Big changes to bankruptcy procedure
31st March 2016
Hot on the heels of a big change back on the 1st October 2015 where the minimum debt level required to go bankrupt was increased from £750 (where it had been since the introduction of the 1986 Insolvency Act) to £5,000, another big change will take effect on the 6th April 2016 when you will no longer have to go to court to apply for bankruptcy – instead, the process (including paying by instalments) will move online.
One of the key drivers for this change appears to be removing workload for an already stretched legal system. With County Court, Magistrates Court and Crown Court closures looming, it would appear sensible to remove as much workload as is practical in order to have a much leaner and more efficient court system – an admirable objective.
There appears to be a school of thought that believes there are many individuals put off going bankrupt because they are terrified of going to court, so this new process will improve accessibility. Bankruptcy numbers have been steadily declining year on year, especially since the introduction of Debt Relief Orders in April 2009, so it will be interesting to see what the effect (if any) this change has on those declaring themselves bankrupt. I believe a far more likely effect on bankruptcy numbers will be the ongoing scrutiny of the debt management sector by the FCA during the authorisation process (following their takeover of consumer credit regulation in April 2014) as it is widely believed that there are many bankruptcies and IVA’s currently “hiding” in the tens (or is that hundreds?) of thousands of debt management plans that currently exist – I guess all we can do is watch and wait and see how many other firms exit the industry and what the fallout will be.
Historically, debtors’ petitions for bankruptcy have been usually heard by County Court judges who make the determination whether the petitioner is legally insolvent and then grant the bankruptcy Order. This decision will now instead be made by an adjudicator within the Insolvency Service which raises some interesting questions. What qualifications will the adjudicator have and how does that compare with a county court judge? Could an adjudicator be open to creditor influence? What effect could this change have on the number of petitions rejected? It seems that these potential issues have already been addressed as the debtor has 14 days to request a review if the application is rejected – if the original decision is upheld, the debtor then has another 28 days to appeal to the court who could then decide to issue the Order.
As there was always an element of “court fee” in declaring yourself bankrupt, this has been replaced by the “adjudicator’s fee” which means the total cost goes from £705 to £655. Furthermore, the debtor can pay this fee in instalments (as little as £5), although the time allowed for these “instalment plans” will be reviewed in 12 months.
What about technophobes or those without access to a computer/internet? Those clever chaps and chapesses have thought of that too – in these extreme circumstances, the Insolvency Service will offer an appointment system to assist.
So, it strikes me that this had been well thought out and planned – let’s see how it works in practice. I remain quietly confident that all will go smoothly. Bring on the 6th April!
Insolvency compliance defined
Insolvency practitioners, who have studied to pass the professional exams, will have learnt about insolvency legislation. This includes law and rules, Statements of Insolvency Practice, regulations, case law and the insolvency ethical code. The ultimate purpose of all this legislation is to ensure that insolvency practitioners do a good job.
A convincing argument to support the importance of compliance with the legislation is that insolvency practitioners who do a good job are likely to pay greater dividends to creditors, and this is the aim of the appointment taking insolvency practitioner.
Compliance is effectively no more (and no less) than doing a good job in the context of legislation that tells you what to do, so that you do not have to guess. It is still necessary for insolvency practitioners to use their knowledge and experience in the context of the legislation, however, to make good decisions. This is the purpose of the professional exams, to make sure that insolvency practitioners are well trained to use their knowledge and experience. The process of qualification and regulation to achieve a good standard of professional work is well established and it functions very well.
Nowhere in the insolvency legislation does it say that compliance with legislation, or that a good job is done, merely by buying standard letter packs or checklists and following someone else’s standard opinion of how an insolvency appointment should be administered. The work of an insolvency practitioner is complex and as an experienced insolvency compliance consultant I have seen too many mistakes when bought in standard letters and checklists are relied on for compliance.
Before someone instructs an insolvency practitioner, or any professional person, it is a good idea to carry out due diligence as far as possible to make sure that the professional person is good at his or her job. Checking an insolvency practitioner’s reliance on someone else’s standard letters might be a useful part of this.
Please email Caroline on firstname.lastname@example.org if you would like to find out more about RMCSC and insolvency compliance.
Caroline Clark is the director of RMCSC, an established insolvency compliance consultancy that provides high quality advice that is tailored to the client’s needs. Caroline is an insolvency practitioner with about 30 years’ insolvency experience including senior national regulatory roles. Caroline graduated with an MBA in 1999 and qualified as a mediator in 2015 and is a member of Mensa. This additional expertise is of practical use for the clients of RMCSC.