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.
March 2007