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Lord Hunt of Wirral: The Minister must be aware, from my initial remarks, that I still have considerable concerns about the reforms. I am grateful to him for kindly agreeing to let me have the further information that I requested. I shall reflect on what he said and on what he writes to me and consider whether we should return to the subject. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 254 agreed to.

Clause 255 [Income payments order]:

Lord Hunt of Wirral moved Amendment No. 368:

The noble Lord said: The amendment would add words that would mean that subsection (1A) of Section 310 of the Insolvency Act 1986 would read as follows:

    "An income payments order may be made only on an application instituted—

    (a) by the trustee or by a creditor, and

    (b) before the discharge of the bankrupt".

The amendment would enable a creditor to apply for an income payments order. As drafted, the Bill allows only the trustee so to apply; creditors have no say in the matter.

The Minister should consider a situation in which an order would be appropriate but the trustee decided not to apply, perhaps because he lacked the necessary time or funding. Creditors would be unable to challenge that decision, and the bankrupt would avoid his liability to make a proper contribution towards paying off his debts. The amendment would allow creditors to protect their position by making an application for an income payments order.

Amendment No. 369 is also in this group, and my noble friend Lord Freeman will speak to it in a moment. It relates to the period for which income payments orders should last. It is felt that there should be no limit to the length of time for which an income payments order or agreement may last. I welcome the fact that my noble friend seeks to amend the Bill in the way suggested.

Amendments Nos. 371, 372 and 372A are also in the group. They would ensure that the court or the trustee, with the agreement of the bankrupt, would be in the best position to consider on a case-by-case basis whether the period should be more or less than three years. I hope that the Minister will accept that this is particularly pertinent to cases in which the debtor is

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considered culpable for the bankruptcy and has sufficient ongoing income to make a more significant contribution to the bankruptcy fund.

I hope that the Minister will accept the amendments. I beg to move.

Lord Freeman: I shall speak to Amendment No. 369 and support the amendments tabled by my noble friend Lord Hunt of Wirral.

In the minority of cases of bankruptcy in which a trustee is acting, he is permitted by the Bill—and by present law—to apply for an income payments order that can last for up to three years, but only before the discharge of the bankrupt. The Minister referred to the fact that the three-year period was a valuable source of protection for creditors and could run beyond the point at which the bankrupt was discharged. The Minister is right about that.

We have now moved on through the Bill, and I have withdrawn the amendment that would have deleted the ability to discharge a bankrupt earlier than the 12-month minimum period, if it had been judged that that was appropriate. There is, therefore, a limitation on the trustee. He might have to get his skates on, to ensure that creditors are protected. The amendment would mean that the three-year period in which the income payments order will apply would run from a point no later than 12 months after the commencement of the bankruptcy, irrespective of whether the bankrupt had been discharged before 12 months. The trustee would be able to apply for the order during that period. That seems a modest minor addition in terms of protecting the creditors. It does not drive a coach and horses through the Minister's argument, which is that some flexibility is required and where it is appropriate to discharge bankruptcy earlier than 12 months, we should be as fair, reasonable and encouraging as possible.

12.30 p.m.

Lord Sainsbury of Turville: Amendment No. 368 would enable creditors to make an application to the court for an income payments order in addition to the trustee. The amendment needs to be considered carefully; it is rather dangerous. The whole point of bankruptcy is that a trustee is appointed to investigate and take control of a bankrupt's affairs on behalf of the creditors. The trustee has a duty to act in the best interests of the creditors at all times.

I can understand that a creditor may wish to ensure that a bankrupt pays what he can out of surplus income, but it is not clear how such unilateral action would be of benefit. Indeed it is likely that costs will increase if the trustee or bankrupt defends the application. The Official Receiver or trustee will be in the best position to assess the bankrupt's ability to make contributions, as they will have an overview of the bankrupt's circumstances. If creditors are in possession of information that indicates that the bankrupt is underpaying, the proper action is for the creditor to inform the trustee who can then utilise

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the proposals that allow for the variation of an existing income payments order or income payments agreement.

