Evidence submitted by Professor Muir Hunter
QC LLD (Hon)
FIRST SUBMISSION—LEGAL
AID IN
INSOLVENCY CASES
I was very glad to read that as Chairman of
the Constitutional Affairs Committee you will be examining the
legal aid problem.
I am writing to you to put in a special plea
for a restoration of the largely terminated legal aid in bankruptcy
and insolvency cases. You will probably know that I am a bankruptcy
specialist, and a former member of both of the Cork Committees
on insolvency law reform.
Bankruptcy and insolvency are complicated fields
of law, and are becoming increasingly complicated with the recent
extensive reforms, in particular the Enterprise Act 2002. These
reforms form part of the Government's major programme of "Rescue
Culture". This is designed to reduce the social and business
impact of bankruptcy and insolvency for the individual and small
trader, and is understood to be of great concern to the Ministers.
Ever since the introduction of legal aid, I
was able in my practice (mostly as a junior) to obtain legal aid
for the representation of debtors and bankrupts and their families
in many meritorious cases. My first major leading case, Bendall
v. McWhirter, in 1952, which significantly improved the
rights of the wives of bankrupts to resist their eviction from
the matrimonial home, was conducted on legal aid before Lord Denning
in the Court of Appeal.
The rights of bankrupts and their spouses were
strongly recommended for statutory definition and greater protection,
in the main Cork Report (1982 Cmnd 8558), in Chapter 24, at paras
1114-1124. Unfortunately, the Thatcher administrations did not
greatly favour our views. However, the Enterprise Act 2002, in
section 261, has introduced new provisions, which should greatly
assist bankrupts and their families in retaining heir home. There
is also on the horizon the Human Rights Act aspect of defence
of the bankrupt's home, on which there has already been one reported
case.
My purpose in mentioning this new piece of legislation
is to exemplify the kind of important social litigation which
increasingly arises in the insolvency courts. Other examples are
the new rights to accelerated discharge from bankruptcy, and the
correlative increased penalties in the form of restrictions which
may be imposed. There is also the new procedure whereby the bankrupt
can be required, even beyond his discharge, to contribute from
his earnings to his creditors.
Such complex litigation not infrequently includes
the bankruptcy petition itself, where the debtor's important rights
of defence or composition often justify the assistance of advocates.
In the Cork Report, we drew attention, at paras 994-995, to the
complexities of litigation in these courts.
The absence of legal aid in such cases does
not merely rob many debtors and their families of the opportunity
to be properly defended. It also induces an increasing number
of such litigants to appear in person, both in courts of first
instance, and in courts of appeal. The judges and Lords Justices,
who are under a duty to assist such litigants, frequently complain
of their number, and of the increases in judge-labour, court time
and costs which their appearance occasions. I am credibly informed
that there is at least one litigant in person in every three civil
appeals.
It should also be noted that Lord Woolf thought
it necessary, in the climate of decreasing access to civil legal
aid, to legislate quite extensively, in his new Civil Procedure
Rules, for the rights of, and the control of, litigants in person,
a category which now includes limited companies. In the latter
connection, the Administrative Court Guide, while affirming the
rights of companies in principle to appear in person, observed
that, in the light of the complexities of commercial litigation,
judges will rarely be persuaded to give leave for appearances
in person in such cases.
I should mention that I am a member of the Liberal
Democrat Lawyers Association.
Professor Muir Hunter QC
15 February 2004
SECOND SUBMISSION—LEGAL
AID AND
ADVICE IN
BANKRUPTCY AND
INSOLVENCY CASES
THE SCALE
OF THE
PROBLEM
There has been a steady increase in individual
bankruptcies and insolvencies (by which I mean voluntary arrangements)
over a period of years. They are now running at about 35,000 a
year, and if one takes the standard period hitherto for discharge
at three years, the aggregate number of undischarged bankrupts
and arranging debtors must amount to about 100,000. However, the
effective period for potential bankruptcy and insolvency legislation
is longer, so that the potential "litigation dimension"
must be significantly more extensive; for example, the matrimonial
home reforms made by the Enterprise Act 2002, considered below,
deal with periods of three years or over.
THE IMPACT
OF THE
ENTERPRISE ACT
2002
The Committee may be assisted in considering
my first submission by some particulars of the new legislative
provisions made for individual bankruptcy and insolvency by Part
10 of the Enterprise Act 2002 (read with the Insolvency (Amendment)
Rules 2003), which will come into force on 1 April 2004.
The Government's policy of "Rescue Culture"
is further activated by these provisions, which are intended to
mitigate the burden and the social and economic damage capable
of being caused to individual debtors and their families by bankruptcy
or statutory insolvency.
