrees to this). This can either be done at the hearing (see below) or by making an application on form N244. However, the debt must have existed prior to your applying for the Administration Order.
If you are on a low income or in receipt of certain Benefits and the amount that you can afford to pay the court each month seems low, don’t worry – the court will probably accept an offer of £1.00 - £5.00 a month as a reasonable amount for you to pay (although there are no guarantees)
DO NOT SIGN THE FORM AT THIS STAGE! Once you have completed the form, you should take the unsigned form to the County Court office, together with any proof of your debts, your income and expenditure (such as your personal budget). At the court, you will need to sign the form in front of a Court Officer and swear an oath that the details you have given are true. There is no fee for swearing this oath, and there is no fee for making your application. However, the court will usually deduct 10 pence in every pound (e.g. 10%) from each payment you make, in order to cover their administration costs.
Once the court has accepted your application form, the court staff will determine whether the whole amount of the debt can be repaid within a ‘reasonable period’ (usually within 3 years).
If it seems unlikely that you can afford to repay the whole amount of the debt within a ‘reasonable period’, your application will be referred to a District Judge who will consider whether this period should be extended, or whether a Composition Order would be more appropriate (however, it is rare that a Composition Order would e made at this stage).
If it seems that the whole amount of the debt can be repaid within a ‘reasonable period’, the court will set a rate of repayment based on the information you have given on your application – the details of which will be sent to you and each of your creditors.
Your creditors will then have 16 days in which to tell the court of any objections that they may have, such as the repayment amount is too low, or they dispute the amount that you say you owe them. If there are no objections within 16 days, a copy of the Administration Order will be sent to all the parties concerned and the Order will be registered in the ‘Register of Count Court Judgements’ (which may affect your ability to obtain credit in the future).
What happens if a creditor makes an objection within the 16 days?
If one of the scheduled creditors wishes to object to the proposed rate of repayment, a particular debt being included in an Administration Order, or for some other reason, the court will hold a ‘hearing’ about the Order.
If this happens, you will be given 14 days notice and you must attend the hearing – if you fail to attend the hearing, your application will be dismissed.
The hearing is held before the District Judge, usually in chambers. Your creditors may attend the hearing whether they have objected to the Administration Order or not, but otherwise, the hearing will be held in private.
Although all creditors are entitled to make an objection, non-priority creditors will not normally object, and even if they do, a District Judge may not accept their objections. If there is a creditor who objects to the terms of the Administration Order, but who does not attend the hearing, the District Judge is unlikely to over-rule the Administration Order.
If there is any debt that you have overlooked on your application, you should take details of the debt to the hearing with you and ask the court to include it. This may mean adjourning (e.g. postponing) the hearing if the District Judge is not satisfied with the amount owed or that the creditor is aware of the application.
It is important to realise that although an Administration Order may involve the court, being in debt is not a crime and you are not being punished – it is just a way of dealing with debts that you are struggling to deal with yourself!
Unless a debt is disputed, the District Judge will normally accept as accurate all debts listed on the application form. However, the court may want further evidence in support of a debt, and may not include it in the schedule until further evidence is provided and the debt is proved. This may also mean adjournment.
At the hearing, a creditor (who has given seven days’ prior notice) can object to any or all of the following:
- Any debt being included in the schedule
- the amount of money owed to them
- an Administration order being made; and/or
- the terms of the Administration Order
If no objections are lodged, the court will decide:
- Whether any creditor should be excluded from the schedule of creditors (in practice, non-priority creditors are almost always included and priority creditors will not normally be included unless they agree); and
- The amount of money to be paid by you, to the court each month. This will be calculated by taking into account your personal circumstances (as included on your application). It is helpful if you take an up-to-date financial statement if one was not attached to your application (you should take enough copies for the District Judge and one for each creditor who may be in attendance); and
- To make an ‘Attachment of Earnings Order’ for the payments to be deducted directly from your earnings (unless there is a good reason for not doing so). You can argue against this at the hearing if, for example, you believe that such an order will jeopardise your job. You could ask for a ‘Suspended Attachment of Earnings Order’ which will only come in to force if your monthly payments are not made on time; and
- Whether you should only repay a proportion of the full amount owed (a ‘Composition Order’). It is worth asking for a Composition Order if your financial situation is unlikely to improve, as it allows the debt to be cleared within a reasonable time. However, it is unlikely that a court will make a Composition Order straight away, and you will normally have to ask for one on your original application, so that it is considered when the Administration Order is reviewed (there is a mandatory review after 12 months).
