Last year, my wife's car was insured though Kwik Fit.

When her renewal came through, she wrote to them telling them not to renew as we were selling the car and cancelled the direct debit at the bank.
Car was sold the day after the policy expired (deposit taken previously, but remainder and paperwork done on that day) and had been parked off road for the previous week anyway.

Kwik fit then wrote to ask why the direct debit had been cancelled.
I telephoned and told them that the car was sold and the policy was not being renewed; the woman I spoke to seemed quite happy with this.

Another letter arrived today telling us the policy is now in arrears and will be cancelled if we don't pay the amount outstanding (£40 ish).

Mrs 215 then phoned them to sort things out, only to be told that they had never received her letter (surprise surprise...) so the policy had been renewed automatically and now if she wants to cancel it she is due both the amount outstanding plus cancellation charges - £142.18 in total!

Threat was made on the phone that if this amount wasn't paid it would be passed on to a debt recovery service...

So, legal people of PH, where do we stand?

The point is that they were told not to renew in the first place by letter, which they now claim they never received.

If she doesn't pay the policy will be cancelled; the insurers said that in their communication.
The problem comes when they point out that in accepting the first policy with an insurer they will get you to agree to automatic renewal by default if you do not opt out.
You will most likely find this is the case. You will have to read the terms and conditions of her first policy very carefully to see what the auto-renewal clause says.
Personally, I think it is a rip-off and always opt out. Even when doing this you will find insurers conveniently overlook your opt out and still auto-renew. Quite why BBC Watchdog don't take this up is a mystery.

Edited to add. The wife's insurance was taken out with a company that sounds like a wood chopping implement. Opted out of auto-renewal. Lo and behold, in came an auto renew letter this year. Didn't take the policy offered. Looked around and hey presto, reinsured with the same company for less premium than offered in the auto renewal.

When asked why auto renewal was offered the lady on the phone says its illegal to own a car that isn't insured. Not only do they scam you but they lie doing it too.

Not in my experience.

Ordered some run-flat tyres and they came as not run-flat. They did however offer to fit those to my wife's car that has no spare; how kind.

If they did what I said they would have a salesman with the back of his trousers showing the profile of 4 tyres sticking out of his arse. I should have known better.

The terms are quite clear and you agree to them quite actively as I understand it.

There has been legislation against similar in the telecomms market -notably because of the actions of BT & Virgin in effecting another year contract if the user did not affect new T & C. So ,could this also apply to the world of insurance ?

So an invoice for £142 arrived today.

It's not getting paid...

What can a debt collection agency do whilst the debt is in dispute? Or, for that matter, without a court order?

Ah yes, but they should have informed him of this and not confirmed that it was done.

In the very first post the OP stated that his wife wrote to the company , before the renewal date , instructing them that she did not wish to renew .

This is all she needs to do . The interpretation Act deems that any letter posted has been served ; it is of no matter that they claim not to have received it since , if the matter goes to court , the court will determine that her posting the letter was sufficient , and that the additional telephone calls both from the OP and his wife advising that she did not wish to renew , along with proof of transfer of ownership of the vehicle the day after the original policy expired , should be enough to have any case thrown out .

The company have been told at least three times the cover was not required , the car can be demonstrated to have been sold . One further letter instructing them to stop harassing the OP's wife for payment of a debt that never existed , or the matter will be escalated to the insurance ombudsman , certain consumer TV shows and , ultimately , court should be enough to get them to desist .