on an investigation into complaint no 06/B/16600 against Wolverhampton City Council

Transcription

1 Report on an investigation into complaint no 06/B/16600 against Wolverhampton City Council 31 March 2008 The Oaks No 2, Westwood Way, Westwood Business Park, Coventry CV4 8JB

2 Investigation into complaint ref no 06/B/16600 against Wolverhampton City Council Table of Contents Page Report Summary 1 Introduction 3 Legal and Administrative Background 3 The Ombudsman s Jurisdiction 3 Council Tax Liability and Council Tax Benefit 4 Recovery of Council Tax arrears 5 The use of bailiffs 5 An attachment of benefit 5 Committal hearing 6 Bankruptcy 6 Charging Orders 7 Wolverhampton City Council s policy on bankruptcy and charging orders 7 Investigation 9 The financial year The financial year The financial year Events since the making of the bankruptcy order 16 Conclusion 17 Finding 21 APPENDIX 22 Key to names used Mr Ford - Complainant

3 Report Summary Subject Mr Ford complains at the actions of Wolverhampton City Council in making him bankrupt for council tax arrears in June Mr Ford has sought to argue that he owed less than 750 at the time of the bankruptcy, but the Ombudsman has found no grounds on which he could have contested the bankruptcy on this basis. Mr Ford had arrears of 1,105 at the time bankruptcy proceedings commenced. He now faces costs of some 38,000. The Ombudsman has considered the evidence that Mr Ford is on a low income and would appear to have had an entitlement to council tax benefit that could have significantly reduced these arrears. But the Ombudsman considers that no fault can be attached to the Council for not paying that benefit, which arose from Mr Ford s failure to co-operate with the claim process. The Ombudsman accepts the right of the Council to collect its council tax arrears and the limited options available to it in Mr Ford s circumstances. He notes in particular that the Council was not able to apply to the Department for Work and Pensions for a deduction of Mr Ford s Incapacity Benefit to repay arrears, as this benefit is not one where such a method of recovery is allowed. He notes also that the Council used bailiffs to try and collect the debt from Mr Ford, without success. However, despite all of the above, the Ombudsman does not consider the Council followed due process in making Mr Ford bankrupt. First, he finds that the Council gave Mr Ford inadequate warning of the consequences of bankruptcy before commencing proceedings, in breach of its usual practice. Second, he finds that the Council failed to properly consider the alternative of seeking a Charging Order against Mr Ford s home. The Ombudsman considers that on the balance of probabilities had such failings not occurred then Mr Ford would have made an offer of repayment to the Council prior to the commencement of proceedings. Finding Maladministration causing injustice. Recommended remedy In order to put Mr Ford in the position that he would have been in had no maladministration occurred the Ombudsman considers Mr Ford s bankruptcy should be annulled and that the Council should pay for this by arrangement with the trustee in his bankruptcy. However, the Ombudsman considers that it would not be right for Mr Ford to avoid liability for his debt. So, he makes the 1

4 recommendation conditional that the Council should not make any payment that will lead to annulment of the bankruptcy, until Mr Ford has first entered into a binding arrangement with the Council to repay 1,105 of the costs that it will now incur and to clear that debt as soon as is reasonably practicable; that debt may be secured by way of a charge on his property at the Council s request. In addition, the Ombudsman recommends the Council to review its collection policy and procedures for local tax arrears in the light of this report in order to avoid a repeat of the maladministration found in this case. 2

5 Introduction 1. Mr Ford complains about the actions of Wolverhampton City Council in making him bankrupt for non-payment of council tax on 30 June He says that he should not have been made bankrupt as he considers he owed less than 750 at the time and that the action of the Council in making him bankrupt was a criminal act. He also considers that he should have been receiving council tax benefit that would have helped pay towards whatever council tax debt he had at that time; and that it was due to administrative errors by the Council that he did not receive council tax benefit. 2. The Council contends that it had little option but to make Mr Ford bankrupt for persistent non-payment of council tax and that he did owe more than 750 at the time. It says that it did make reasonable efforts to collect its debt and assist Mr Ford in claiming council tax benefit before making him bankrupt. 3. During the course of this investigation one of my investigator s has met with and interviewed Mr Ford. He has also inspected the Council s files and computerised records pertaining to its dealings with him. He has conducted a joint interview with officers of the Council who have been involved in the matters complained about, including a Local Taxation Manager and an Assessment Manager for Housing and Council Tax Benefit. He has also interviewed the Council s former Local Taxes Manager who has now retired. 4. For legal reasons 1, the name of the complainant used in this report is not his real name. Legal and Administrative Background The Ombudsman s Jurisdiction 5. There are a number of sections of the 1974 Local Government Act that defines my powers which have to be considered in reaching a decision on Mr Ford s complaint. 6. First, the Act says that I cannot conduct any investigation into the commencement or conduct of civil or criminal proceedings in any court of law. 2 However, I retain jurisdiction to investigate administrative actions prior to the issue of court proceedings and where the Council instructs agents for enforcement of court orders (unless those agents are agents of the Court). 1 Local Government Act 1974 ( the 1974 Act ), section 30(3). 2 Local Government Act 1974, Schedule 5 3

