Memorandum submitted by Insolvency Practices Council (IPC) (TRI 9)
The Tribunals, Courts and Enforcement Bill
I am writing on behalf of the Insolvency Practices Council (IPC) to let you have our comments on this Bill.
Debt Relief Orders (DROs)
2. We generally welcome the proposals to introduce DROs for personal debtors who have neither the income nor assets to cover their debts. We recognise that there is at present a lack of a low-cost informal procedure to enable debtors in these circumstances to obtain full debt forgiveness without having to go through the courts and that the DRO will fill this gap. But we are concerned that, in the absence of adequate verification of debtors' circumstances, the DRO procedure may be vulnerable to fraudulent claims. We also note that the draft Bill envisages that there should only be any independent check on the truth of debtors' statements of facts if a creditor objects. While we recognise that it would be unrealistic to expect voluntary sector debt advisors to verify debtors' statements, we are concerned that it may not be adequate simply to rely on the vigilance of the creditors to deter fraud. There is a clear public interest in protecting the integrity of the DRO procedure, since in one way or another it is the ordinary consumer who has to pay for the write-offs of debts owed to the utilities and the lenders. We suggest therefore that the Official Receivers in the Insolvency Service, who have to authorise the DROs, should have a discretionary right to verify individual claims and should indeed carry out periodic checks on a small statistically valid sample of cases.
Enforcement Restriction Orders, Administration Orders and Regulated Debt Management Schemes
3. The IPC is not persuaded that there is a need for these proposed schemes, both of which overlap to a significant extent with other existing or proposed statutory or informal arrangements for dealing with consumer indebtedness problems. The Regulatory Impact Assessment does not explain satisfactorily what mischiefs or abuses these proposals are intended to cure and provides no hard evidence that there are gaps in the toolkit of measures available for dealing with consumer indebtedness problems which justify the need for these new measures.
4. The IPC's starting-point is that personal debtors may already be confused by the range of competing solutions offered by the market for dealing with their problems. These range from debt consolidation through re-mortgages and informal debt management arrangements to bankruptcy and Individual Voluntary Arrangements (IVAs). There are at present no comprehensive statistics available covering the success or failure rates of many of these arrangements and no consistent or agreed standards of "best advice" complied with by the various types of debt advisers. We believe therefore that remedying these deficiencies in the market should be given higher priority than introducing new schemes, which risk merely adding to the confusion. Discussions are currently taking place between the Insolvency Service and the British Bankers Association to remedy these deficits. Many of the leading debt advice firms have also recently set up the Debt Resolution Forum which should enable a common standard, among other things, on better advice and information for personal debtors.
5. Specifically, we are unconvinced that there is a need for Enforcement Restriction Orders. We believe that, where a debtor's problems are genuinely temporary and likely to be resolved within twelve months, it would be reasonable to expect the debtor and the creditors to agree a short moratorium without recourse to the courts. As the RIA admits, the number of cases likely to be dealt with under the proposed ERO is likely to be tiny.
6. Both the revised Administration Order and the possible regulated Debt Management Scheme appear to overlap significantly with IVAs and will even more so with the new Simplified IVAs proposed by the Insolvency Service. They would also overlap with existing informal debt management arrangements. We find it difficult to see what justification there can be for the Government to produce what seem to be competing solutions for the same categories of consumer debtors. Furthermore, the RIA produces no hard evidence that these proposals will provide more satisfactory outcomes for debtors and creditors than those already available or in the pipeline. In the absence of such evidence the IPC accordingly recommends that these measures should be dropped from the Bill.
7. Finally, in relation to the proposals for a Regulated Debt Management Scheme, the Scrutiny Committee will no doubt want to consider whether it is appropriate or not that an entirely new regulatory measure could properly be introduced by secondary legislation under this Bill or whether new primary legislation would be necessary.