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Lord Kingsland: I thank the noble Lord for his full reply to this line of amendments. The Minister appears to repose great confidence in the fact of the initial interview and also in the availability of a bankruptcy restrictions order.

Under the clause, as drafted, there is little time in practice to come to a conclusion about culpability prior to filing a notice to discharge, since the Official Receiver is likely to make the decision quickly after simply one interview with the bankrupt. In fact, there is no provision in the clause for any co-operation between the Official Receiver and the trustee on the filing for the notice, even though the trustee is likely to hold information relevant to the decision-making process.

In those circumstances, I suggest, there is no real basis on which a bankruptcy restrictions order application can be made; and, if information subsequently emerges, the bankrupt is likely to have already received his discharge. So, even though the Minister feels strongly that the Government's approach is right—even if I were to accept that—I hope that he will admit that there are some very important ingredients of detail to put into the clause to make sure that the problems that I have described are properly met.

The noble Lord was also somewhat scornful of the statistics that I quoted. I do not know how intimately his department is in touch with events as they are unfolding in this sphere in the United States, but the impression I have is that the direction upon which the United States' authorities are now launched is, if not the opposite, certainly a very different direction to the one that we are now facing. I hope that the Minister will be able to tell me that the Government are in close touch with the United States on their own changes and developments and will keep an open mind about the reactions of consumers and businessmen across the Atlantic. Meanwhile, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 363 to 366 not moved.]

Clause 252 agreed to.

Schedule 19 agreed to.

Clause 253 agreed to.

Schedule 20 [Schedule 4A to Insolvency Act 1986]:

[Amendments Nos. 366A and 366B not moved.]

Schedule 20 agreed to.

Schedule 21 agreed to.

Clause 254 [Investigation by official receiver]:

Lord Hunt of Wirral moved Amendment No. 367:

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The noble Lord said: We are dealing with some significant changes to bankruptcy law. The Cork report was the last major review of bankruptcy law. To quote from that report:

    "It is a basic objective of the law to support the maintenance of commercial morality and encourage the fulfilment of financial obligations. Insolvency must not be an easy solution for those who can bear with equanimity the stigma of their own failure or their responsibility for the failure of a company under their management".

In that report, Cork described insolvency as a compact between the debtor, his creditors and society. The debtor obtains relief and is allowed to make a fresh start. In return, society expects him to account for his failure by submitting to investigation and to contribute both from assets and from future income.

The amendment would leave out lines 8 and 9 of page 179 and would require the official receiver to investigate the conduct and affairs of all bankrupts. As drafted, the proposed new Section 289 subjects the official receiver to a duty to investigate the conduct and affairs of all bankrupts, but then, in the subsection that the amendment would remove, permits the official receiver to dispense with an investigation without any fear of challenge.

I do not believe that those bound by a duty should have a unfettered power to release themselves from that duty. More to the point, investigation is an important part of the bankruptcy process. It serves to achieve the essential balance between the interests of the bankrupt, his creditors and society. The amendment would preserve the statutory duty to investigate.

I reiterate the strong views advanced by my noble friend Lord Kingsland about the extent to which the Government have not thought through these substantial changes. Together with other noble Lords, my noble friend and I have met a range of organisations that have expressed serious concern about those changes—in general terms, not just about investigation but about the extent to which they will release present restrictions on personal consumer bankruptcy.

Several points were made to us by an organisation that knows a considerable amount about this area of law—namely, MBNA Europe. I know the Maryland Bank of North America well, because I was involved in seeking to persuade the company to make a substantial investment in the United Kingdom. I was delighted when it decided to come to Chester to set up a substantial operation based there. I recall that it did so because it was enormously impressed by the talent—especially the young talent—available in and around the Chester area and in North Wales, as it sought to recruit up to 2,000 people to work for the bank. I therefore greatly respect the views that it expresses, because they are based on that range of talent advising them on issues such as this.

MBNA posed me several questions on which I should like the Minister's assistance. The answers may be forthcoming during the recess, but they go to the heart of many of the changes proposed.

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First, have the Government estimated the expected increase in the number of personal bankruptcies as a result of the Bill's reforms? Secondly, what level of additional resources will be made available to the official receiver to cope with the reformed system? Thirdly, will the Insolvency Service's internal guidance to the official receiver's staff on the revisions to personal insolvency contained in the Bill be public and open to consultation?