6 7. Second, the Act also says that usually, I should not investigate a complaint where the complainant has had the right to pursue their complaint via the alternative remedy of a statutory tribunal or the Courts. 3 However, this is at my discretion and I can investigate where I am satisfied that it was not reasonable to expect the complainant to use those rights. I have no jurisdiction to consider a complaint if proceedings have been issued in respect of an alternative right or remedy. 4 However, I retain jurisdiction to investigate if Court proceedings have been sought that are misconceived; i.e. where there is no legal basis for the action being sought. 8. Third, the Act also says that normally I should not investigate a complaint unless it was made to me, or to an elected councillor, within 12 months from the day when the complainant first knew something had happened that affected him or her. 5 However, this is again a discretionary power and I can investigate where I am satisfied that there are special reasons to accept a complaint about matters that the complainant has been aware of for over twelve months. Council Tax Liability and Council Tax Benefit 9. Council tax is payable by most people who occupy their own home. Where the occupier is the sole adult living in the house then they are entitled to a single person discount. In effect, this reduces the amount of council tax they are billed by 25 per cent. 10. Council tax benefit is a national welfare benefit that is usually administered by a local authority. The scheme provides assistance for people on low incomes to pay their council tax. Entitlement to benefit is subject to the law 6 and regulations. 7 Where benefit is payable it is usually paid direct on to the claimant s council tax account. 11. Any entitlement to council tax benefit will depend on a number of factors including when a claim is made, the composition of the household and the claimant s income and capital (including any savings they might have). If the claimant is in receipt of income support or income based Job Seeker s Allowance, then they will usually be entitled to have their council tax payments met in full by council tax benefit. But, if a claimant is not in receipt of income support then eligibility to council tax benefit will depend on comparing their income from other state benefits (some of which may be disregarded) with a notional income figure for the minimum needs of their household, known as the 3 Local Government Act 1974, Section 26 (6) (a) and 26 (6) (c) 4 Local Government Act 1974, Section 26(6),, R v Commissioner for Local Administration, ex parte PH (1999) EWCA Civ 916, R v Commissioner for Local Administration, ex parte Field (2000) COD 58 and Roao Scholarstica Umo) v Commissioner for Local Administration in England (2003) EWHC 3202 (Admin) 5 Local Government Act 1974, Section 26(4) 6 Principally the 1992 Social Security Contributions and Benefit Act (as amended). 7 Principally SI 1987 No the Housing Benefit (General) Regulations (HBR) & SI 1992 No the Council Tax Benefit (General) Regulations (CTBR). 4

7 applicable amount. Where a person is disabled the applicable amount is usually higher to take account of those needs. Where income exceeds the applicable amount, then a tapering calculation applies which means that a claimant may still get some help towards their rent and council tax, but may not have these commitments met in full. 12. Some forms of capital, including savings, may be taken into account and treated as a notional income. This will apply where a claimant has capital assessed as being worth between 3000 and Where capital exceeds there is no entitlement to council tax benefit regardless of other income. 13. In assessing a person s entitlement to council tax benefit a local authority is entitled to make whatever enquiries are reasonably required. 8 The Department for Work and Pensions publishes additional advice as to the scope of enquiries and evidence that might be reasonably required to put a claim into payment. It recommends that as a matter of usual practice a Council should aim to see two consecutive statements where a claimant has a bank, building society account or similar. Recovery of Council Tax arrears 14. Where a sum of council tax is unpaid, the Council can seek an order from the Magistrates Court, known as a liability order, in order to pursue recovery of the outstanding amount. Once the Council has obtained a liability order against a debtor it has a number of options available to try and secure payment of its debt. The Courts have held that while recovery action for a council tax debt can be coercive, it is not unlawful if it becomes punitive because of the debtor s failure to pay. 9 Options for recovery available to the Council are described below. The use of bailiffs 15. Bailiffs can be instructed to collect outstanding debt, if necessary through securing a levy against certain goods that might be owned by the debtor. However, in most circumstances a bailiff cannot take such a levy unless they have gained peaceful entry into a debtor s home or premises. An attachment of benefit 16. One method of recovering council tax for local authorities is to apply for a deduction from ongoing benefit to the Department for Work and Pensions. However, this can only be done where a debtor is in receipt of income support or (income based) Job Seekers Allowance. 8 CTBR 62(1), 63(1), 63 (3) 9 R v Cannock Justices ex parte Ireland (1995) 5