These comprise:
— Much expedited discharges—one
year or less, instead of three, but with correlative penalties
for the "bad bankrupt" (see below). Such rapid discharges
are capable of being suspended, pending the fulfilment of conditions
by the bankrupt.
— Bankruptcy restrictions orders and
undertakings—(modelled on the procedure for the disqualification
of company directors), which may be imposed on a discharged bankrupt.
— "Fast-track voluntary arrangements"—which
the Official Receiver may allow a bankrupt to enter into, to convert
his bankruptcy into an individual voluntary arrangement.
— The matrimonial home—two new
procedures, potentially highly beneficial to the bankrupt and
his/her family, have been enacted. They relate to the interest
in a dwelling-house, which was, at the date of the bankruptcy,
the sole or principal residence of the bankrupt, or of his or
her spouse or former spouse.
(1) Subject to conditions, such an interest
in the dwelling-house may, on the expiry of three years from the
date of the bankruptcy, cease to form part of the bankrupt's estate,
and shall then vest in the bankrupt, without conveyance, assignment
or transfer.
(2) Where the bankrupt's estate includes
such an interest in such a dwelling-house, and the trustee in
bankruptcy applies to the court for an order for sale, or for
possession, or the imposition of a charging order, and the court
finds that the value of the interest is below a prescribed "Low
value" figure (not yet prescribed), the trustee's application
shall be dismissed, and the interest shall vest in the bankrupt.
— Human Rights—I should briefly
mention Human Rights Act litigation by bankrupts. There have been
several cases already, both in the UK and in the EHRCt (eg protection
of the bankrupt's home and of his post). It is arguable that the
rights of bankrupts should, by an exercise in reading down the
Convention, be approximated to the rights of persons charged with
criminal offences, to be legally represented in court.
The new provisions of the Enterprise Act represent
procedures in court, capable of greatly benefiting the bankrupt,
or, per contra, of handicapping his economic rehabilitation,
but which the bankrupt, or his/her spouse or former spouse, must
inevitably find difficulty in being advised about, and a fortiori
in conducting in person.
It is to be noted that neither the Act nor the
Rules make any reference to any provision of funding for legal
or accountancy advice or representation, for the assistance of
debtors participating meaningfully in the new procedures.
I have seen it suggested that the Official Receivers'
Department may be able to advise debtors on the new procedures;
but they are, in the discharge and restrictions fields, in the
opposite camp. Furthermore, their numbers of staff seem still
to be considerably inferior to what may be required for the new
procedures, in the context of the forecast of many more individual
insolvencies.
ASSISTANCE TO
DEBTORS OTHERWISE
THAN BY
COMMUNITY FUNDED
LEGAL ADVICE
OR ADVOCACY
Ms Clare Dodgson, the Chief Executive of the
Legal Services Commission, in the report of an interview with
her in the Times Law Supplement dated 24 February 2004, appears
to advocate inter alia, mediation, as a major substitute
for community funded court advocacy. She does not however refer
to the cost of mediation, which is not cheap. I also respectfully
submit that mediation, while often an admirable solution process
for personal disputes, may not be so satisfactory in dealing with
disputes involving statutory rights as between debtors and their
trustees and/or creditors. Most insolvency litigation has a class
element to it. Ms Dodgson also seems to recommend non-legal advice,
or advice over the internet. I should be loth to advise a litigant
in person to grapple with any complex problems through such remote
channels.
LITIGANTS IN
PERSON
As I mentioned in my First Submission, the new
Civil Procedure Rules 1998 (as amended) made substantial provision
for litigants in person.
However, the CPR Administrative Court Guide,
ACG M3, observes that "Although Rule 39.6 allows a company
or other corporation, with the permission of the court, to be
represented at trial by an employee, the complexity of most cases
in the Commercial Court makes that undesirable. Accordingly, permission
is likely to be given only in unusual circumstances". A similar
view might well be expressed in relation to insolvency cases,
in which a small company or a partnership wished to engage in
person.
THE BANKRUPTCY
HANDBOOK
My own remedy, in the field of bankruptcy or
insolvency court proceedings, and in the absence of community-funded
representation is the production of a bankruptcy handbook, for
the instruction of debtors, bankrupts and their families in the
conduct of proceedings, as litigants in person. The drafting of
this is well advanced, and I have two publishers interested. I
have drafted a marketing plan, which should ensure a wide distribution
of the handbook in all relevant quarters. But I regard this as
necessarily makeshift.
Professor Muir Hunter QC
8 March 2004
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