Creditors are able to exercise control over the trustee's actions in two ways. First, a creditors' committee can be appointed under Section 301 of the Insolvency Act 1986 to supervise the trustee. Secondly, if a creditor is unhappy about any act or omission of the trustee, an application can be made under Section 303 of the Insolvency Act for the court to review those acts or omissions. That would include the failure to apply for or vary an income payments order or agreement.

Allowing a creditor to apply independently will be bound to increase costs through fruitless court hearings, because it is unlikely that the creditor will have all the facts at his disposal; the effect of which may be to reduce money available for distribution. It should also be remembered that the income payments agreement regime has been introduced to avoid unnecessary applications to the court, and that generally both income payments orders and agreements will run beyond discharge and for a full three years, in most cases leading to improved returns to creditors.

Amendment No. 369 is similar to one tabled in Committee in the other place. It seeks to extend the period in which an income payments order application can be made to applications made within 12 months of the bankruptcy order even if the bankrupt has been discharged in the meantime. The administration of a bankruptcy case by the Official Receiver usually enables a case to be assessed for a possible income payments order at an early stage. The provisions introducing income payments agreements will speed up the process still further by avoiding the need for a court application.

Where information has not been made available to the Official Receiver through non-cooperation by the bankrupt, it is possible to suspend discharge until the necessary information has been delivered. That means that, effectively, the time in which an income payments order or agreement can be entered into is also extended and the situation that the amendment seeks to address will not arise.

The Government said in Committee in the other place that there was no need to extend the time available for income payments order applications except where absolutely necessary. As I said earlier, in the vast majority of cases bankrupts will inform the Official Receiver or trustee of their surplus income at an early stage. That will allow ample time to enter into an income payments agreement or obtain an income payments order.

The amendment is aimed at those cases where the bankrupt receives the benefit of early discharge. Such cases are likely to be in the minority and will arise only where all administrative matters, including income payments order decisions, are fully dealt with. If creditors have proof that the bankrupt has mislead the Official Receiver about his level of surplus income,

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then upon receiving notification that the Official Receiver intends to file an early discharge notice, that proof should be communicated to the Official Receiver to allow the matter to be investigated prior to any early discharge notice being filed. We are of the view that there are adequate safeguards within the proposed system and that the amendment is unnecessary.

Amendments Nos. 370 and 372 would remove the three-year limit on income payments orders and agreements. By placing a three-year limit on their duration the proposals provide a fair balance between the interests of creditors and the rehabilitation of the individual concerned. We fully recognise that it must be right that those bankrupts who can make contributions from their income should be required to do so. Indeed we wish to make it easier to achieve that aim by introducing an out of court alternative in the form of income payments agreements.

To make the maximum period for which income payments orders and agreements could be made open-ended, as would happen if the amendments were accepted, would impose a more stringent system than already exists. That would not, in our view, be either fair or consistent with the overall thrust of the proposals in the Bill.

Amendment No. 371 seeks to ensure that the same terms are used in referring to the contributions from a bankrupt's income made under an income payments agreement irrespective of whether they are made direct by the bankrupt, or from a third party, such as the bankrupt's employer. While that has attractions at first sight, it would be wrong to do so. Clause 256 introduces new Section 310A into the Insolvency Act 1986 dealing with income payments agreements. Paragraph (1)(a) says that an income payments agreement might provide for a proportion or part of the bankrupt's income to be paid to the trustee or Official Receiver, whereas paragraph (1)(b) provides only that a proportion of a money due to the bankrupt by way of income be paid to the trustee or Official Receiver by a third party.

The reason for the distinction in the current drafting is that paragraph (1)(a) deals with the whole of the bankrupt's income from whatever source and allows the bankrupt to agree to designate either a proportion of his income or a specific part of it. Paragraph (1)(b) deals only with money due to the bankrupt from a third party; for example, salary from employment. In that instance it is enough to allow the agreement to specify a proportion of it. On the basis of that explanation I ask the noble Lord to withdraw his amendment.

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