What are the advantages of an Administration Order?
The advantages of an Administration Order include:
- Once the Order is made, any creditor included in the schedule can take no further enforcement action against you (without the permission from the Court) and will make no more contact with you, so long as the Administration Order remains in force. Any enquiries you receive from a creditor can be referred directly to the court
- You will only have to make one single payment each month to the County Court. This payment is fixed and is based on your personal circumstances
- There are no ‘up-front’ fees to pay
- Debts can sometimes be partially written off by applying for a Composition Order (sometimes referred to as a ‘Poundage Order’ or ‘Percentage Order’)
- Once the order is made, interest will usually stop accruing on most debts
- No further negotiations with your creditors will be necessary – any variations in your payments will be at the discretion of the court
- The order is reviewed by the court on a regular basis, and depending on your circumstances, you may be able to apply for a Composition Order at a review
- An Administration Order is a quicker procedure than negotiating a repayment scheme with each individual creditor
- All creditors will be treated fairly
What are the disadvantages of an Administration Order?
The disadvantages of an Administration Order include:
- Your debts must total no more than £5,000 (this limit excludes many potential users) and there are some debts which cannot be included in the Administration Order, but will still count toward the £5000 limit
- You must already have at least one County Court Judgement against you
- You may have to attend a Court hearing if a creditor objects to their debt being included in the Administration Order
- You will have to attend the Court for a review hearing after the Administration Order has been in force for 12 months
- You will have to pay court’s costs for administering the order, but these are taken out of your agreed monthly repayments (currently 10 pence in every pound)
- If you fall behind in making your agreed monthly payments to the court, your Administration Order can be revoked, and your creditors can then pursue you for the full amount of the debt owed to them (even if a Composition Order had been made)
- A creditor or a court official can apply for a review of the order, which could mean that the monthly payment changes (although they must have grounds for making any changes)
- Administration Orders are entered on to the Register of County Court Judgements, which will affect your credit rating and may make it difficult for you to obtain credit in the future
- Only those debts mentioned in the Administration Order are covered. It does not prevent any creditors not included in Order from applying to the court for enforcement orders
- You may be granted an Administration order only on the condition that it is linked to an ‘Attachment of Earnings Order’ (meaning that your employer will be informed of your debts). If you would prefer your employer not to know, then you can ask for a ‘Suspended Attachment of Earnings Order’, meaning that providing you make the required payments to the court on time, your employer will not be informed
- You will have to notify the court of any change in your circumstances, such as any changes of address, etc. If there is any changes to your income, the repayments can be reviewed
- An Administration Order is not a total solution to many debt problems, as priority creditors may be excluded from the Order
What happens if I can’t keep up with the payments?
If you miss two consecutive payments or if you are consistently late with the payments to the court, the court may send you a notice of intention to revoke or renew the Order. If you do not reply to the notice within 16 days, the order will be revoked. However, if you reply within the 16 days period, the matter will be referred to a District Judge who will either revoke or vary the order, or arrange for a hearing to discuss your situation. If the District Judge intends to revoke the order, a hearing date is likely to be fixed (the order cannot be revoked without a hearing), and all parties will receive 8 days’ notice of the date for the hearing.
If the Administration Order is revoked, you will lose the protection of the court and you will become individually liable to your creditors again. If the order is revoked, the court will inform the creditors that they are free to pursue their debts individually, and take enforcement action against you. If a Composition Order is revoked, the debts become payable in full to each creditor, minus any amount that had been paid while the order was in force.
When does an Administration Order end?
An Administration Order will normally end when all debts and court costs have been paid in full. Although there is no limit on how long an order can last, most courts will view three years as a reasonable amount of time. Of course, the exception to this is when a Composition Order has been granted, in which case the court will specify how long the order is to last for.
When the Administration order has been paid in full, you will no longer have any obligations to the creditors listed in the order, and you can ask the court to provide you with a ‘Certificate of Satisfaction’ (a fee of £10 is payable for this). The court will ensure that the Register of County Court Judgements is marked to show that the order has been paid in full.
However, when a Composition Order has been paid as ordered, only the registration of the Administration Order can be marked as paid, as the individual debts included on the Composition Order will not have been paid in full.
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