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HC Report stage debate re Bankruptcy amendments (16.10.12)
Jo Swinson: As well as moving the new clause, I shall speak to new schedules 2 and 3, along with Government amendments 37, 41 and 44, the latter of which are consequential amendments on territorial extent and commencement.
individual to present a bankruptcy petition to court and replace it with a new administrative process. Currently, a person with unmanageable levels of debt who wishes to make him or herself bankrupt must petition the court—the local court—for a bankruptcy order. There is no dispute that requires a court to make a judgment on competing interests in these scenarios. The vast majority of such applications—last year there were more than 30,000—are accepted by the courts with very little scrutiny.
The amending provisions mean that instead of petitioning the court, applicants would submit their bankruptcy application to a new adjudicator. This proposal was consulted on by the previous Administration and was broadly supported by interested parties. I should say that the Government consulted on removing the court from a wider range of cases, but as significant concerns were raised, this amendment concerns only debtors’ own petitions.
The adjudicator will hold a new statutory office, which we intend to be located in the Insolvency Service. The adjudicator will consider each application, and will decide on an objective basis whether the criteria for the making of a bankruptcy order have been met. If they have been met, the adjudicator will make the order. The administrative process is similar to the way in which individuals enter bankruptcy in Scotland, and in some other jurisdictions throughout the globe.
Applicants for bankruptcy will no longer need to attend court. Applications will be electronic, which will deliver significant savings, and applicants will be able to pay the fees in instalments. Bankruptcy will none the less remain a serious step. It may be the right solution for some debtors, as it allows debts to be written off and a fresh start to be made; but, quite rightly, those advantages are tempered by the serious implications of a bankruptcy order. Bankrupts are subject to restrictions, their assets can be sold for the benefit of creditors, and a portion of their incomes can be used to help repay their debts. For many, other debt remedies will continue to be more appropriate. We will therefore encourage debtors to take independent debt advice before making their bankruptcy applications. We will work with the Money Advice Service and providers in the debt advice sector to ensure that all debtors have the information that they need in order to make an informed decision.
There will be no change in the process that takes place after the making of a bankruptcy order. When an order is made by an adjudicator, the present post-bankruptcy order procedures will continue to operate, and the serious consequences that apply to an individual who is made bankrupt will remain.
Ian Murray (Edinburgh South) (Lab): It is good to reach the Bill’s report stage following a mammoth session in Committee before the summer recess, and it is interesting to note that the Opposition made such a strong and determined case in Committee that no Ministers from the Department for Business, Innovation and Skills are left on the Front Bench.
The new clause amends the Insolvency Act 1986 and introduces an administrative procedure for debtor petition bankruptcies. It is extremely worrying that the number of people who find themselves caught in a spiral of debt is increasing, and that many are forced to declare themselves bankrupt as a result. The figures are stark. Citizens Advice
has dealt with more than 2.2 million problems involving debt, and has received 131,000 inquiries about bankruptcy and 142,000 about debt relief orders. The issue is not just about financing and debt; it is about relationships and, in some cases, lives. Bankruptcy is all too often a stigmatising experience, and evidence shows that that applies particularly to men.
Although the number of people declaring themselves bankrupt has fallen, the number of those becoming insolvent has risen sharply, according to official Government figures. As the Minister said, there were more than 30,000 personal insolvencies in just one quarter this year. That is a staggering figure, which shows how many households need help with debt problems. Insolvency is a very difficult condition to have to face, and it usually comes at the end of a long struggle to deal with debt and other money problems. The leading debt charity Clarifi, formerly known as the Consumer Credit Counselling Service, has said that it expects the number of personal insolvencies to increase over the next year, and has warned that more than 6 million households are still living on the edge. It is therefore vital for those who are struggling to pay their debts, or even just worried about their debts, to seek free advice and support. Opposition Members believe that it is hugely important for the process of insolvency to be as swift as possible, and we welcome the initiatives that will speed up that process.
As the Minister will know, key stakeholders have broadly welcomed the proposals, but they have raised several issues that I hope the Minister will deal with. First, there is the issue of the establishment of the location and how the new administrative process will deal with bankruptcy tourism. Secondly, there is the issue of the qualifications of adjudicators, which has prompted concerns similar to those relating to the Government’s proposals in respect of the role of legal officers in the employment tribunal system, and has been raised on a number of occasions. It is important for adjudicators to be in a position to make crucial judgments not just about bankruptcies, but about referrals to court. They need both knowledge of insolvency law and experience of the court system. Given that the Secretary of State has the power to appoint adjudicators, may I ask what experience-related criteria they will have to meet?