8 Committal hearing 17. If the Council has attempted, but failed, to collect a debt through the use of bailiffs then it can request that the debtor appear before the Magistrates Court to consider if they should be committed to prison for wilful refusal or culpable neglect in the non-payment of their council tax. Magistrates must conduct a means enquiry to establish the reason for non-payment. They are given options including committing the debtor to prison, suspending any committal on terms (such as ordering a fresh payment arrangement) or remitting some of the debt (i.e. writing it off). 10 Bankruptcy 18. Bankruptcy can be used as a means to try and recover a debt where a creditor is owed at least 750. With council tax debts, if a local authority chooses to use bankruptcy as a means of recovery then it must first obtain a liability order, for any sums it is owed. 11 In addition, under the 1986 Insolvency Act rules that govern bankruptcy proceedings the creditor must also serve a document known as a statutory demand. This should explain the debt the Council is seeking to recover. 19. A debtor can ask the County Court to set aside a statutory demand on the basis that the debt is not owed. However, research into this area has noted that if a liability order has been made, the Court is unlikely to look behind the circumstances of the making of the order If a statutory demand is served and the debt remains unpaid after a further 21 days (or no arrangement has been made to the satisfaction of the creditor), then a bankruptcy petition can be served. In effect, the petition requests that the County Court (or High Court in London) make an order that the debtor be declared bankrupt. A debtor may try to oppose the making of a bankruptcy order on the grounds that the debt is not owed, and the Courts have the power to stay proceedings if it appears likely that the debt may be settled in a short period of time. 21. Where a bankruptcy order is made, and a debtor has assets that might be sold to settle a debt, a licensed insolvency practitioner will be appointed as a trustee to safeguard and secure the assets of the debtor for the benefit of creditors generally. 10 Council Tax (Administration and Enforcement) Regulations 1992, 47 & Council Tax (Administration and Enforcement) Regulations 1992, 49(1) 12 see Murdie & Wise, Enforcement of Local Taxation, Legal Action Group

9 22. The Government does not issue any guidance to Councils on the pursuance of council tax arrears using petitions for bankruptcy. In a written response to a parliamentary question in July 2007, the government said that it was up to each billing authority to consider how best to use these powers in the interests of all taxpayers who do pay their bills and that it had no plans to issue such guidance. 23. In March 2000 the Court of Appeal held that as bankruptcy was a procedure allowed by statute and regulations, there could be no objection in principle to a Council using those proceedings to collect an outstanding debt which it had a duty to collect. 13 Charging Orders 24. Another method of collection available to a Council is to seek a charging order against a debtor. 14 This is a way of securing a debt through the County Court against a debtor s property, so that in the event that the property is sold, the creditor must be paid from the proceeds of sale. For a Council to be able to pursue this course of action it must hold a liability order against the debtor and the debtor must owe at least The Courts can consider suspending a Charging Order on repayment terms. Where a creditor holds an outright Charging Order or any payment terms are not adhered to, then the creditor can seek an Order for Sale. This too, can be suspended at the Court s discretion; for example on the basis of an order that regular repayments are made. Wolverhampton City Council s policy on bankruptcy and charging orders 25. The Council had a written policy on collection of council tax debt that applied at the time relevant to this complaint, which is attached as an Appendix to this report. This considers the various options available to the Council set out above, with the exception of charging orders. The Council s policy is to instruct agents (in this instance a private debt collection company) to collect any debts where bankruptcy is being pursued. The agent will serve a statutory demand on the debtor and allow up to four months for the debt to be cleared before serving a bankruptcy petition. The agent will also represent the Council at Court. 26. The Council s policy notes that the costs of applying for a bankruptcy petition are substantial and approval should be sought from the Section Head. 27. The Council has told my investigator that it will only consider bankruptcy where the debtor owns his or her own home. It will consider accepting payment arrangements from debtors, where a statutory demand has been served, that 13 Griffin v Wakefield Metropolitan District Council Court of Appeal (2000) 14 Council Tax (Administration and Enforcement) Regulations 1992, regulations 50 and 51 7

10 take longer than four months to pay off the debt. However, it has to weigh whether this will be in the interests of other taxpayers as the Council may incur additional costs from its agents and service of a second statutory demand if the arrangement breaks down subsequently. 28. In comments made to my investigator, a senior officer with responsibility for bankruptcy cases said that this option was only considered where it had not proved possible for the Council to collect the debt through bailiffs or an attachment of earnings. She said that as a benchmark figure the Council would consider using bankruptcy where a debtor owed around 1,000 and only as a last resort. In comments on a draft of this report the Council has pointed out that this figure is a guide only and that the legislation states the minimum figure is Commenting on a draft of this report the Council has clarified its policy on Charging Orders as follows: the initial considerations of a collection policy took place in 1993 [ ]. The use of Charging Orders was rejected because it was immediately apparent that the legislation was inoperable. This was a view shared by all practitioners and the Government [issued] amending legislation. At this point the feasibility of using Charging Orders was considered afresh. Their use as a practical method of collection was rejected for a number of reasons: the mere presence of an order was unlikely to induce a determined defaulter to pay [ ] because other than where a sale was imminent they do not coerce the debtor into payment; to enforce payment would require the Council to seek a possession order through the appropriate Court and the process would be similar to that for any other debt secured on a property; the administrative procedure would be cumbersome since it would be necessary to ensure that all other persons or companies having a charge on the property would have to be advised. Also a fresh order would be needed for each subsequent debt when the level not covered by order(s) reached 1000; the Judge would have two options: o o refuse the Council s application, in which case bankruptcy would be the Council s remaining option; or grant the application immediately or suspend on terms; failure of the debtor to meet the terms would then require renewed administrative activity; 8

