Enterprise Bill

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Miss Johnson: First, I should point out that the concept that those who can pay should pay is a long-established principle of our individual insolvency regime. People in debt already use a variety of procedures to deal with debt, including the formal debt-management plans run by the public and private sector, or more formal, court-based procedures, such as county court administration orders, of which there are about 8,000 a year. However, that regime can be used only when the debtor has total debts of less than £5,000 and a judgment against them.

The IVA regime set out in the Insolvency Act 1986 has provided about 7,000 IVAs per year. Very few IVAs are entered into after a bankruptcy order has been made, however. A benefit of the post-bankruptcy IVA is that the bankruptcy order can be annulled and the debtor is no longer subject to bankruptcy restrictions. If a person defaults on an IVA, there are grounds to petition again for bankruptcy.

We have proposed that the official receiver should be able to act as a nominee and draw up the IVA proposal, which is then put to creditors, and a supervisor who implements and manages the proposal approved by creditors in post-bankruptcy IVA cases. That proposal was first included in ''Bankruptcy—A Fresh Start,'' the Insolvency Service consultation document that was issued in 2000, and last year's White Paper, ''Productivity and Enterprise—Insolvency—A Second Chance'', and was welcomed by both debtors and creditors.

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Most stakeholders agree that IVAs can lead to a better return to creditors, but debtors and creditors have criticised the level of entry fee and the administration fees charged by supervisors. Allowing the official receiver to act in fairly straightforward post-bankruptcy cases will bring competition into the lower end of the IVA market. The official receiver is well placed to establish whether an IVA would be appropriate for a bankrupt, as he already has details of assets and income through his examination of the bankrupt's affairs.

I turn to some of the points that the hon. Member for Eastbourne raised. First, the offence of providing false information will be drawn to the bankrupt's attention before she or he provides information to the official receiver on an IVA proposal. Additionally, if the official receiver has any doubts about the veracity of the bankrupt statement, she or he is likely to decline to act as the nominee for that person. The continuing attraction of IVAs, to which the hon. Gentleman referred, is that the bankruptcy is annulled and not discharged—it is as though it never was. IVAs will continue to be attractive for that reason under the new regime, notwithstanding the hon. Gentleman's points.

The intention, though, is not to increase the number of post-bankruptcy IVAs. Only around 0.5 per cent. of IVAs annually are post-bankruptcy. I hope that that clarifies the points for the hon. Gentleman. I commend the clause to the Committee.

5.15 pm

Mr. Field: A number of friends of mine have been through the IVA treatment and it strikes me that it is one aspect of the Insolvency Act 1986 that has worked quite well. It has been a sensible and pragmatic approach, especially for those who have taken it without going for fully fledged bankruptcy. I reiterate the concern expressed by my hon. Friend the Member for Eastbourne that there is a danger that making bankruptcy relatively more attractive—the exit route being that much swifter—will create a strong disincentive to take the IVA route, which is a sensible one, particularly for individuals with fairly minimal debts. People may have debts totalling a few tens of thousands of pounds, some of which is with the bank and some with individuals or small trading companies.

My experience in advising a friend who took the IVA route was that he was able to reach a sensible deal that did not involve the large expense or the lengthy process of a fully fledged bankruptcy. However, an individual who might under the current regime be happy to take the IVA route, whereby all the creditors get a certain number of pence in the pound, might feel that, because the time limit for bankruptcy discharge has become more attractive, they should take that route and pay far less. They might do so because they have relatively little in realisable assets, or are unable to cut a deal that involves borrowing money from a friend, for example. That is my only concern. I am not entirely convinced about the provision. The proof of the pudding will be in the eating: whether the take-up of IVAs begins to decrease. Conservative Members have at least had a chance to utter a word of warning.

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Mr. Waterson: I would like to come back on a couple of the Under-Secretary's points. What she said was very helpful but it is worth noting in passing that this is yet another new responsibility for the official receiver. I hope that the Committee will take as read the point about resources to which we keep returning.

There is the further issue of stigma. As I said in the original debate on that point, one of the main attractions of the IVA route is that it does not have the stigma of bankruptcy, and the Under-Secretary has confirmed that. I do not know whether she will be dealing with this later but, given the new arrangements for bankruptcy and bankruptcy restrictions orders, I am curious to know what the professions are going to do about stigma. Will they align their position with that of justices of the peace and Members of Parliament? We may be able to deal with that when we get to the relevant clauses, but I am curious—I could have found out about the issue before this afternoon's sitting, if I had thought about it—as to how that will work. If we analysed figures on those who have taken the IVA route, we would find that a high proportion of them wanted to avoid the stigma of bankruptcy. That probably means that they are professionals of some sort.

