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Lord Hunt of Wirral: I am disappointed by certain aspects of the Minister's response, but I recognise that he has given a full answer to each of the amendments. I would like to take time to consider his response. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 369 and 370 not moved.]
Clause 256 [Income payments agreement]:
[Amendments Nos. 371 to 372A not moved.]
Lord Freeman moved Amendment No. 373:
- Page 181, line 4, leave out "bankrupt's"
The noble Lord said: In moving the amendment I shall speak also to Amendments Nos. 374 to 378. In shorthand, this is the deserted spouse's protection charter—to give it some kind of headline and feeling. It deals with joint homes. Perhaps I may refresh the Committee's memory. If the bankrupt at the point of discharge was living in the joint home with his spouse, the Bill contains a provision whereby the trustee has a period limited to three years to deal with the sale of the property.
The Minister will recall that in the early 1990s there was a period of negative equity. In such circumstances, without the three-year rule there has been a temptation on the trustee's part to defer dealing with the matter until the negative equity has been erased and there is some value in selling the home.
I commend the protection in the Bill—it must be right—but there is a lacuna. It is that if at the time of discharge the bankrupt had left, leaving, as I will call him or her, the "deserted spouse", the three-year protection period does not apply. It is a small point, but it is wrong to leave a sword of Damocles over the head of, say, a deserted wife in a house not knowing what the position may be. Unfortunately, no one is offering complete protection about the sale of the house, but if after three years the trustee has not taken action the matter will be resolved. I beg to move.
Lord Kingsland: Our Amendment No. 379 is part of this group and I shall speak to it briefly. Clause 57 inserts a new Section 283A into the Insolvency Act 1986, which provides for a bankrupt's interest in a dwelling house, his sole or principal residence, to vest automatically in the bankrupt after three years beginning with the date of his bankruptcy.
There are a number of exceptions to the automatic vesting, one of which is that the period of three years does not begin if the bankrupt fails to inform the trustee or the official receiver of his interest in the property before the end of the period of three months, beginning with the date of bankruptcy. If he fails to so inform, the period of three years begins with the date on which the trustee or the official receiver becomes aware of the bankrupt's interests. We believe that that is an important exception because it will discourage bankrupts from concealing any interest in their sole or principal residence.
Lord Sainsbury of Turville: I shall first address Amendments Nos. 373 to 378. Taken together, they would extend the effect of the new provisions for dealing with the family home to include any interest that the bankrupt has in the sole or principal residence of his or her spouse or former spouse.
Section 313 of the Insolvency Act 1986 deals with the trustee's right to apply for a charge on the bankrupt's interest in a dwelling house occupied by the bankrupt, or his or her spouse or former spouse. That section is intended to ensure that a spouse or former spouse and the children are afforded protection from the disposal of a property by the trustee in bankruptcy without also considering the welfare of the bankrupt's family.
The amendment seeks to secure in what is likely to be a small number of cases similar protection to spouses and former spouses. Section 336 of the Insolvency Act 1986 effectively gives a spouse or former spouse the right to occupy the former family home for a minimum of one year after it is vested in the trustee in bankruptcy. It sets out that for the period of one year after vesting the interest of the spouse or former spouse takes precedence over the interests of the creditors and during that period the trustees cannot take steps to realise the bankrupt's interest in that home. After one year, the creditor's interest is deemed to outweigh that of the spouse or former spouse and the bankrupt's interests can be realised. I have listened to the comments made and should like to consider this matter further with a view to tabling a suitable amendment at Report stage.
I now speak to Amendment No. 379, which seeks to mirror the safeguard against a bankrupt's non-disclosure of interest in a property currently provided for in subsection (5) of new Section 283A. Generally, the trustee will have three years from the date of bankruptcy to deal with a bankrupt's interest in the family home. If a bankrupt fails to disclose that interest and it did not come to light until more than three years after bankruptcy, without the safeguard a potential asset would be lost to the estate. The safeguard makes it clear that in case of non-disclosure the three-year period does not start running until the trustee becomes aware of the bankrupt's interest.
