Payne & Anor, R (on the application of) v Secretary of State for Work and Pensions

During the moratorium under a debt relief order, a creditor may not use a statutory deduction from continuing social security benefits to recover a specified qualifying debt. The word “remedy” in section 251G(2)(a) of the Insolvency Act 1986 has its ordinary and broad meaning. It includes self-help measures and statutory deductions, not merely remedies granted by a court.

The so-called net entitlement principle does not determine the interaction between social security legislation and debt relief orders. The issue remains one of statutory construction. The Secretary of State’s powers under sections 71 and 78 of the Social Security Administration Act 1992 are therefore subject to the moratorium where the relevant overpayment or loan is specified in the order.

These two judicial review claims concerned deductions from ongoing benefits. In one case the Secretary of State deducted incapacity benefit overpayments. In the other he deducted repayments of a social fund budgeting loan.

Both debts were included in debt relief orders made under Part 7A of the Insolvency Act 1986. The Secretary of State continued making deductions during the moratorium period. The claimants argued that this constituted the exercise of a remedy prohibited by section 251G(2)(a).

The central issues were whether statutory deductions were a “remedy” and whether the alleged net entitlement principle prevented the moratorium from applying.

1. Claims allowed. The decisions to continue deductions were quashed. The Secretary of State was ordered to repay the sums withheld. Permission to appeal was granted, but no stay was ordered.
2. “Remedy” in section 251G(2)(a) of the Insolvency Act 1986 bears its ordinary meaning: the legal means of enforcing or recovering a right. It includes self-help measures such as set-off. A deduction from continuing benefits under sections 71(8) or 78(2) of the Social Security Administration Act 1992 is the statutory equivalent of set-off and is therefore a remedy.
3. The reference in section 251G(2)(b) to proceedings does not narrow paragraph (a). Treating “remedy” as limited to court remedies would make paragraph (a) largely otiose.
4. The Secretary of State has a discretion whether to recover an overpayment under section 71 and a discretion to choose deduction rather than another recovery method. The amount deducted is also subject to statutory limits. Deductions therefore occur because the Secretary of State elects to use that remedy.
5. The authorities concerning bankruptcy did not establish a universal net entitlement principle. Mulvey v Secretary of State for Scotland and R v Secretary of State for Social Security, ex parte Taylor and Chapman arose in the different context of bankruptcy, trustees and the vesting of property. R (Balding) v Secretary of State for Work and Pensions confirmed that statutory interpretation must be undertaken in the particular context and rejected the proposition that a recipient is always entitled only to net benefit.
6. The different statutory purposes and machinery of bankruptcy and debt relief orders were significant. Debt relief orders are directed to debt relief for persons with little disposable income or property, and the debtor’s estate does not vest in a trustee. The bankruptcy authorities therefore did not determine the construction of section 251G.
7. Once a debt relief order specifies an overpayment or social fund loan, section 251G(2)(a) prevents recovery by deduction during the moratorium. At discharge, the specified qualifying debts are released.

This was a first-instance decision of the Administrative Court. Permission to appeal was granted because of the importance of the issue, but the court refused a stay in the two claims.