An important new decision has been published by the Chief Insolvency and Companies Court Judge in the case CFL Finance Ltd v Bass & Others [2019] EWHC 1839 (Ch).
Although the decision comes out of this specialist area, it is important to all those who deal with Tomlin Orders.
In CFL, a creditor had taken proceedings for payment which had been compromised by way of a Tomlin Order in September 2011. In the latest proceedings which gave rise to the recent judgment, the CFL debt was challenged on the basis that it contravened the Consumer Credit Act and was therefore unenforceable.
The specific challenge was that the Tomlin Order was said to have provided the debtor with “credit” or “financial accommodation”. The terms of the Order provided (among other terms) that CFL was to be paid £2,000,000 in instalments on dates specified in the order, ranging over a period of years up to September 2013. As is normal in such matters, the Tomlin Order also contained a provision that if these payments were not met, then certain specified sums would become immediately due and payable and interest would be due until payment.
All parties were agreed that the Tomlin Order represented a contract and was subject to all the normal provisions of contractual law, but the court noted there was “scant authority” on the question of whether instalment payments provided by a compromise are required to comply with the Consumer Credit Act.
If the Order did have to comply and was in fact a regulated credit agreement, then the debt would be unenforceable by CFL because it did not have the relevant consumer credit licence, and it had not served various documents on the debtor – as required – since the contract began.
The court looked closely at whether the Tomlin Order had provided credit or financial accommodation. The key provision was that £2,000,000 was due by September 2013. Under this term, no credit was extended beyond the due date for payment. Although alternative provisions kicked in if this payment was not made, the core of the contract was for payment by the due date. It followed, the court found, that the provisions of the Consumer Credit Act did not apply to the Tomlin Order.
Lenders can take some comfort from this decision not to class a settlement agreement of this nature as a regulated consumer credit agreement, but where an intended Order is particularly complex or structured, or involves the application of ongoing interest, advice should be sought.
To discuss this decision or for any further information, please contact me on 07795 504476.
Mark Higgins, Chairman