Miss Johnson: We think that the clause adds to the options available. It is about a range of choice for those who are prepared to deal responsibly with their debts. We think that people will continue to pursue the route.

On the points made about the official receiver's resources, the Insolvency Service has been given substantial additional funding for the next two years. Those extra resources will enable it to be ready to introduce the proposed reforms, which are to invest in its infrastructure, to train staff and to continue to deliver the service that customers expect.

The processing of IVAs under the new financial regime will be cost-neutral. The official receiver will act only in straightforward cases, and the fast-track regime will maximise returns. The official receiver will acquire much of the information needed to make decisions on viability of IVAs through examination of the bankrupt's affairs. Official receivers are experienced in assessing bankrupts' disposable income through the operation of a similar regime for income payments orders.

I hope that I have reassured the Committee that the resources are in place, with the experience alongside them.

Question put and agreed to.

Clause 252 ordered to stand part of the Bill.

Schedule 22

Individual voluntary arrangement

Mr. Waterson: I beg to move amendment No. 451, in page 291, line 21, leave out 'a bankruptcy debt' and insert

    'a debt which is a bankruptcy debt or would be a bankruptcy debt if a bankruptcy order were made in relation to the debtor on the day the official receiver considers whether subsection (2) applies'.

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The Chairman: With this we may take the following amendments: No. 452, in page 291, leave out lines 27 to 32 and insert—

    '(b) must include an invitation to creditors to approve the voluntary arrangement in accordance with section 258 and the Rules.'.

No. 453, in page 291, line 32, at end insert—

    '(4A) When applying to section 258 and the Rules to subsection (4)—

    (a) references to section 257 shall be omitted,

    (b) subsection (3) of section 258 shall not apply, and

    (c) the meeting may approve the proposed voluntary arrangement with modifications but shall not do so unless both the debtor and the official receiver consent to each modification.'.

No. 436, in page 292, line 1, after 'court', insert 'and the creditors'.

Mr. Waterson: I am indebted again to PricewaterhouseCoopers for the group of amendments. They are designed to approach some practical issues in the schedule, which deals with the nuts and bolts of IVAs under the Bill.

First, I shall speak to amendment No. 451. I am told that to restrict the definition of creditor to those who were creditors at the date of the bankruptcy could prejudice those who became creditors after the bankruptcy order. Under proposed new section 263A of the Insolvency Act 1986, fast-track IVAs can be proposed at any time before the debtor is discharged, which could be up to 12 months after the bankruptcy order. The amendment brings proposed new section 263B(3)(a) of the 1986 Act into line with the existing provision on IVAs for undischarged bankrupts, which hon. Members will readily recall is section 257(3) of that Act.

Amendments Nos. 452 and 453 go together. Some provision must suggest modifications when, for example, creditors are aware of undisclosed assets. Without such a provision, many arrangements may be doomed to fail or end up in the courts. It has been suggested that there should not be a mechanism for the appointment of the supervisor other than the official receiver. To facilitate that, there must be an opportunity for a meeting of creditors on the same basis as for other IVAs.

As drafted, proposed new section 263B(4)(b) permits the official receiver to decide his own criteria for judging whether the proposed voluntary arrangement has been accepted. In theory, he could say that the proposal would be accepted if 1 per cent. of the creditors voted in favour, which is obviously nonsense and would be unacceptable. The criteria for the acceptance of a fast-track IVA should be the same as for any other IVA: to ensure consistency with them and between different official receiver officers. If accepted, amendments Nos. 452 and 453 would bring proposed new section 263B into line with provisions related to other IVAs, but with additional protection for the official receiver.

Amendment No. 436 would deal with the fact that the Bill does not provide for creditors to be notified of the outcome of a fast-track IVA proposal. They could therefore be aware that such an IVA had been

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proposed, but not whether it had been approved. That is unacceptable, especially as the creditors will be bound by the IVA if it is approved. The amendment would simply bring the fast-track IVA into line with other IVAs, and would be a sensible and practical improvement to the Bill.

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