Mark Goldstein: "Investing in debt recovery ensures that a school retrieves what it is owed whilst also sending a message to parents”

Can't pay, won't pay?

Mark Goldstein looks at the pros and cons of taking legal action to recover unpaid school fees

Posted by Stephanie Broad | July 06, 2015 | Law, finance, HR

• #school-finance
• #school-fees
• #unpaid-fees
• #independent-schools
• #debt

In previous years, independent school fees have continuously risen above the rate of inflation, and for many parents, paying the fees has become a struggle. Late payments are a fact of life for any business, including independent schools, which face a number of specific issues and sensitivities in pursuing parents for unpaid fees.

Although schools may send reminders by letter or email and impose sanctions for non-payment – such as a withdrawal of library facilities, withholding of transcripts and certificates, restrictions from attending awards ceremonies or school trips and vacations and withdrawal from study at the school – often the only course of action is to reclaim the money that is owed. Recently it has become increasingly important for independent schools to have robust credit control systems in place that are supplemented by effective school fee recovery solutions if internal processes do not lead to payment.

On 9 March this year, new county court fees approved by the House of Lords came into force for issuing a claims form to recover an outstanding debt. Since then, the following fees will be payable for claims in the courts of England and Wales to recover a sum of money:

• claims between £5,000 and £9,999 will incur a court fee of £455

• claims between £10,000 and £200,000 will incur a court fee of five percent of the amount claimed

• claims over £200,000 will attract a fixed court fee of £10,000.

Claimants issuing through secure data transfer (SDT) or money claims online (MCOL) will be eligible for a small discount on the court fee incurred. Lord Faulks, who proposed the motion in the House of Lords, stated that a “properly funded court system” is required, adding that “those who use the courts should make a significant contribution to the cost”.

What this means is that with the average private monthly term fee being between £5,000-£6,000, a court fee of £455 will be charged in the event of a dispute. However, under the new regime, the court fee is five percent of the amount owing if the debt is allowed to increase for several terms so that the debt reaches around £20,000. On claims for between £15,000 and £50,000 this used to be £610. The new fees mean that there has been an increase of 64 percent to around £1,000. With average boarding fees of around £9,500 a term, according to 2014 research by the Independent Schools Council, and believed to be more than 50 percent of parents’ average pre-tax salary, it is clear that delayed fees can create significant cash-flow issues.

People owing money typically fall into one of three groups according to their ability to pay. First there are those who have the money to pay when they fall into arrears and are still in a position to pay when their creditors reach the late stages of debt recovery. At the other extreme are people who do not have the money either when they fall into arrears or when their creditors seek to recover the money owed. In between these two is a third group who are able to pay when they fall into arrears but, as a result of a change in circumstances, can no longer afford to do so when their creditors reach the late stages of debt recovery. Most people would probably agree that it is appropriate for creditors to take court action against those who will not pay. Similarly, there would be general agreement that it is inappropriate to initiate court proceedings against anyone who has every intention of paying but is unable to do so. I’m sure that many people would also believe that court action is inappropriate in cases of genuine personal issues in respect of family bereavements, redundancy, parents separating or dispute over payments, where people intend to pay but are disorganised in their approach to bill payment.

In my experience, if for whatever reason a debtor has not paid after one term, schools generally prefer to nip matters in the bud on the basis that if the parents cannot pay for one term, it is unlikely that they will be able to pay for two or three terms or more.

However, in genuine cases such as an acrimonious divorce, employment issues or serious illness, my clients will work with the debtors to assist in monthly payment plans. Alternatively, if they own property, a charge on the property is often agreed that is usually realisable upon the child leaving the school.

Once the school’s own procedures have failed to secure payment, I will issue a letter of claim as a final opportunity to settle the matter before court action is taken. If that approach also fails, the next step will be to issue county court proceedings to recover the debt, which will attract statutory interest of eight percent per annum plus legal costs. I also review a school’s terms and conditions to ensure that there are no loopholes that non-paying parents can exploit. In any cases that do go to court, I provide support, such as checking relevant emails and preparing witness statements. The court may not always order a lump-sum payment so in these situations I will liaise with the school to establish what instalments they can accept.

The clients that I act for try to ensure that their actions have as little disruption for the children as possible, but in some instances it will mean that the child will have to be removed from the school and placed in mainstream education as the parent or parents simply cannot afford to pay the term fee anymore. The effect on the student can be one of embarrassment and shame as they are in a situation that they may not understand. Furthermore, they will have been thrown into an alien environment with class sizes different to those they have previously experienced and they are forced to make new friendships, as well as adapt to differing teaching methods that could have ramifications on exam success.

At all times I endeavour to deal with debtors on a friendly basis. I know that the needs of every school are different, but each one ultimately wants the best for its students. By using behavioural science and engaging on first-name terms, a more positive response from a debtor can be created. Of course, the ultimate aim is to achieve payment for the school, and although I am yet to find a school with an allocated budget for litigation, it is important to remember that investing in debt recovery ensures that a school retrieves what it is owed whilst also sending a message to parents.

Mark Goldstein is head of the family law and asset and debt recovery departments at JD Law.

www.jd-law.co.uk