What discussions were held with the consumer credit industry in drawing up the regulatory impact assessment for the Bill, which concluded that the proposed reforms would have no cost implications for the industry? Finally, what evidence was considered from other jurisdictions when formulating the personal insolvency reforms?

I recognise that I have strayed wide in moving the amendment, but it goes to the heart of the reforms. At present, as with compulsory liquidation, the official receiver has an obligation to investigate the conduct of the bankrupt. The contention behind the amendment is that this should continue to be mandatory in all cases. Why? Because a investigation should be conducted to justify a decision to make an application for a bankruptcy restrictions order. The report should be filed with the Secretary of State, as well as with the court, to enable a decision to be made whether to bring such an application. Without that, it is difficult—indeed, impossible—to see on what basis a proper decision can be made; nor will creditors have any confidence that their interests are being protected.

If the number of bankruptcies significantly increases under the new system, as many believe it will, the importance of investigating each case to prevent abuse of the system is increased. That should be addressed by the provision of appropriate levels of training and resource, rather than by removing the obligation to investigate.

I do not expect an immediate response from the Minister to my various questions—nor, indeed, to some of my more general points. Perhaps he will write to me and other noble Lords during the recess. But the whole question concerns investigation and the opt-out presently contained in lines 8 and 9 should be removed. Therefore, I beg to move.

12.15 p.m.

Lord Sainsbury of Turville: The amendment would remove the official receiver's discretion whether to investigate cases where he or she sees fit not to do so. We are not working on the basis that the provisions should lead to any significant increase in consumer bankruptcies. I have given a series of reasons why that is the case. The noble Lord asked some specific questions. There will be additional resources to deal with those issues, but I shall write in detail to the noble Lord on the specific question of whom we consulted

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and so on. The key thing is that we are not assuming that there will be a significant increase, for the reasons that I gave.

Lord Hunt of Wirral: We should bear in mind the latest figures for consumer credit. I saw that the Consumer Credit Counselling Service now estimates that the total debt due to credit card and loan companies has risen to the record level of 140,000 million. Has the Minister considered whether, in present market conditions, there will be an increase? He says that there will not be a significant increase: what increase does he anticipate? Is he willing to make public the advice that he has received on that subject?

Lord Sainsbury of Turville: I should deal with the issue now. The noble Lord has the wrong view of where, as a whole, consumer bankruptcies come from. They do not tend to stem from the availability of easy credit; they stem from situations of relationship breakdown, reduced income, unemployment or ill health. If we examine the mortgage figures, we can see that financial mismanagement accounts for 23 per cent, but over-indebtedness itself was only 6 or 7 per cent. The assumption that consumer bankruptcies happen because people get heavily in debt through frivolous consumer purchases is a misunderstanding of the situation. In my letter to the noble Lord, I will include the information that we have on that matter.

The concept of giving the official receiver discretion to investigate is not new. It has been with us since the Insolvency Act 1986. That Act gives the official receiver discretion to investigate cases in which the unsecured liabilities are less than 20,000. Such cases are known as summary bankruptcies. That accounts for a large proportion of cases—about 25 per cent for the year ended 31st May 2002—but leaves a mandatory duty of investigation for all others not falling within that category. The exercise of that discretion has not, as far as I am aware, caused any great consternation in the past 16 years among creditors or other interest groups.

The Bill will remove the provisions relating to summary bankruptcy and introduce instead a general discretion to investigate, so that resources can be used more effectively. Each case will be considered on its merits and on the basis of the facts, rather than being subject to the application of some arbitrary financial criterion, such as the level of unsecured debt. Just as there are some large cases that do not merit investigation, there are some small ones that do.

The amendment would require the official receiver to conduct a full investigation into all cases, without regard to the facts and circumstances of individual cases. That would go further than the current situation. There may be concerns that, if we make the duty to investigate discretionary, some misconduct or criminal offences will slip through the net. In fact, there will be little change to the way in which bankruptcies are dealt with. Although the official receiver will interview all bankrupts, only then will he or she decide whether further investigation is appropriate. Furthermore, creditors will continue to

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be given a report of the case after a few months, when they will be asked to bring to the official receiver's attention any matters that, in their view, warrant further investigation.

The Bill will allow for the proper targeting of investigative resources on cases that warrant it, whereas the amendment would remove the limited flexibility currently available to the official receiver. In the light of that explanation, I ask the noble Lord to withdraw the amendment.

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