Draft Enterprise and Regulatory Reform Act 2013 (Consequential amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential amendments) Regulations 2016

Lord Johnson of Marylebone Excerpts

Monday 21st March 2016 General Committees

[The Minister for Universities and Science (Joseph Johnson)]

I beg to move,

That the Committee has considered the draft Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016.

It is a pleasure to appear under your chairmanship, Mr Hanson. The regulations simply make necessary changes to primary and secondary legislation that will be affected by the introduction of the new bankruptcy application process and changes made to the requirements for the reporting on the conduct of directors of insolvent companies. Both those new digital processes were introduced through the House with widespread support.

Currently, when an individual wishes to take the option of making themselves bankrupt, they must complete a paper petition and present it to their local court. From 6 April 2016, instead of going to court, individuals will be able to apply online via the central Government website, gov.uk. The new digital process will be easier to access than the current paper-based court process, although we recognise that applying for bankruptcy is still a big step and should be contemplated only when no other options are appropriate.

Applications for bankruptcy will be determined by the adjudicator, a new post in the Insolvency Service. Once the order has been made, the case will transfer to the official receiver in the same way as it does now for administration and, if appropriate, investigation.

There is also the issue of reporting on a director’s conduct. When a company goes into insolvency, the office holder appointed is required to report to the Secretary of State on the conduct of the directors. Reports indicating misconduct are investigated and may lead to disqualification proceedings against the directors. Currently, reports must be sent within six months of the insolvency. Shortening that period to three months was part of the package of measures introduced by the Small Business, Enterprise and Employment Act 2015. In addition, in support of the Government’s digital agenda, we are introducing an online reporting system. That means that office holders will be able to submit reports electronically and upload new information as soon as it comes to their attention.

The regulations simply make consequential amendments to other legislation as a result of those changes.

--- Later in debate ---

[Joseph Johnson]

Let me start by passing on the apologies of the Minister for Small Business, Industry and Enterprise, who is in Redcar this afternoon and would otherwise want to be here. She is attending to long-scheduled business up there relating to situations of which Members are well aware.

On personal bankruptcies, the estimated cost savings are in the range of £7.3 million to £15.3 million and are dependent on the overall level of debtor applications. The immediate cost savings to the courts will be made on staff, administration and court hearing times. Depending on the case loads, savings to the courts have been estimated at between £8.3 million and £16.6 million.

[Bill Esterson]

I understood the Minister’s second point about court savings, but will he clarify exactly who will accrue the first set of savings—the £7.3 million to £15.3 million?

[Joseph Johnson]

To clarify, let us settle on £8.3 million to £16.6 million as the ballpark estimated savings to the courts from the measures.

If the online application is unsuccessful, the adjudicator must give the debtor a reason for refusing to make a bankruptcy order. The debtor can then appeal or reapply if they wish—on first appeal, to the adjudicator, and on second appeal the matter is referred to a court. That route will be available on second appeal.

Those who do not have access to the internet will be able to apply for bankruptcy with the assistance of third parties such as a friend, relative or approved debt adviser. The system is designed to allow screens to be populated on the applicant’s behalf, with the applicant’s approval. The applicant must check that the application data are accurate and is responsible for submitting the application themselves. Financial intermediaries can be used as a last resort—for example, a debt adviser might be used in a complex case. Insolvency Service officials can provide assistance by telephone in filling in online forms.

On the Small Business, Enterprise and Employment Act 2015 measures, the hon. Gentleman asked how insolvency practitioners will be affected by the tighter reporting timeframe. There was a mixed response to the consultation on reducing the reporting period from six to three months. Concerns expressed included—

[Mr Cox]

Before my hon. Friend the Minister moves on to the second subject, the hon. Member for Sefton Central asked a question in which I am quite interested: whether the Government intend to extend this process to creditor applications, and not only for the person applying for his own bankruptcy. I wonder if the Minister might answer that.

[Joseph Johnson]

I am able to tell the Committee that the adjudicator’s role is not a judicial one. It is a role specifically created for determining applications for debtors applying for their own bankruptcy. All other routes into bankruptcy where judicial input is required will continue to be heard in court. I will happily furnish my hon. and learned Friend and, indeed, the Committee, with any further information needed to answer that question.

[Bill Esterson]

Will the Minister give way?

[Joseph Johnson]

I will not be able to give the hon. Gentleman any further information on that point but I will happily write to hon. Members with additional information.

[Bill Esterson]

It would be helpful to ensure that the Minister is able to answer the question in full. Just to clarify, have the Government now accepted that creditors will not be included? Will he confirm that the Government have no intention to extend the provisions? That would be very helpful. Before the Minister moves on, I asked a question about reducing the stigma of bankruptcy. Are the measures seen as a way of doing that, and does the Minister feel that they are a way of avoiding an increasing use of payday loan companies and other high-cost forms of credit?

[Joseph Johnson]

In answer to my hon. and learned Friend’s question and the hon. Gentleman’s question: yes, that is the Government’s intention. We do not intend to extend the measures to other forms of bankruptcy. The consultation responses that we received showed support for other routes into bankruptcy, such as creditor petitions, to remain within the court system. The hon. Gentleman made a point about reducing the stigma of bankruptcy. That is a long-standing objective of this Government and previous Administrations, and the measures will support that goal.

On the rest of the questions, insolvency practitioners will be affected by the tight reporting timeframe. There was a mixed response from the consultation on reducing the reporting period from six months to three months. Concerns expressed included that insufficient information would be available to office holders in the time available and that that would lead to less misconduct being reported. However, earlier reporting will enable earlier investigation, and the online reporting system allows further information to be submitted in the minority of cases where new information comes to light after three months.

On the question about the savings for insolvency practitioners, we estimate the net benefit to insolvency practitioners at about £3.4 million per annum. That benefit is calculated from expected time savings and completing online forms instead of paper forms, which will enable more money to be returned to creditors. We have had a useful debate and I ask the Committee to support the changes required to the affected primary and secondary legislation. I commend the regulations to the Committee.

Question put and agreed to.