The amendment seeks to insert a similar safeguard against non-disclosure in the transitional provisions for pre-commencement bankrupts. The amendment clearly has merit and I am grateful that it has been tabled. I should like time to consider it further to ensure that it does what it sets out to do, with a view to bringing a government amendment at the Report stage. I hope that on that basis the noble Lord will withdraw his amendment.
Lord Kingsland: Before my noble friend Lord Freeman speaks, I should like to thank the noble Lord for his response to my amendment.
Lord Freeman: I share my noble friend's view and I thank the Minister for accepting the principle of Amendment No. 373. That is much appreciated. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 374 to 379 not moved.]
12.45 p.m.
Schedule 22 [Individual voluntary arrangement]:
Lord Kingsland moved Amendment No. 380:
- Page 314, leave out lines 25 to 29 and insert—
The noble Lord said: Under Section 261 of the Insolvency Act 1986, the court can annul a bankruptcy order if a voluntary arrangement is approved. However, the court has jurisdiction to do so only in those circumstances if the debtor is an undischarged bankrupt. Curiously, it has no jurisdiction to annul the bankruptcy after the bankruptcy order is discharged.
In practice, this causes problems because many bankrupts, particularly professionals, are interested only in an annulment rather than a discharge. There is therefore less incentive for those bankrupts to oppose a voluntary arrangement. The problem will become more acute after the Bill comes into force because there will be an automatic discharge after a year. A bankrupt will have only a year to obtain the approval of the voluntary arrangement, and that is far too short a period. We feel that a bankrupt, even though the bankruptcy order has been discharged, should be entitled to have the order annulled if his creditors approve a voluntary arrangement. I beg to move.
Lord Freeman: I want to speak to Amendments Nos. 382 and 383 and to support my noble friend's Amendments Nos. 380 and 381. The purpose of Amendment No. 382 is to give the creditors a say in whatever is proposed for the voluntary arrangement. Voluntary arrangements are to be welcomed because they provide an earlier opportunity to conclude what can be an unfortunate period for someone who has suffered financial difficulty. Each year there are about 22,000 to 23,000 bankruptcies and about 6,000 to 7,000 voluntary arrangements. Therefore, voluntary arrangements are important and I believe that the creditors should be given a chance to comment on and approve what is proposed for that arrangement.
Lord Sainsbury of Turville: Amendment No. 380 seeks to amend the new version of Section 261 of the Insolvency Act 1986 introduced by the Bill.
The issue at stake is whether or not bankrupts who have been discharged should be able to obtain an individual voluntary arrangement. Currently, undischarged bankrupts generally have three years to make an application for an individual voluntary arrangement. The Bill will reduce the automatic discharge period to one year. Consequently, there may be a small number of cases where a bankrupt reaches a position where he or she is financially able to enter into an individual voluntary arrangement but is unable to do so because he or she is discharged from bankruptcy. Section 281 of the Insolvency Act sets out that the effect of discharge is that bankrupts are released from their debts.
Since the Insolvency Act was introduced in 1986, discharged bankrupts have not been able to enter an individual voluntary arrangement and we have no wish to modify that position just because the discharge date will now be earlier than it is at present.
I accept that there may be a very small number of discharged bankrupts who might wish to enter into an individual voluntary arrangement because that would lead to an annulment. However, most who wish to do so will be able to go down that route prior to discharge since the reasons for entering the individual voluntary arrangement would most likely be in existence at the time of the bankruptcy order. In addition—I stress this point—it should be remembered that a court can, and will remain able to, annul a bankruptcy order at any time, including after discharge, on the ground that the bankruptcy order should never have been made or where the bankrupt has paid his bankruptcy debts in full. I should add that the amendment is technically deficient without a number of consequential amendments to other sections of the Insolvency Act.
Amendment No. 381 is similar to one put down in Committee in the other place and seeks to change those who are eligible to vote on a new fast-track proposal for an individual voluntary arrangement. It does this by including creditors whose debts were incurred after the bankruptcy order but before the date that the Official Receiver makes the decision whether a bankrupt's individual voluntary arrangement proposal has a reasonable chance of success.
Currently, the clause sets out that only those who have a bankruptcy debt can vote. If debts are incurred after the date of the bankruptcy order, the creditors concerned can petition for a further bankruptcy order to be made in respect of them. Our approach is consistent with the rules on existing individual voluntary arrangements which clearly set out that there are currently two types of individual voluntary arrangement cases.