11 when an order for possession was issued it would be for the Council to enforce, whether directly or through agents. The Council would be responsible for eviction, securing and insuring the property and the sale of the property; no mechanism for achieving the above was in place and the additional burdens putting these in place would require significant additional resources. The Council also says that there are other issues with Charging Orders: limited fees are allowed; they expire after twelve years so the Council is likely to have to force a sale to recover its debts [and] if a sale is unlikely; the sums outstanding would, under accounting requirements, have to be written off causing a cost to the Council Tax payer. 30. Despite the above, the Council says that Charging Orders were available and identified for use in exceptional cases; e.g. in situations where an elderly person is being taken into a care home. Its Service Level Agreement with its agents, included provision for that company to try and obtain a Charging Order on instruction from the Council. 31. Between 1 January 2000 and 21 February 2007, Wolverhampton City Council presented 254 bankruptcy petitions to local tax payers in arrears. The Council has said that this equates to around one per cent of all cases where it has obtained a liability order (or multiple liability orders). It says that on average, each debtor who has been served with a bankruptcy petition has owed The Council says that it has gone on to make bankrupt 131 local tax payers. As of 21 February 2007, 59 of these cases had been paid in full and a further 72 were in the hands of a trustee Commenting generally on its policy the Council has said that the reasonableness of its actions are tested in the Court [ ] the recovery regulations are designed to ensure there is impartial oversight by the Courts and the interests of all parties are balanced. 33. The Council says that its policy is to issue a standard letter where it is considering taking bankruptcy action against a debtor. It says that if proceedings start, costs will be added to your unpaid council tax [...] and will amount to approximately 1200 by the time the matter reaches the County Court. The letter also warns that if you are made bankrupt you could lose your home and other assets and that your financial affairs will be removed from your control. A leaflet entitled Bankruptcy The Facts is also enclosed that details the potential consequences of bankruptcy in more detail. 15 These figures have been shared with me by Wolverhampton Citizens Advice Bureau which obtained this information under the Freedom of Information Act 9

12 Investigation 34. Mr Ford moved to Wolverhampton in June 2002, buying his own property outright. Subsequently he has moved twice within the City, purchasing his second property on 14 March 2003 and his third property (his current address) on 27 September Mr Ford has told my investigator that each time he moved he made a profit of around 6,000 to 7,000 and reinvested this into his new property in the form of renovations and improvements. 35. Throughout the events covered by this complaint Mr Ford has lived alone and his income has been made up of incapacity benefit and disability living allowance. These benefits are paid to Mr Ford as he is partially sighted and has mobility difficulties in his hip and wrist. During the events covered by this complaint Mr Ford has had several bank and savings accounts. The exact amount in those accounts is unknown, but no statements have been seen that detail capital in excess of When Mr Ford was declared bankrupt, the bankruptcy petition identified that he owed debts for the financial years from to (as well as a debt for the financial year that was not included on the bankruptcy petition). I address each of these in turn, considering the position in respect of both Mr Ford s liability and entitlement to council tax benefit. The financial year When Mr Ford first moved to Wolverhampton his council tax liability for his first address was (for the period 18 June 2002 to 31 January 2003). Mr Ford claimed council tax benefit. Because his income from incapacity benefit was slightly higher than his applicable amount, Mr Ford was not entitled to receive maximum council tax benefit. He was entitled to benefit in total. This left an outstanding amount to pay of Mr Ford failed to pay this entire shortfall. As a result an amount of was left unpaid on his first address. 38. When Mr Ford moved to his second address he was liable to pay council tax for the period 14 March 2003 to 31 March This totalled Mr Ford continued to claim council tax benefit at his second address. However, he received only 8.95 for this period. This meant a balance of was left recoverable from him for this financial year. The financial year

