Notice to Industry: recovery of fines and administrative charges
25 August 2009
PhonepayPlus is giving notice that with immediate effect it will direct network operators to withhold specified sums payable by them to a service provider using powers available to it under paragraphs 8.5f and 2.5.2d of the PhonepayPlus Code of Practice (11th Edition, Amended April 2008) at the start of a Standard Procedure investigation and, where appropriate, following adjudication, in the certain circumstances.
Our concern is that a number of unscrupulous providers are setting up ‘shell companies’ with the intent of circumventing the regulatory process. Effective due diligence by networks and service providers will help prevent this, but it appears existing guidance (both from PhonepayPlus and the Industry Liaison Panel) is not being followed in some instances.
In its recent Scope Review, Ofcom has recommended a registration process that is intended to improve due diligence processes, and the development of a new edition of PhonepayPlus’ Code of Practice should lead to additional protection. Until these arrangements are in place, PhonepayPlus intends to use existing powers to target certain types of organisation that have a profile of susceptibility to non-payment, by using directions to withhold revenue in Standard Procedure cases which meet the criteria set out below. Networks will be familiar with these procedures, which are currently already in use for Emergency Procedure cases.
PhonepayPlus is giving notice that with immediate effect it will direct network operators to withhold specified sums payable by them to a service provider using powers available to it under paragraphs 8.5f and 2.5.2d of the PhonepayPlus Code of Practice (11th Edition, Amended April 2008) at the start of a Standard Procedure investigation and, where appropriate, following adjudication, in the following circumstances:
where the company  is resident overseas, or has only a nominal presence in England and Wales
where up-to-date information has not been filed at Companies House demonstrating the financial viability of the company;
where the credit rating of the company is poor, or it has outstanding court judgments against it; where the company has a poor record of paying fines and/or administrative charges in a timely fashion; or
where the directors or shareholders of the company have been associated with another company having a poor record of paying fines and/or administrative charges in a timely fashion.
PhonepayPlus is also giving notice that the power available to the Executive under paragraph 8.9.3a of the Code to ‘direct networks to suspend access to some or all of the numbers allocated to a service provider until payment is made’ will be exercised by the Executive at the point of instructing its solicitors to recover outstanding debt, without referral to a further Tribunal. Providers should therefore ensure they pay their fines in a timely fashion by the due date in order to avoid the consequences of such directions.
We believe that this targeted approach to tackling the risk of unpaid fines due to insolvency is proportionate, and do not anticipate that the more frequent exercise of this power will result in unwarranted bureaucracy.
It will remain the case that all services which are promoted without any underlying value to the consumer (scams) will be dealt with under the Emergency Procedure, and will be subjected to immediate directions to networks to withhold all payments due to service providers.
In fixing the amount of money to be withheld in Standard Procedure cases, the Executive will have regard to the potential seriousness of the alleged breach by a service or information provider, and the fine likely to be imposed by a Tribunal in the event of the alleged breaches of the Code being upheld.
Following exercise of powers under paragraph 8.9.3a of the Code to require networks to suspend access to some or all the numbers allocated to a service provider, the Executive will notify the Chair of a Tribunal hearing of any subsequent case brought against that service provider for failure to comply with a sanction (paragraph 8.9.3b), so that the effect of that suspension can be taken into account when imposing any other sanction(s).
Review of Arrangements
PhonepayPlus will regularly review the criteria for issuing directions under paragraphs 8.5f and 2.5.2d and will adjust them, where necessary, if other categories of company failing to pay fines and administrative charges come to light.
PhonepayPlus intends to review the arrangements set out in this Notice in six months’ time to test the effectiveness of them in addressing the underlying problem of increasing bad debt provision, and to gauge from industry their support for the criteria set out in the Notice. At that time, the next version of the Code of Practice is expected to be under consultation and PhonepayPlus will also wish to consider the appropriateness of the arrangements contemplated in this Notice in the light of prospective Code changes.
 References in this and succeeding points to ‘the company’ are to the service provider or, when PhonepayPlus agrees to deal directly with the information provider under paragraph 8.7 of the Code, to the information provider responsible for the service in question.