consultation document

REFORMING DEBTOR PETITION BANKRUPTCY AND EARLY DISCHARGE
FROM BANKRUPTCY
Comments by the Association of Business Recovery Professionals (‘R3’) in response
to the consultation document issued by the Insolvency Service in November 2009
Introduction
1. Our comments are addressed primarily to the proposals for reform of the debtor
petition process. We have few comments on the early discharge proposals.
2. Before responding to the questions set out in the document we make some
general observations on issues which are not specifically addressed in the
questions themselves.
The role of the Decision Maker (DM) and the court
3. The proposals envisage removing the court entirely from the process of making
a bankruptcy order (although it will continue to play a role after the order is
made). However, there will always be some cases which present issues of
doubt or difficulty which would best be dealt with at the petition stage, and
which would benefit from judicial input. An example is the question of COMI
and the debtor’s eligibility to apply for a bankruptcy order in the jurisdiction.
The case law has established that a debtor is free to move his COMI at will.
However, establishing the debtor’s true COMI can be a difficult and timeconsuming
exercise. This problem has been highlighted by the recent
development of bankruptcy tourism. Unlike the position in corporate
insolvency, there is no rebuttable presumption which can serve as a starting
point for deciding COMI. Length of residence in the jurisdiction is not a
determining factor, and each case needs to be decided in the light of its own
facts. Where the EC Regulation does not apply, the debtor will, of course, have
to satisfy the conditions set out in section 265 of the Insolvency Act 1986.
4. It would be helpful if the application documentation included information to
help the DM come to a view as to COMI and compliance with section 265. We
suggest that where the debtor has not been resident in England and Wales for a
specified period, the question should automatically be referred to the court.
5. Another potential area of difficulty is the petition that is presented for an
ulterior motive and which may be an abuse of process, for example where it is
intended as a means of defeating the claims of a spouse. It is difficult to see
through a petition of this kind, because it only lists the debts, with no evidence
that they are genuine or accurate.
6. Partnerships are another area that can involve complicated issues.
7. We therefore believe that in cases of doubt or difficulty, the DM should have
the power to refer the matter to the court for a decision.
The status and effect of the application
8. Although this is not specifically dealt with in the document, it is important that
for the purposes of the Insolvency Act an application should have the status of
a petition. This is necessary for the purposes of the provisions relating to
restrictions on proceedings and remedies, dispositions of property, undervalue
transactions and preferences.
The identity of the debtor
9. We remain concerned that there is scope for abuse and malicious applications
by third parties. This possibility is dismissed in the document with little
discussion and for reasons which we find unconvincing. We believe it needs to
be given further consideration.
Cost savings
10. In the Initial Impact Assessment at Appendix E of the document, minimum
savings to the Court Service are stated to be a minimum £21m per annum (page
44). It is not clear how this figure is calculated. We calculate a figure of about
£13m. It is also not clear why it should take almost two hours for the court staff
to deal with a petition. We set out our calculations in the annex to this
response.
11. Our answers to the individual questions are as follows.
Q.1 What skills and experience do you think it is appropriate that a
Decision Maker should have in order to make bankruptcy orders
administratively?
12 The DM will need to be familiar with issues relating to jurisdiction, COMI,
provable and non-provable debts, and should therefore be a person of at least
AOR or equivalent rank.
Q.2 Should the Decision Maker role sit within The Insolvency Service or
elsewhere?
13. The DM must be seen to be independent. His role should therefore sit outside
the Insolvency Service.
Q.3 What links should there be between the Decision Maker and other bodies?
14 We do not se why there should be any links with other bodies. The DM should
be fully independent.
Q.4 Would a requirement on debtor applicants, to confirm both that the
consequences of bankruptcy have been read and understood and that they still
want to submit the application, be sufficient to ensure that those who apply for
their own bankruptcy appreciate the seriousness of taking this step?
15 Yes. The application should have the same effect as a document which is
subject to a statement of truth and is signed as such.
