The Impact of Mental Health on Post Covid 19 Debt Recovery Strategies

25th March 2021 Restructuring & Insolvency

The worldwide Covid 19 pandemic has touched and affected us all in many different ways.  In this blog I will look at how those of us who work in debt recovery need to take on board the impact the pandemic has had on mental health and factor that into their strategies.  Mental health cannot be ignored as my partner, Cory Bebb, wrote in his recent blog

https://www.jmw.co.uk/services-for-business/corporate-recovery-and-insolvency/blog/bankruptcy-order-quashed-grounds-mental-capacity-re-kumar-2021-ewhc-181-ch

We thus already have authority for the Courts being required to address the issue of a debtor’s capacity and, if necessary, insist on a litigation friend or other person assisting to protect the interests of the debtor.  Whilst this was not specifically identified as an issue related to Covid 19, it is helpful and gives an insight into how Courts are likely to look to protect vulnerable debtors in recovery proceedings.  I consider that this desire to protect will be enhanced in the coming months as the Courts return to capacity and banks and lenders look to take recovery action they may have held back on during recent months.

It is a fact that many individuals had viable businesses and/or well paid jobs prior to the pandemic which may have been lost or curtailed as a consequence of the pandemic.  Many lenders will face borrowers who were considered a low credit risk at the time of lending who now face genuine issues and are struggling to pay their bills.

It seems clear that automated systems in place to collect debts will need to be reviewed or manually overridden in many cases.  Many debtors will have significant capital tied up in property which cannot easily be liquidated or borrowed against.  Some will not have property and may have used savings to survive or prop up businesses during the pandemic.  Many will be facing mental crises as a result of the stresses and personal losses they have had to deal with during this period.  Such stresses may not have been medically diagnosed but may nonetheless be real.

The traditional option of foreclosing on secured loans or seeking to recover hitherto unsecured loans by Charging Orders will need to be considered very carefully as will a hard-nosed approach to debt recovery.  Lenders will need to consider not only the impact of such strategies on their reputations but also the likely approach of the judiciary who can be expected to use their discretion up to its full limit in many of these cases.

So what can lenders (and, in fact, other creditors) do to overcome this?  

Engage with the debtor in a way that will help them open up.  Many will not read or properly digest formulaic letters.  Develop a strategy for trying to engage the debtor whether it be a telephone call, a short informal email or even sending an agent to hand deliver copy letters to see if anyone can be persuaded to come to the door and speak from a social distance.

Listen to what you are told.  There is no new obligation to look for mental health issues but there has to be an increased awareness that many who have never previously suffered depression, panic attacks, withdrawal or other symptoms have had to try to overcome them – and that many will still not have done so.  Develop processes for how your company will deal with these issues if and when they become apparent and be sure to communicate them formally to the relevant members of staff.

If all reasonable efforts have been made and nothing causes particular alarm then proceed with caution, keeping a watchful eye during the proceedings for any sign that you are dealing with a debtor facing mental health issues.  As a lender you have a right to seek payment of sums properly due.  Ensure that you have a clear record of steps you have taken so that you can show a Court that you have conducted yourself appropriately at all times.

My experience in cases where I have done this is that the Courts will often take on the role themselves of “testing” mental health issues raised late in the day recognising that the creditor has done all it can do and that the debtor may be exaggerating.  The Court’s role when exercising a discretion is to treat both sides fairly and, if you have done all you could reasonably do, you will present well to the Court.  A Court finding that a lender has behaved fairly will also usually treat that lender’s claims to costs fairly as well.  Whilst you may still find yourselves facing a sympathetic Judge, you are likely to find that the outcome achieved is at the fairer end of the spectrum and that where costs fall to be assessed, the Court will also deal with those fairly.

Failure to do this is likely to have the opposite consequences.  Whatever your entitlements may be, where the Court has a discretion it is likely to exercise it substantially more in favour of the debtor.  This is also likely to apply to its attitude to costs which the Courts can and may well assess down to show their disapproval of collection tactics which have little or no regard to difficult circumstances debtors may be experiencing.

Most lenders and businesses will need to collect debts to survive.  Proper strategies and a sympathetic approach will help maximise recoveries and also minimise adverse publicity or suggestions of inappropriate heavy handedness.

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Adam Taylor is a Partner located in Londonin our Restructuring & Insolvency department

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