United Kingdom
I hear that the government are looking to make bankruptcy easier. Is this correct?
The Insolvency Service has circulated a consultation document regarding proposed changes to two aspects of the present bankruptcy procedure. These concern the way individuals can file for their own bankruptcy; and a change in the provision which presently allows bankrupts to obtain early discharge from the restrictions placed on them.
It is suggested that some Courts are floundering under the number of petitions that are being presented by debtors and it is proposed that the procedure is streamlined by online applications. Critics of the proposal have already coined the phrase “Chardonnay bankrupt” suggesting that people could file for their bankruptcy at home in the evening and then regret their actions in the morning.
However, the proposals have addressed this criticism to a certain extent. Online applications will be vetted by a Decision Maker – as yet unspecified and the consultation asks whether the Decision Maker role should sit within the Insolvency Service or elsewhere – to ensure that bankruptcy is the appropriate option. Considering that all petitions filed at present, need to be reviewed by the Court, and then a Registrar or District Judge before the making of an Order, the proposal should assist in relieving some of the pressure on the Courts. It is not disputed that their resources are better used in respect of contested proceedings.
Bankruptcy itself will not be easier: the same restrictions will apply whether it is a debtor’s or a creditor’s petition. An individual’s assets, at the time of the bankruptcy order, will still need to be realised by a trustee and the Official Receiver will still conduct his/her investigations into whether a Bankruptcy Restriction Order or Undertaking is appropriate.
The big question is whether streamlining of the system will lead to a significant increase in the number of individuals petitioning for their own bankruptcy. I don’t think so. Whilst there may be a small increase, these are likely to be people who were unwilling to go to their local Court or were intimidated by the Court process.
Under the present legislation, the Official Receiver can advise creditors that he/she is applying for the discharge of a bankrupt prior to the usual one-year period. While there may occasionally be a case for early discharge – for example an individual who can remortgage to purchase a trustee’s interest in a property only when they are discharged – this provision has not been widely used. It has, however, generated a considerable amount of work and costs, not only for the Official Receivers’ Offices, but also for other government departments in reviewing notifications of early discharge and deciding whether any objections should be raised. Considering all the factors and the fact that discharge is usually granted automatically on the anniversary of a bankruptcy order, the proposed change should have little effect. We have to wonder why the provision was introduced in the first place and what benefit was envisaged.
If you would like more information on this subject, or for advice on how our Business Restructuring team could help your business, please contact Matthew Chadwick, Partner, Business Restructuring.