Enterprise and Regulatory Reform Bill

Ian Murray Excerpts

Tuesday 16th October 2012 Commons Chamber

[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.

These amendments will reform the process by which an individual may apply for his or her own bankruptcy. They will remove the existing requirement for the indebted 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.