Rule 5.1 of the Insolvency Rules 1986 sets out that "Case 1" applies where the debtor is an undischarged bankrupt and "Case 2" where he is not. Rule 5.13, which deals with the summoning of creditors' meetings, sets out that all those who are listed by the bankrupt in his or her statement of affairs, and any other creditors of whom the nominee is aware, are entitled to notice of the meeting. Rule 5.17 sets out that the creditors in Case 1-type individual voluntary arrangements—post bankruptcy—can only vote for amounts that are due up to the date of bankruptcy. In Case 2-types, the debts can be calculated up to the date of the creditors' meeting.
That clear delineation between the treatment of pre-bankruptcy and post-bankruptcy debts for Case 1 individual voluntary arrangements has worked successfully since the Insolvency Act 1986 introduced them. We see no justification for change. It is also worth bearing in mind that the bankruptcy order will be annulled after the agreement to the fast-track individual voluntary arrangements.
Amendments Nos. 382, 383 and 384 seek to change the proposed new regime for fast-track individual voluntary arrangements by allowing creditors to
The amendments would increase significantly the complexity and, therefore, the costs of the process and make post-bankruptcy individual voluntary arrangements less accessible. That goes against the intention behind the fast-track proposals which are intended to apply in straightforward, income-based cases and aim to increase the number of such cases. Currently, under 2 per cent of individual voluntary arrangements are entered into after bankruptcy. Generally speaking, returns to creditors are higher in individual voluntary agreements than in bankruptcy. It is therefore in the interests of both debtors and creditors to seek to increase their use.
Amendment No. 385 is similar to one tabled in Committee in the other place. It seeks to place on the face of the Bill a requirement that the Official Receiver, as well as notifying the court of the result of the creditors' decision on whether to accept or to reject the debtor's proposal for an individual voluntary arrangement, should at the same time notify the creditors of that result.
We feel that the amendment is unnecessary and that it is more appropriate to include such matters in rules where the mechanics of the process can be considered in their entirety. The Bill provides that the result of the creditors' vote on the new fast-track individual voluntary arrangement is reported to the court. That report will trigger an application for the annulment of the bankruptcy where the individual voluntary arrangement has been approved. While the Bill does not provide for a similar notification of creditors, we agree that it is appropriate and will place that requirement in the rules for the new fast-track individual voluntary arrangements.
That would mirror the current individual voluntary arrangement provisions in Section 259 of the Insolvency Act, where obligations to report to the court are dealt with in primary legislation while persons who are to be notified of the results of a creditors' meeting, other than the court, are currently prescribed in Rule 5.22.
Amendments Nos. 383 and 384 seek to omit references to Section 257, thereby removing references to the section through which the meeting is called. The remaining subsections of Section 258 make numerous references to "a meeting", as does new subsection (c) in the amendment of the proposed new subsection to Schedule 22 which, as I have already established, could not be held as the vehicle to consider modifications.
Amendment No. 386 is similar to one tabled in Committee in the other place. It seeks to restrict the possible extension by order of the new fast-track Official Receiver individual voluntary arrangement regime to cases where the debtor concerned is not an undischarged bankrupt. While we have no present plans to use the power, insolvency is a rapidly evolving area.
If the fast-track individual voluntary arrangement regime proves effective, we should be able to consider extending that regime to those who are not bankrupt. This power would allow us to react to any demand that may arise to extend fast-track individual voluntary arrangements to all debtors without the need for primary legislation, which may cause delay in satisfying that demand. Exercise of the power is subject to affirmative resolution, so it will be fully considered by both Houses. The new post-bankruptcy individual voluntary arrangement regime aims to get more people out of bankruptcy by putting in place a more streamlined process in straightforward cases and providing a more transparent fee regime. Currently, that transparency does not always exist. If the new regime results in fees being reduced and becoming more transparent, we see that as a good thing.
I hope that, with those explanations, the noble Lord will feel able to withdraw his amendment.
"(1) This section applies where the creditors meeting summoned under section 257 approves the proposed voluntary arrangement (with or without modifications) whether or not the bankrupt is discharged."
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