Red tape challenge-changes to insolvency law to reduce unnecessary regulation and simplify procedures

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1 Red tape challenge-changes to insolvency law to reduce unnecessary regulation and simplify procedures Response by the Money Advice Trust Date: October 2013

2 Contents Page 2 Page 3 Page 4 Page 5 Contents Introduction / About the Money Advice Trust Introductory comment Responses to individual questions 2

3 Introduction About the Money Advice Trust The Money Advice Trust is a charity founded in 1991 to help people across the UK tackle their debts and manage their money wisely. The Trust s main activities are giving advice, supporting advisers and improving the UK s money and debt environment. We give advice to around 140,000 people every year through National Debtline and around 30,000 businesses through Business Debtline. We support advisers by providing training through Wiseradviser, innovation and infrastructure grants. We use the intelligence and insight gained from these activities to improve the UK s money and debt environment by contributing to policy developments and public debate around these issues. Public disclosure Please note that we consent to the public disclosure of this response. 3

4 Introductory comment We welcome the opportunity to respond to the Insolvency Service consultation on their proposals to simplify insolvency law and reduce unnecessary regulation. However, many of the proposals relate directly to how insolvency practitioners function and carry out their duties. Most free-to-client debt advice agencies will have a more limited knowledge of the minutiae of such work. Generally referrals are made to insolvency practitioners in appropriate cases, so we do to have the relevant expertise to respond in detail. We have therefore limited our response to a few selected areas. We have extracted the specific questions from the paper and our responses are outlined below. 4

5 Responses to individual questions Question 1 Do you agree that the requirement to maintain a separate case record should be removed? We can see that there is little need to maintain duplicate sets of case records if this is currently the practical outcome of the current regulations. However, the replacement regulations should be robust enough to avoid any potential for records falling into disarray or being badly maintained. As such there should be a rigorous inspection process. It is vital for client protection that adequate case records are maintained and in a form that are both accessible and legible. Question 2 Do you believe that the present requirements result in duplicate information being maintained? If so, can you provide an estimate of the amount of time taken to maintain this duplicate information? We do not have any practical experience of this as we are not insolvency practitioners. Question 3 Do you agree that Regulations 15(1)(a) and 15(1)(b) should be repealed? We cannot support the removal of the safeguard of regulation 15 (1)(a) as this removes the protection of a statutory requirement on the regulatory bodies to inspect, whilst leaving it to current rules of membership and good practice. It cannot be guaranteed that such level of inspection would always be carried out under membership rules. Question 4 Would it be necessary to introduce a new provision outlining in general terms what is expected in terms of case records and retention? We would expect to see such a new provision to safeguard the quality and care of client records. 5

6 Question 5 Do you agree that administrators and voluntary liquidators should be allowed to dispose of books and papers at any time with the approval of the Secretary of State? We support these proposals as long as there are clear guidelines in place setting out the circumstances under which approval by the Secretary of State would be given for early disposal of company books and papers. Question 16 Do you agree that meetings of creditors should no longer be the default position of gauging creditor opinion? This seems to be a reasonable position to take. We would suggest that the needs and interests of small creditors such as small traders should be fully taken into account. It is important that any proposals should not result in their interests becoming disadvantaged by removing the requirement for creditor meetings. Question 21 Do you agree that all final meetings should be abolished? A final meeting does not appear to have any advantage in most, if not all cases. We support abolishing final meetings. Question 26 Do you agree with the proposal to remove the role of the court where the office-holder intends to place all documents on a website, with only one initial notice to creditors of this fact? We had an initial concern that small businesses without access to the internet would be disadvantaged by these proposals. However, we understand that any creditor will be able to ask for hard copies at no charge after a document is placed on the website and that these must be sent within 5 business days of the request. Therefore it seems sensible to remove the role of the court and to allow documents to be placed on a website as long as adequate and appropriate notice is given. 6

