Each remedy applies where the debt is admitted. The orders give a debtor additional time to repay a debt, but they apply in different circumstances and give the court different powers. Time to Pay Directions are the better known of the orders and are more frequently used. On the other hand, Time Orders are often overlooked and there is little Scottish authority on them. In this piece, and with the aid of a recent court decision, we explain the differences between the three options.
BMW Financial Services GB Limited v Khan
In BMW Financial Services v Khan, the defender fell into arrears under a hire purchase agreement for a vehicle. After the agreement was terminated, court proceedings were raised to recover the outstanding balance.
The debt was admitted, but the defender applied for both a Time to Pay Direction and a Time Order. The Sheriff Court refused the Time to Pay Direction and granted decree for payment. On appeal, the Sheriff Appeal Court took the opportunity to clarify the law governing both remedies.
Time to Pay Directions
A TTPD is available under the Debtors (Scotland) Act 1987 and allows an individual debtor to repay certain debts by instalments or by a deferred lump sum.
A TTPD is only available where:
The court action is still live (i.e. decree has not been granted).
The debt is less than £25,000.
The debtor is an individual.
The debt is not one which is exempt under the legislation (fines, child support payments and certain taxes are excluded).
When deciding whether to grant a TTPD, the court must consider whether it is reasonable in all the circumstances, having regard to the following factors:
The reason for the debt.
Any steps taken by the creditor to assist repayment.
The debtor's financial position.
The reasonableness of any repayment proposal.
Whether the creditor's refusal of the proposal is reasonable.
If granted, the creditor cannot generally take enforcement action, such as arrestment, while the debtor complies with the terms of the TTPD.
It is possible for a TTPD to be cancelled if the order is not complied with. It is also possible for both the creditor and the debtor to ask the court to vary the order if circumstances change.
Time to Pay Orders
A TTPO can be sought after decree has been granted and enforcement action has begun. The effect is similar to a TTPD, allowing payment over time and preventing further diligence while the order remains in force.
However, a debtor cannot apply for a TTPO if a TTPD has already been granted in respect of the same debt.
Time Orders
A Time Order arises under the Consumer Credit Act 1974 and is available only in relation to regulated consumer credit agreements, such as:
Credit card agreements.
Hire purchase or other regulated vehicle finance agreements.
Unlike a TTPD, a Time Order can be sought before court proceedings are raised, including after service of an arrears or default notice.
The court's powers are significantly wider with a Time Order. A Time Order can:
Extend the repayment period.
Alter instalment amounts.
In some cases, vary interest arrangements.
Prevent repossession of goods, such as a vehicle, provided the debtor complies with the order.
The test is whether it is "just" for the court to make the order, taking account of the interests of both the creditor and the debtor. Both the debtor and the creditor can apply to have the order varied.
Recent guidance from the courts
Last year in Black Horse Ltd v D, the Sheriff Court considered when a Time Order should be granted in the context of a hire purchase agreement for a vehicle.
The decision adopted the approach set out by the English Court of Appeal for determining applications for Time Orders, which is that:
Time Orders are generally intended to address temporary financial difficulties and should not be made where the debtor is unlikely to improve their financial position, in which case enforcement of the agreement will usually be more equitable.
Time Orders may apply to the full balance outstanding, not merely arrears, and the court must assess what repayment instalments are reasonable having regard to the debtor's means.
The court may also vary the terms of the agreement, including the interest rate, where this is just to both parties.
Where a Time Order relates to the full balance due, it will inevitably affect the loan term, the interest rate, or both. If a Time Order is granted, any possession order should be suspended provided the debtor complies with the terms of the Time Order.
In Black Horse Ltd v D, the court emphasised that Time Orders are generally intended to address temporary financial difficulties. If a debtor cannot demonstrate that their financial position is likely to improve, the court may conclude that enforcement of the agreement is the fairer outcome. The court also stated that although in this case it did not need to consider the issues of term extension and variation to the contractual interest, in an opposed Time Order application, parties should be in a position to address the court on these in detail and with clear and accurate calculations.
The court refused the application as the debtor could not show that the financial difficulties were temporary and the proposed extension of the agreement was excessive.
Key differences
Although Time to Pay Directions, Time to Pay Orders and Time Orders can provide debtors with additional time to pay, there are important distinctions:
Time to Pay Directions and Time to Pay Orders apply to a wider range of debts but are only available in court actions for debts under £25,000.
Time Orders apply only to regulated consumer credit agreements.
Time Orders can be sought before court proceedings begin.
The test for a Time to Pay Direction/Time to Pay Order is whether granting it is reasonable in all the circumstances, whereas a Time Order may be granted where it is just to do so.
Time Orders give the court far greater powers, including the ability to vary repayment terms and, in some cases, prevent repossession.
Conclusion
The decisions in BMW Financial Services v Khan and Black Horse Ltd v D provide useful guidance on the different remedies available to debtors facing financial difficulties. Creditors should be aware of these remedies and the factors courts will consider when deciding whether to grant them.
If you would like advice on Time to Pay Directions, Time to Pay Orders or Time Orders, please contact our Litigation and Dispute Resolution team.