Q.5 Would information about other debt relief mechanisms, provided as part of
the application process, be enough to ensure that debtors have sufficient
opportunity to consider whether opting for bankruptcy is the right decision for
them?
16. Debtors should be encouraged to take advice before they enter into the process,
and not leave it to the application stage. At the application stage the debtor
should simply be asked to state whether or not he has taken advice, and if so,
from whom.
Q.6 Should debtors be encouraged to consider alternative debt resolution
procedures before submitting an application for bankruptcy?
17. Yes. See above.
Q.7 Is there a need for the Decision Maker to be given power to direct someone
into an alternative debt relief mechanism?
18. No. See above.
Q.8 Should there be any exemptions or remissions of the application fee?
19. Under the present system, court fees are waived for those on benefits. We
believe the same should apply under the proposed new system. Debtors should
not be prevented from entering bankruptcy because of lack of funds.
Q.9 If yes, how would you suggest that the cost of any fees forgone could be met
in order to keep the application process self-financing?
20. Remissions should be budgeted for within the overall costings.
Q.10 Do you think that there should be differential pricing of a bankruptcy
application, according to whether it is made electronically or on paper?
21. No.
Q.11 Should there be a facility to enable debtors to make their bankruptcy
applications on paper forms?
22. Yes, for the reasons given in the document.
Q.12 Should there be a facility to enable payment to be made on line at the same
time as the application form is submitted?
23. Yes. Despite the comments made in the document, we also think that there
should be provision for a short cooling-off period, say of seven days, to enable
the debtor to withdraw the application.
Q.13 Is a maximum of 10 days an appropriate period of time to allow between
receipt of acknowledgement of the application and payment of the fee that covers
both the cost of administering the application and the deposit?
24. Yes.
Q.14 If you have answered ‘no’ to the previous question, what period do you
consider appropriate and why?
25. N/A.
Q.15 Should the application form automatically expire if payment is not made
within a specified period of time?
26. Yes.
Q.16 Have we suggested any powers for the Decision Maker that you think are
unnecessary? If so, which powers and why might they be unnecessary?
27. No.
Q.17 Are there any additional powers that the Decision Maker should have? If
so, what powers and why do you think these are necessary?
28. Yes. As we argue in our opening remarks, we believe that the DM should be
able to refer questions of doubt or difficulty to a district judge.
Q.18 Within what set period of time should a debtor be required to provide
further information, after which time the application will be deemed withdrawn?
Please provide reasons for your choice.
29. We suggest seven days.
Q.19 Should the Decision Maker have a general power to stay a bankruptcy
application? If yes, would you please explain your reasons and outline the
circumstances in which you think such a power would be useful.
30. No. We believe the power to refer matters to a district judge/bankruptcy
registrar is sufficient and preferable.
Q.20 Should the Decision Maker have the power to appoint a trustee? If yes,
would you please explain your reasons and outline the circumstances in which
you think such a power would be useful.
31. No. This is a matter for the official receiver. The exception might be where the
debtor is subject to a failed IVA, when there should be power to appoint the
supervisor as trustee.
Q.21 Do you think that assets may be at risk in the period between a bankruptcy
application being accepted and a bankruptcy order being made?
32. Yes. This is why we have argued that the application should have the status of
a petition.
Q.22 In order to ensure that assets at risk are protected, should the
Decision Maker have the power to appoint an interim receiver in the period
between a bankruptcy application being accepted and a bankruptcy order being
made?
33. No. This should be dealt with by referral to a district judge/bankruptcy
registrar.
Q.23 If you have answered ‘no’ to the previous question, can you describe a
better way of ensuring that such assets are protected?
34. N/A.
Q.24 Do you agree with the duties we have outlined for the Decision
Maker?
Q.25 Have we suggested any duties that you consider are unnecessary? If so,
which ones and why?
Q.26 Are there any other duties the Decision Maker should have? If so, what are
they and why do you think they are necessary?