13 40. Mr Ford was liable for council tax at his second address until 26 September After deductions for benefit and a single person discount he was liable to pay for this period. 41. On 9 June 2003, Mr Ford made a fresh claim for council tax benefit. The claim was not put into payment immediately. The Council first wanted to verify Mr Ford s income and any savings (or other capital) he might have. Mr Ford s claim was eventually put into payment on 15 October This followed a visit to his home by a Council officer. The officer wanted to see two concurrent statements for an Individual Savings Account (ISA) in Mr Ford s name. At the time, Mr Ford could only produce one statement, which showed nothing in the account. The officer therefore recommended the claim be put into payment pending Mr Ford providing a second statement. On 23 July 2003, Mr Ford commenced payment of 1.87 a week towards his council tax on his second address. 42. On 19 September 2003 the Council summonsed Mr Ford for non-payment of the owing on his first address for the financial year. It obtained a liability order on 8 October 2003, for This debt was passed to bailiffs to recover. 43. On 27 September 2003 Mr Ford moved house. Mr Ford received an amended council tax bill around this time showing that he had to pay 49 for the remainder of the financial year, once benefit had been taken into account. 44. On 19 December 2003, the Council wrote to Mr Ford, requesting the further details of his ISA account. When Mr Ford failed to reply to that letter the Council cancelled his council tax benefit claim from 19 December 2003 (it warned it might do this in the letter of 19 December 2003). The Council wrote to explain that it had taken this action because he had not provided information requested. It offered Mr Ford a right of appeal. 45. Commenting on a draft of this report, Mr Ford has said that he has no recollection of the letter warning him his benefit may be cancelled. However, he received the letter that advised him the benefit had been cancelled, as he returned this to the Council on 9 February He wrote on the letter that he was in receipt of Incapacity Benefit and paying 1.87 a week. The Council took no action in response as it did not deem this to be a request for an appeal of its decision. 46. As a result of his benefit cancelling, Mr Ford was sent a summons for , which he returned. He again reiterated his income and current repayment arrangement. On 16 March 2004 the Council s Revenues section replied, explaining that Mr Ford owed the following amounts: in respect of his first address in respect of his second address in respect of his current address (these arrears had increased 11

14 as a result of the cancellation of council tax benefit referred to above). 47. On 16 March 2004 the Council said that it would accept a payment arrangement of 5 a week to clear all these debts. 48. On 19 March, following a telephone call from Mr Ford, the Council wrote to him again, explaining that his council tax benefit had been cancelled on 19 December 2003 and referring him to its letter requesting more information. The financial year On 27 April 2004, the Council summonsed Mr Ford for non-payment of council tax at his third address. It obtained a liability order for this non-payment on 19 May With costs the debt now stood at Also on 19 May 2004 the Council summonsed Mr Ford for non-payment of council tax for the financial year. The sum owing was , which was equivalent to the full council tax liability minus a single person discount. 51. On 25 May 2004 Mr Ford returned the above summons. He again reiterated he was in receipt of incapacity benefit and paying 1.87 a week. The Council replied, saying this was insufficient to meet his ongoing liability and arrears and asked him to start paying 62 a month. Mr Ford returned the letter to the Council, restating the same information. 52. It is not clear which, if any, of the above contacts prompted the Council s Benefits Department to again try and gather information from Mr Ford to enable his council tax benefit to be reinstated. However, on 7 June 2004 an officer from the Benefits Department again visited Mr Ford at his home. The notes record that Mr Ford gave the officer some papers related to his correspondence over his council tax arrears. The officer was not given details of the ISA account, the nonprovision of which had prompted the cancellation of the benefit. As a result the Council decided not to take any further action in respect of Mr Ford s benefit claim. No letters were sent to him further to the visit in connection with his benefit claim. 53. On 8 June 2004 the Council wrote to Mr Ford again. It said that his total debts now owing to the Council (inclusive of costs) were as follows: in respect of his first address; and in respect of his second address ( in total); and in respect of his third address ( in total). The Council said that Mr Ford now needed to pay a minimum of per week to clear his indebtedness, in order to avoid further recovery action. 12

15 54. On 9 June 2004 the Council obtained a liability order for the non-payment of any council tax during the financial year. The sum owing was now inclusive of costs (the amount referred to above). On 10 June a letter was sent to Mr Ford to advise of this development. It said that amongst other things the Council could now start proceedings to make you bankrupt. 55. On 29 June 2004 Mr Ford returned a statement of financial circumstance that had been sent with the liability order referred to above. On this form, he again reiterated information about his income and that he did not consider he was liable for the debt. In response to a telephone call, on 26 July 2004, the Council sent a further statement breaking down arrears owed at that time. The amount owing in respect of his second address had reduced slightly to , but otherwise the debts were the same. 56. On 4 October 2004 Mr Ford approached the Council to make a formal complaint about its council tax recovery. The Council s notes indicate that it sent a complaint form to him but this was not returned. Around the same time Mr Ford also left a telephone message for the Council. No action was taken in response as the Council recorded that it understood Mr Ford was to pursue his grievance by way of a complaint. 57. On 19 October 2004 the Council summonsed Mr Ford for a further for the financial year. It had decided to remove the single person discount that had been applied to his account. The Council says that this followed Mr Ford failing to return two forms that would have the effect of renewing the single person discount. 58. On 4 November 2004 Mr Ford returned the summons. Once again he reiterated his income and current repayment arrangements. On 10 November 2004 the Council obtained a further liability order for , for the financial year (the single person discount amount plus costs). The Council wrote to Mr Ford on 22 November, once again explaining the debts he owed and asking him to make a payment arrangement with its bailiffs, with the exception of the amount owing on his second address which had now reduced to The Council also said Mr Ford must return a form to reclaim the single person discount it had removed. 59. On 12 November 2004 Mr Ford began to make payments of 5 a week towards his council tax arrears at his second address. 60. On 17 December 2004 the Council sent a letter to Mr Ford. By this time the Council had attempted to recover all the outstanding debts through the use of bailiffs, but this had proved unsuccessful. The letter was sent by the Council s Local Taxes Manager. The letter said you (have) erroneously determined that you have a right to pay less than the statutory amount of council tax. The letter 13

16 went on to explain provisions in law relating to single person discounts and council tax benefit. The letter noted that Mr Ford had not returned forms to renew the single person discount and had not provided the necessary information to claim council tax benefit. 61. The letter went on to warn Mr Ford that the Council was considering taking bankruptcy proceedings against him. It said that to avoid this you must pay the total amount due of within three weeks of this letter [ ] if it becomes necessary to start bankruptcy action the costs will be payable by you and could exceed The Council says that because the Local Taxes Manager sent this letter, the standard warning letter and leaflet referred to in paragraph 33 above, was not sent to Mr Ford. Around this time, Mr Ford paid bailiffs the outstanding on his account relating to his first address, in full. 62. My investigator has asked the Council s former Local Taxes Manager about the extent of the warnings given to Mr Ford as to the consequences of bankruptcy. He said that because any decision on bankruptcy would be a matter for the Courts, and not the Council, it would have been inappropriate for him to state an outcome that would be uncertain. The Council s Local Taxes Manager has confirmed to my investigator that he had no further dealings with Mr Ford until contacted by a Councillor with an enquiry post-bankruptcy and that he never met with Mr Ford personally or spoke to him on the telephone. 63. On 27 January 2005 the Council passed the debt to its agents. It is understood that the agents served a statutory demand on Mr Ford on or around 21 February His total debt outstanding at that time was 1,105. On 25 February the company asked Mr Ford to enter into a payment arrangement to clear his debt at 368 a month. On 28 February Mr Ford returned this correspondence with some abusive comments. A statutory demand contains a warning that you could be made bankrupt and your property and goods taken away from you. It advises the recipient to to seek advice immediately (emphasis as per the form) if you are in any doubt about your position. The financial year On 1 April 2005 Mr Ford became liable to pay a further at his current address (the full council tax). On 27 April 2005 Mr Ford returned a reminder notice for the above bill (issued on 18 April), again restating his income and saying he had no available funds to pay the debt. On 17 May 2005 Mr Ford was summonsed for non-payment of this debt. On 8 June 2005 the Council obtained a liability order for for the full amount, inclusive of costs. 65. On or around 25 May 2005 Mr Ford was served with a bankruptcy petition. This listed his debts as follows: and in respect of debts incurred at his second address; 14

17 incurred at his third address for the financial year (the liability order obtained 19 May 2004); incurred at his third address for the financial year (the liability order obtained 9 June 2004) incurred at his third address also for the financial year (the liability order obtained 10 November 2004 for the removed single person discount) These amounts total On 13 June 2005 Mr Ford made a fresh claim for council tax benefit. He asked for this to be backdated to February Mr Ford also said the council had his consent to contact his bank direct to obtain any details about accounts that he held. The Council says that when this claim was made Mr Ford met with one its Senior Benefit Officers. The Council says that during the course of the meeting Mr Ford put forward his view that council tax benefit should be paid as he was in receipt of incapacity benefit. The Council says that it explained to Mr Ford that he would have to provide full details of his income and savings in order to assess his entitlement to such benefit. 67. On 21 June 2005 the Council s computer system notes that Mr Ford returned the single person discount form stating that he was the sole occupier at his current address. The notes record that the officer reinstated the single person discount from 1 April 2004 and sent a copy of this note to debt recovery to advise. The Council records that on 23 June 2005 its agents were told that Mr Ford s debt had been reduced by 195 as a result. The Council continued to recover the costs of 46 associated with the liability order it had obtained for this amount. 68. On 23 June 2005, Mr Ford visited the Council offices. He offered to make a payment arrangement on all of his debts. The Council accepted that he could pay 5 per week in respect of his account only. It said that he would have to contact its agents to discuss the remainder. Commenting on a draft of this report the Council has said that it contacted solicitors acting on its behalf in the bankruptcy action to confirm that Mr Ford s debt subject to bankruptcy was now , excluding bankruptcy costs. 69. On 24 June 2005, there was discussion at the Council between the Council s Debt Recovery Officer with responsibility for bankruptcy cases and the Council s Benefit Department over whether to proceed with the bankruptcy. The notes of the conversation record that the Recovery Officer was told that a backdated claim for benefit was unlikely to succeed. 70. On 30 June 2005 Mr Ford was declared bankrupt. He did not attend the Court hearing. He has told my investigator that he intended to attend to oppose the making of an order, but his bicycle punctured on the way to the Court and he arrived too late for the hearing. 15