Thirdly, there is the issue of fees. People who are struggling with debt often cannot afford the £700 that it costs to go bankrupt, even when bankruptcy would otherwise be the best way out of their problems. That leaves them in a financial black hole. The number of people using debt relief orders, one of the cheaper remedies, has risen sharply again. It seems slightly perverse that someone who is struggling with debts should have to find more money in order to petition for bankruptcy.
The Bill empowers the Lord Chancellor to be flexible in fixing fees. Given that the new streamlined system has the potential to be electronic, and to be simpler and cheaper, I wonder whether the Government will consider some remedies for the problem of fees, such as allowing people who are seeking bankruptcy to pay in instalments.
The Minister mentioned advice for debtors. There is a view that taking the bankruptcy system out of the formal courts process and making it more administrative will reduce the gravity of the situation in which people find themselves. It is important for bankruptcy to be
seen as a last resort, but all possible advice and guidance should be given to those who seek to go down that route.
Finally, may I press the Minister on one of her great loves, the Post Office? It has been said that the new administrative task of filling out the bankruptcy forms in the prescribed manner could be performed through the Post Office by means of a passport-style “check and send” arrangement. That would also allow the Post Office to divert people to other forms of debt advice, including free advice.
We support the change to a more administrative bankruptcy system because it is one of the critical remedies for debt, but we should be grateful if the Minister could provide some comfort on the issues that have been raised.
Mark Durkan (Foyle) (SDLP): Like my hon. Friend the Member for Edinburgh South (Ian Murray), I welcome the new clause and new schedules. On Second Reading, I asked the Government to look at the Insolvency Act 1986 in the context of the Bill, but they said at the time that they did not want do so. I am glad that they have now revised their view.
As my hon. Friend said, it is important for a number of issues to be tested, not least bankruptcy tourism. That is causing concern in both parts of Ireland at present, in key agencies and in terms of public opinion. I support the new clause and the extension of the Bill to amend the 1986 Act; however, I ask the Government to consider not just section 263, with which new clause 16 deals, but section 233. Changes could be made that would reduce the number of companies that go bankrupt.
Although these provisions are about making insolvency more straightforward and easing the process of bankruptcy, both as it is going on and afterwards, the amendments to section 233 being sought by R3—the Association of Business Recovery Professionals—would mean that businesses, which are currently subject to demands for ransom payments from suppliers once they go into administration, could instead be protected and brought into recovery rather than ransomed into bankruptcy. Essentially, the suggestion is that chapter 11-style protections could be brought into UK law. As it stands, the Insolvency Act is meant to protect companies in administration from having their supplies cut off, but utility supplies under that Act extend only to gas, electricity, water and telecommunications and not to IT and software, which are vital services for a modern business.
Justin Tomlinson: That is an extremely important point. First, utility companies can reset the tariff and choose the most expensive option, further adding to pressure on keeping the company viable. Secondly, we need to modernise the language, because IT contractors were not an option when the law was first introduced but are now essential to most businesses.
Mark Durkan: I thank the hon. Gentleman for that intervention and he has amplified the point that I am trying to make. In 1986, IT and software were not seen as vital for the conduct of a business but now, clearly, they are and the Bill must make good the deficit in the legislation. Also, as he said, the law as it stands forbids
utility suppliers from ceasing to supply a company that has gone into administration although, of course, it does not prohibit them from charging a super-high tariff. That exposes companies in administration to ransom demands that can drive them towards bankruptcy. The Government are right to consider the Insolvency Act, but they must widen the scope of that attention beyond these very welcome amendments.
Neil Parish (Tiverton and Honiton) (Con): I merely seek reassurance from the Minister. I can understand the need to simplify the bankruptcy procedure for those who, through no fault of their own, seek it because of their debts, and that is absolutely right. I am slightly concerned, however, that some companies shift money around and go bankrupt because it suits them to do so, taking other companies down with them. I want the Minister to reassure me that the adjudicator, or whatever he or she will be called, will have the powers to look into such cases so that it is not easy to go bankrupt when one should not. Such companies bring other good companies down with them.
Jo Swinson: I have appreciated the good but brief debate on this issue, on which there is clearly a degree of support on both sides of the House. That is always welcome and I particularly welcome the support for these measures from the hon. Member for Edinburgh South (Ian Murray) and the official Opposition.
I share the concern about the fact that too many people sadly need seriously to consider bankruptcy. We all know from our experience in our constituency surgeries the distress and heartbreak that can cause to the people who are contemplating such a measure. The impact of that decision on individuals is why it is absolutely right to do what we can to improve the process, to make it swift and efficient and, where possible, to prevent people from having to appear in court, which adds to the stigma that has been mentioned and is a distressing and difficult experience.
