Adam Taylor

The impact of mental health on post Covid-19 debt recovery strategies

Covid-19 has touched and affected us in many different ways. Those working in debt recovery are preparing for how this will impact on collection strategies as courts return to capacity.

Aggressive collection through litigation, whether in consumer or business and development finance areas needs re-thinking. The pandemic’s impact on mental health and wellbeing will be taken into account by courts as creditors look to take recovery action they may have delayed.

Many had viable businesses, projects and/or well-paid jobs, now lost or curtailed due to the pandemic. Many solid business projects were considered a low credit risk at lending stage, with debtors now facing genuine difficulties. Not all will be trading under a corporate umbrella with the option of administration and other recovery and restructuring processes set out in insolvency legislation and will be pursued as individuals.

Automated debt collection systems need to be reviewed or manually overridden in many cases. Many debtors will have significant inaccessible capital tied up in property. Some will not have property and may have used savings to survive, prop up businesses or maintain projects during the pandemic. Many face mental crises as a result of stresses and personal losses through Covid. Such stresses may not have been medically diagnosed but are nonetheless real.

Traditional foreclosing on secured loans or recovering unsecured loans by charging orders need careful consideration. Lenders need to contemplate the impact of such strategies on reputation and the likely approach of courts who can be expected to use discretion up to its full limit where appropriate.

So, what practices should be followed and can be expected?

Engage with debtors at the earliest of stages

Many will not read or properly digest formulaic letters. Strategies need to be developed to engage debtors. Creditors should use phone calls, short informal emails or even send an agent to hand deliver letters.

Creditors should listen to what they are told

Courts are likely to expect an increased awareness and anticipation of mental issues and will look to see processes for how these issues are dealt with, if and when they become apparent.  Creditors should use effective internal communications to facilitate this.

If all reasonable efforts have been made and nothing causes particular alarm, then proceed with caution, keeping a watchful eye during for any sign that you are dealing with a debtor facing mental health issues. Creditors have a right to seek payment of sums properly due and should ensure clear records of steps taken are maintained.

Courts often take on the role of ‘testing’ mental health issues raised late in the day, recognising that the creditor has often done all it can do, and that the debtor may be exaggerating. Its role is to treat both sides fairly in exercising a discretion. Creditors that follow good practice will inevitably find the outcome achieved is at the fairer end of the spectrum.

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 towards costs, which the courts can and may well assess down to show 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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