18 71. In comments to my investigator the Council s Debt Recovery Manager and Management Support Officer for Local Taxation said that bankruptcy had only been pursued in Mr Ford s case because of his persistent refusal to acknowledge that he had to pay more than 1.87 a week. They thought that every effort had been made to explain to Mr Ford that he should pay more than that amount. 72. These officers said that committal proceedings had not been considered as they did not consider it to be in the interests of other taxpayers. They expected that Mr Ford would still have not paid the debt and would have gone to prison, resulting in the debt being cancelled. As he was known to own a house outright, bankruptcy was more likely to lead to a financial return to the Council. The Council considers bankruptcy proceedings are very often successful in recovering debts it is owed. Events since the making of the bankruptcy order 73. On 20 July 2005 Mr Ford applied to the County Court to have the bankruptcy order annulled or reviewed. He argued that the debts the Council had made him bankrupt for were not owed. The application was rejected. The notes of the Council s representative suggest that the District Judge was satisfied the debt was owed. 74. On 29 September 2005 Mr Ford s claim for council tax benefit was made defective (i.e. it was not put into payment). This was because Mr Ford had failed to provide details of a building society account he held (the Council had also written to the Building Society with Mr Ford s consent seeking this information, without success). 75. On 20 November 2006, Mr Ford made a second application to the Court to have the bankruptcy annulled. He again failed. This time the Council has recorded that the District Judge took note that the debts were subject to liability orders. 76. On 19 April 2006 a fresh claim for council tax benefit from Mr Ford was put into payment by the Council. The Council did this despite not having a full picture as to what balances were outstanding in more than one bank account. Mr Ford had said to provide all information requested would incur charges from the banks/building societies involved. Commenting on a draft of this report the Council has said that throughout the events covered by this complaint it has recorded that Mr Ford has had eight different bank or building society accounts and it lacks any proof that any of these accounts has ever been closed. 77. As of 28 February 2008, Mr Ford s bankruptcy had incurred costs of approximately 38,000 (inclusive of VAT). This included creditors claims (the Council is understood to be the only creditor) of 1,778, legal costs in connection with the issue of the bankruptcy petition of 2260 plus VAT, trustee s costs of 13,459 plus VAT and trustee s legal costs of 13,373 plus VAT, together with 16

19 the disbursements and the costs of the Official Receiver. Commenting on a draft of this report the trustee has said that he has incurred costs in issuing possession and sale proceedings in respect of Mr Ford s bankruptcy, and in resisting Mr Ford s attempts to have the bankruptcy annulled. All proceedings have been stayed pending the outcome of my investigation. 17

20 Conclusion 78. In considering this complaint, I have first to decide the extent of my jurisdiction to look at the matters raised by Mr Ford. As detailed in paragraphs 5 to 8 above there are several restrictions in the 1974 Local Government Act that are relevant to this complaint. 79. First, I have considered those provisions on the conduct or commencement of legal proceedings. In my view the commencement of bankruptcy proceedings in this case began with the service of the Statutory Demand on Mr Ford referred to in paragraph 63. As such, I do not consider I can investigate the Council s actions beyond the service of that demand. However, I leave the narrative of what followed in my report for background information. And I am satisfied there is nothing that prevents me considering the administrative actions of the Council prior to service of the statutory demand by its agents. 80. The events covered by this complaint took place more than twelve months before Mr Ford s complaint to me. But I consider it is reasonable to use my discretion to investigate the complaint. First, this is because Mr Ford has clearly pursued a grievance with the Council since the bankruptcy order was made and has not let this drop at any time. Second, in order to examine the administrative actions that led to the Council pursuing bankruptcy it is necessary to consider events from the time that the complainant first incurred arrears and his council tax benefit was cancelled, as these matters are inextricably linked. 81. I do not consider that the matters at the crux of this complaint could have been pursued either by way of appeal to a tribunal or the Courts. A statutory tribunal can sometimes consider the non-award of council tax benefit. But in this case, Mr Ford has not sought to appeal the cancellation of his council tax benefit and I do not consider that decision to be at the crux of the complaint. 82. I do not consider on the facts that Mr Ford has been in a position to contest the bankruptcy on the basis that he owed less than 750. The narrative of this report explains how Mr Ford s debts accumulated over time and I have no doubt that the debts the Council has sought to recover have been legally owed by Mr Ford. I note also that the debts the Council has sought to recover were subject to liability orders from the Magistrates Court. 83. So as of February 2005, Mr Ford had accrued arrears of council tax. I accept that the Council has a duty to all its tax payers to try to recover that money. And looking through the chronology of contacts between Mr Ford and the Council it is not clear to me why Mr Ford has found it so difficult to accept that the money was owed. Mr Ford has stuck rigidly to the view that he need only pay a small proportion of his annual council tax bill in view of his low income. But, in order to receive council tax benefit to reduce the sums owed, the onus is on Mr Ford to co-operate with the claim process. The evidence suggests that Mr Ford sees 18