7 Question 43 Do you agree with the proposal to enable debtors to consent to a winding-up order / bankruptcy order where a petition has been served by a creditor? We believe that it is vital that all creditor bankruptcy petitions should be treated as a potential dispute unless the petition relates to a judgment of the court. Because the consequences of bankruptcy on a creditor s petition can be so severe (including loss of the family home, business failure, loss of transport, significant disruption to children and family) it is vital that the protection for defendants is as robust as possible. It is therefore extremely important that any such process should only apply where there is a clear consent from the debtor which has been fairly obtained. Such a process should not be extended to either defended or undefended creditor petition applications where the role of the court is crucial. A district judge has the opportunity to satisfy himself regarding service of the demand and petition (including verifying witness evidence), ensure that the grounds of the creditor s petition are made out, identify any potential disputes and, perhaps most importantly, gather any information regarding the personal circumstances of the debtor, for example whether they have capacity to defend proceedings, or whether they may have a protected characteristic as defined in the Equality Act We think this proposal is reasonable and could save time, costs, and stress for the business concerned as long as proper checks are out in place. We understand that Business Debtline clients are often worried about attending a winding up hearing even where there is no dispute. There proposals would mean that these concerns could be alleviated. This is subject to the caveats below. Question 44 Do you think there will be any circumstances where, despite consent being received by the court from the debtor that they do not object to an insolvency order being made, that a hearing will still be necessary? We are not aware of any situations where a hearing will still be necessary if real consent is obtained from the applicant for the winding up petition. However, it is important that there is a mechanism in place to ensure that this consent is genuine and has not been given under pressure from creditors. There should be a requirement for the applicant to be given the opportunity to seek free independent debt advice. We would seek clarification as to what would happen where not all the directors of a limited company consent to the winding up petition. Where there is a dispute, we would expect the matter would go to a court hearing as normal to give all parties to put their case. We do not 7

8 think that majority consent by directors would be sufficient as this could mean a minority director would no longer get their say in relation to any dispute. In order for the person in debt to have the best chance to get advice and understand the consequences of bankruptcy, we would suggest that the petition papers should be accompanied by a guidance leaflet signposting to sources of free, independent debt advice. It should also enclose either a copy of the Insolvency Service In debt-dealing with your creditors guide or at least a link to the guide and details of how to obtain it. Confirmation of this could form part of the consent notice that the debtor can file at court. Question 45 Do you agree that a winding-up petition presented by the company itself need not follow the same procedure as a petition filed by another party? This seems to be a sensible approach. It makes sense to tie in the rules on winding-up petitions presented by the company itself with the current proposals for debtors petitions to be removed from the court process and administered by an Adjudicator. Hopefully, this process will be cheaper as well. We understand from the experiences of Business Debtline callers that many small business clients can be deterred from using the winding up route because of the costs involved. Generally there is a need for the small business to appoint a solicitor to help present the petition effectively which can be very expensive. Question 46 Can you think of any drawbacks with having a streamlined process in these cases? Are there any parts of the winding-up petition procedure that you would like to see retained in this streamlined process? Overall we would support the streamlining of processes in these cases. We would suggest that there may be a need to keep the part of the process which requires advertising in the London Gazette. We understand that this is still used by creditors and interested parties as a means of notification of their intention to wind up a business. This can still be useful where there are disputes and communication has broken down. 8

9 Question 47 Do you agree with there being a role for an Adjudicator in this streamlined process? It would make sense for the Adjudicator to have the same role for company presented winding-up petitions, as for debtors petitions. Question 50 Do you agree that FTVAs should be abolished? We welcomed the introduction of the FTVA as a mechanism that would allow the impact of insolvency to be avoided in certain cases where an IVA would be more suitable. It also had the potential to save costs as the Official Receiver would act as both nominee and supervisor. It would certainly appear from the figures presented in the paper, that it is an extremely little used option. However, whether this down to there not being a need for an FTVA or equivalent, or if this is down to lack of knowledge of the option by bankrupts and the courts, is unclear. We would suggest that it could be useful to carry out some research in order to investigate why the FTVA has not been taken up as an option before a final decision to abolish is taken. 9

10 The Money Advice Trust 21 Garlick Hill London EC4V 2AU Tel: Fax: