Deductions from benefit during a Debt Relief Order declared unlawful

Wednesday 28 July 2010

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Mr Justice Cranston so held on 26 July 2010 in the case of R (Payne & Cooper) v Secretary of State for Work and Pensions (CO/3793/2010 and CO/4048/2010). The Court rejected the argument advanced on behalf of the Department for Work and Pensions, namely that insolvency legislation does not affect the Secretary of State's right to recover a debt by deductions from benefit given previous case law on bankruptcy orders such as R v Secretary of State for Social Security ex p Taylor and Chapman (1997) BPIR 505. The Court held that the wording used in the provisions governing Debt Relief Orders was significantly different and, as a matter of construction, deductions from benefit amounted to a "remedy" and therefore fell within the prohibition in section 251G of the Insolvency Act 1986. The DWP's decision to continue to make deductions from both of the Claimants, notwithstanding the making of a Debt Relief Order, was therefore quashed.

The Secretary of State was granted permission to appeal to the Court of Appeal.

Mrs Payne was represented by Desmond Rutledge of Garden Court Chambers, instructed by Edwards Duthie Solicitors.

Mrs Cooper was represented by Paul Stagg of 1 Chancery Lane Chambers, instructed by the Public Law Project.

The Court of Appeal granted the DWP a stay of the judgment. As a result, the DWP are continuing to recover overpayments by deductions from benefit where the overpayments have been included in a debt relief order. In an Urgent Bulletin U5/2010 the DWP advises that if local authorities decide to continue making deductions in these cases, a list of affected cases should be kept, so that they can cease making deductions and/or make refunds if the Secretary of State decides not to appeal against the judgment or does decide to appeal, but the appeal is unsuccessful.

Urgent Bulletin U5/2010 can be downloaded here.

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