Bankruptcy should be considered as a last resort. A wide range of different measures are promoted and encouraged through people who give debt advice such as individual voluntary agreements, of which there are about 49,000 a year; debt management plans, of which 150,000 people take advantage each year; and the new debt relief orders for specific categories of very vulnerable and poor debtors, 29,000 of whom take them up every year. In that context, the 38,000 bankruptcy orders show that bankruptcy is not used by all the people who face such difficulties. Of course, the general advice to individuals in difficult financial circumstances is to seek advice early. The earlier the problems can be confronted, the more possible it is to avoid the worst consequences.
I am happy to address the specific issues raised by Members. The hon. Members for Edinburgh South and for Foyle (Mark Durkan) mentioned bankruptcy tourism, which is a practice whereby a debtor opts to access insolvency proceedings in a particular member state by relocating to that member state. That potentially enables them to seek a better outcome than might have been possible in their previous country. That is allowed for under the EU insolvency regulation provided that the relocation is genuine. For many individuals in such circumstances, the relocation might not be straightforward
so it is perhaps unsurprising that the number of individuals from other EU countries who relocate to the UK for this purpose is very small. There is no evidence of widespread abuse, but the official receiver or a creditor can apply to court to annul the bankruptcy order if abuse takes place.
On the question about the adjudicator, the Insolvency Service is already looking at this for the debt relief orders that it administers and it will be able to do exactly the same in relation to the way in which adjudicators conduct their business.
On the qualifications of adjudicators, they will be making an objective decision by reference to prescribed criteria and there will be a right of appeal for an applicant if the adjudicator refuses to make an order. Obviously, they will need appropriate qualifications and experience to function effectively, and the Secretary of State will make sure that people appointed to that role are appropriately qualified. They will be based within the Insolvency Service which, as the House knows, is an executive agency of BIS, and will already have extensive experience of administering an electronic administrative process similar to the debt relief order regime. It is important to point out that adjudicators will not be able to be official receivers as well, as that would be deemed to be a conflict of interests so those roles will be kept separate.
I appreciate that for individuals seeking bankruptcy, the levying of fees on that is not straightforward. The administration fee will remain unchanged at £525, which is a significant sum for people in that situation. In the context of overall bankruptcy, where they will be expecting debt relief of at least £15,000, it is not as huge as could be imagined in the comparison.
What is important about the way in which the new system will operate is that it will take the courts away from a process in which they do not need to be involved. Where there is no dispute, where somebody wants to declare themselves bankrupt and nobody has a problem with that, there will be no requirement for that costly court process. That will generate significant savings so the application fee for the process is expected to be about £70, instead of the current court fee of £175. That will be helpful and of benefit to people applying for this option. It is estimated that overall debtors will save about £1.5 million. There is a saving for the Court Service as well, as this will be a more efficient process handled through the adjudicator, and individuals personally affected by bankruptcy will benefit. The suggestion from the hon. Member for Edinburgh South about paying in instalments is one that the Government have taken on board. It is part of the process and offers real advantages, compared with the current situation.
I was delighted that the hon. Gentleman mentioned the Post Office, which I, as the Minister responsible, am passionate about, as I know are Members in all parts of the House, who support their local community post offices. The Government are committed to ensuring that the Post Office can be an effective delivery mechanism for more front-office Government services. There is good news—last year, for the first time in a decade, the income stream that the Post Office received from Government services increased, so there is a positive story to tell.
The Post Office is looking at a wide range of ways in which it can increase its services and its revenue. Playing a wider role in identity checks, as was mentioned, is one of those. It is important to bear in mind that the Post Office will bid for such contracts on the basis of being able to provide an effective and efficient mechanism for doing so. It is a very good organisation that is able to provide such services and win those contracts on the merits of the bid that it submits.
On the issues relating to advice, there are examples of more credit union facilities and a wider range of financial services being able to be accessed through post offices. Access to financial services from that excellent network of 12,000 branches is of particular help to people in communities that do not have a local bank branch, perhaps because they are very rural communities. Now that 95% of bank accounts are accessible at post offices, the recent announcement from HSBC was welcome. The hon. Gentleman certainly raises an important point.
On the points made by the hon. Member for Foyle and my hon. Friends the Members for North Swindon (Justin Tomlinson) and for Tiverton and Honiton (Neil Parish), it is important to point out that the amendments relate to personal insolvency, not company insolvency, and were I to detain the House on company insolvency, Mr Deputy Speaker may have concerns. I hear Members’ concerns and I know from Members’ correspondence that people are worried about the procedures when companies become insolvent. The change of termination clauses in insolvency would have implications for the suppliers, so many demands need to be balanced, but I recognise the concerns and we are looking more widely at issues facing companies in insolvency. My officials have been engaging with interested parties and stakeholders and will continue to do so.
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