21 council tax benefit as being an entitlement and not something which must be claimed. I accept that the Council cannot meet this expectation. 84. I see no reason to take issue with the Council s decision not to award Mr Ford council tax benefit. As detailed in paragraphs 41, 44 and 52, the Council did make efforts to assist Mr Ford to make a claim. I am satisfied the reason why Mr Ford did not receive all the benefit to which he may have been entitled during the events covered by this complaint was due to his failure to respond constructively to these contacts. While I do not doubt that Mr Ford is on a low income, and has been throughout the events covered by this complaint, I see no reason to take issue with the Council s request to seek information from him about his various bank and building society accounts. I am satisfied that the Council could reasonably request this information as part of the claim process and if Mr Ford wished to challenge this he could have exercised his right of appeal. 85. So, given all of the above, Mr Ford must take responsibility for the arrears he had accumulated by February And I recognise that, having obtained liability orders and having tried to collect its debts through the use of bailiffs, the Council was short of options by this time as to how it could collect the money it was due. I note that as the law currently stands the Council is unable to seek an attachment of benefit for someone in council tax arrears who receives incapacity benefit. I shall be writing to the Secretary of State for Work and Pensions highlighting the circumstances of this complaint and the unhelpfully limited options available to the Council here. 86. Taking all this into account I have gone on to consider whether the Council s administrative actions prior to the commencement of bankruptcy proceedings were appropriate in this case. The Council has commented that it views bankruptcy as a last resort and I would expect this to be the case. This is because the consequences bankruptcy can impose upon a debtor are severe. Any bankrupt owning their own home is likely to lose it. And it can be reasonably expected that the costs they will incur, in addition to any debt, will run into thousands of pounds if a trustee will be needed to distribute a bankrupt s estate. Bankruptcy may therefore result in a greatly enlarged debt, many times more than the sum owed to the creditor. In addition, in certain cases such as this, there may reasonably be expected a future call on public funds as a result of bankruptcy. Clearly, bankrupting someone in Mr Ford s circumstances is likely ultimately to lead to him seeking rehousing in the rented sector and claiming for housing benefit as well as council tax benefit. 87. It is clearly not the case that bankruptcy should never be contemplated. But where it is contemplated I would expect the Council to have a rigorous policy in place to ensure that it meets the test of last resort. 88. In my view the policy the Council had in force in February 2005 did not meet this test. First, I note that the policy does not say that bankruptcy is a last resort: 19

22 given that this was the Council s intention it should have made this clear to its staff. The failure to do so was maladministration. 89. Second, while the Council may generally have been sending letters warning of the consequences of bankruptcy to a debtor, the policy placed no requirement that it do so. In this case, some warning was given to Mr Ford in letters of 10 June and 17 December 2004, but they were insufficient. The letter of 10 June did not explain the potential consequences of bankruptcy in any way. And the letter of 17 December mentioned only the approximate costs of the bankruptcy petition and not the far greater costs that can arise as a result of bankruptcy itself. It was not only in Mr Ford s interests that these consequences should have been spelled out with complete clarity; it was in the Council s interests, too. In my view the Council should have given the kind of detailed warning, described at paragraph 33. This would be especially relevant given that the Council would appear to require payment in full, or in a very short space of time, once bankruptcy action has commenced. Generally after that time a debtor who is in no position to clear the debt in four months will face bankruptcy thereafter. I consider the Council s failure to have given clear warning of the potential consequences of bankruptcy to Mr Ford to be maladministration. 90. In addition, the Council clearly did not weigh up the potential merits of a charging order as an alternative to bankruptcy in this case. I note that the policy contains no reference at all to charging orders as a potential means of recovery. The Council may have considered charging orders as an option for recovery when writing its policy and says that it has, on occasion, used this method of collection, but, as I say, the written policy contains no advice on charging orders for officers to refer to. The Council has sought to justify this omission on the grounds that charging orders are not a practical means of collection. It advances as reasons for this conclusion that use of charging orders will impose additional administrative burdens and costs, and are of limited effectiveness due to the expiry of orders after 12 years and the requirement for a fresh order to be made each time a subsequent debt arises. 91. I do not consider that these arguments stand up to close scrutiny, certainly in this case, and more generally. First, I am not persuaded that applying for a charging order or a subsequent order for sale, imposes significant administrative burdens on the Council, over and above those imposed by other collection methods. While I recognise the Council may bear additional administrative burdens in the event of an order for sale, these are costs it can recover against the value of any equity in the property. Second, the Council has advanced no evidence for its claim that charging orders will not in practice be an effective collection method. Third, the Council is wrong to say that a charging order will lapse after twelve years; that will only be the case where no further payment has been demanded or paid on the making of a charging order. And in any event, twelve years is a significant timescale for the Council to achieve collection of its debt. Fourth, while 20