35. We have nothing further to add to our above comments.
Q.27 Do you think that two working days, from when an application is deemed
to have been submitted, is an appropriate period of time within which to require
the Decision Maker to make a decision?
36. Two days is rather short, and we suggest it should be longer, say five days. The
important thing is that once the application is made the estate is protected.
Q.28 Do you think that the two working days within which the Decision Maker is
required to make a decision should be stayed if the Decision Maker stays his or
her consideration of a bankruptcy application pending receipt of further
information and/or evidence?
37. N/A. See above.
Q.29 Should failure to respond to a request for further information be treated as
the application being withdrawn by the debtor?
38. Yes.
Q.30 Would 14 days be sufficient time to give to the debtor to ask the Decision
Maker to review his/her decision? If not, why? How long do you think it should
be?
39. We believe 14 days should be sufficient.
Q.31 Do you think that early discharge should be repealed?
40. Yes.
Q.32 If you do not think that early discharge should be repealed, what specific
benefit do you think there is in keeping early discharge? Please provide figures if
you can.
41. N/A
Association of Business Recovery Professionals
20 January 2010
Consultation ANNEX
Reforming Debtor Petition
Bankruptcy and Early Discharge
From Bankruptcy
Cost Savings
In the Initial Impact Assessment at Appendix E of the consultation document minimum
savings to the Court Service are stated to be a minimum of £21M per annum (page 44) .
It is not clear how this figure is calculated. We calculate a figure of c.£13M.
It is also not clear why it should take almost 2 hours for the Court staff to deal with a petition.
The cost to the Court Service of each Debtor’s Petition is calculated as follows
Minutes
Average time to deal with a debtor’s petition (page 47) 75.45
Average time to make the bankruptcy order (page 48) 43.41
A 118.86
Court Staff time per minute B £2.42
Court Staff Aggregate cost C £287.64
Minutes
District Judge’s average time to make bankruptcy order D 10.00
Judicial time is billed at E £2.78
Judiciary Aggregate cost F £27.80
In 2007 the total average cost per case to HMCS in dealing with
a debtor petition and the making of the bankruptcy order is (page 48 ) G =C + F £315.44
The court fee is £150
Not all debtors pay the fee. Research shows the following (page 48 )
Table 3: Debtor contribution to court fees
Fee amount Percentage of debtors
£150 (full fee) 48%
Over £100 3%
£51 to £100 1%
£50 or less 1%
Nothing 44%
Weighted Average recovery of court fee H £76.00
Net cost to HMCS I = G-H £239.44
In 2008 debtor petitions totalled approximately (page 45 ) J 56,570
On those figures total cost would be =J x I £13,545,189
If Court Staff took 30 minutes to deal with a petition, the cost to HMCS
would be (Note 1) K £24.40
On 2008 numbers the cost would be =K x J £1,380,308
If Court Staff took 60 minutes to deal with a petition, the cost to HMCS
would be (Note 2) L £97.00
On 2008 numbers the cost would be =L x J £5,487,290
Consultation ANNEX
Reforming Debtor Petition
Bankruptcy and Early Discharge
From Bankruptcy
Cost Savings
Note 1
30 minutes option – time A 30
Court Staff time per minute B £2.42
A x B=C £72.60
Judiciary Aggregate cost F £27.80
In 2007 the total average cost per case to HMCS in dealing with
a debtor petition and the making of the bankruptcy order is (page 48 ) C + F £100.40
Weighted Average recovery of court fee H £76.00
Net Cost £24.40
Note 2
60 minutes option – time A 60
Court Staff time per minute B £2.42
A x B=C £145.20
Judiciary Aggregate cost F £27.80
In 2007 the total average cost per case to HMCS in dealing with
a debtor petition and the making of the bankruptcy order is (page 48 ) C + F £173.00
Weighted Average recovery of court fee H £76.00
Net Cost £97.00

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