Mr. Waterson: Does the Under-Secretary have a very rough idea—what the Americans would call a ballpark figure—of what percentage of personal insolvencies will involve bankruptcy restriction orders once the Bill becomes law?
Miss Johnson: I do not have an estimate to hand, and I am not sure that we could produce one, but hon. Members should bear in mind that in looking at the new arrangements, the official receiver and the courts will make decisions about who is reckless, and that will be a matter for the courts rather than for anyone else.
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The hon. Member for Eastbourne is picking his expressions from across the Atlantic while chiding us for slavishly following the United States. I want to lay a myth to rest. Our bankruptcy proposals reflect the clear need to modernise the bankruptcy regime in the United Kingdom. In doing so, we have tried to strike the balance to which the hon. Member for Orkney and Shetland referred, between the interests of bankrupts and their creditors. We looked at the situation in several countries, not only in the US, and we aimed to retain those aspects of the bankruptcy regime in this country that we believe work well. The basic position is that if bankrupts can pay, they should pay. That is not currently the case in the US, where the existing regime contributed to the problems that they are experiencing.
I believe that changes are taking place in the USA that represent a convergence towards the position in the UK. I entirely refute the allegations made by the hon. Member for Eastbourne that we are slavishly following the US and taking the route that has led to problems there. We accept that there are problems in the US and are not adopting the same regime. If anything, they are moving towards the position here.
Amendment No. 455 would draw a distinction, as the hon. Member for Eastbourne said, between business and consumer bankrupts, by proposing that the reduced discharge period should apply only to business bankrupts. In the light of that, my hon. Friend the Member for Wolverhampton, North-East should reflect on how far he shares the views of Opposition Members in certain respects. The remainder would be left with the existing provisions and, therefore, would not benefit from any reduction in stigma or early financial rehabilitation. I am not sure why the hon. Member for Eastbourne tabled the amendment, which relies on a clear understanding of the distinction between consumer and business, because although he mentioned the distinction several times, he did not give any real definition. A sharp distinction cannot be drawn. It is impossible to disentangle debts that someone may have incurred ''as a consumer'' from those that they acquired in a business capacity.
Mr. Waterson: With respect, the Under-Secretary is over-complicating the obvious. It is perfectly clear from the first subsection of the amendment that the provision simply relates to the case of a bankruptcy that
That seems to draw a workable and clear distinction.
Miss Johnson: Whatever legal provisions are made and whatever regulations exist, those who want to subvert them will find ways around them. If a distinction of this ilk is made, somebody wishing to load things on to either the business or the consumer side of their dealings could easily take on debts that related to one part of their activity but represent them as relating to the other. In that arena, there is no easy way to make the distinction. An individual could be made bankrupt for reasons unconnected with his business or there could be a combination of business and personal indebtedness. It is often difficult, if not
Column Number: 637well nigh impossible, to pinpoint whether the cause of the bankruptcy was the failure of the business and, therefore, to which category of bankrupt the person might belong were one to operate with that kind of distinction in mind.
Business bankrupts have consumer debts as well. The failure could be entirely due to the level of consumer debts; the business might be profitable. There is no logical reason why a business person should be given a shorter discharge period than a consumer bankrupt with smaller debts who is bankrupt because he has lost his job. That is unfair. The treatment of bankrupts, whether business or consumer, should be the same where the conduct leading to the bankruptcy is similarly culpable. That is why the Bill introduces the bankruptcy restrictions orders to differentiate between bankrupts—both business and consumer—whose conduct differs. Those who have behaved in a reasonable way are considered to be bad-luck bankrupts while those who have behaved recklessly should be subject to BROs. That is much fairer than the arbitrary distinction that the amendment proposes. For those reasons, I urge the Committee to resist the amendment.
Amendment No. 44 seeks to replace the proposed 12-month discharge period with one of two years. The discharge period is set at one year in order to reduce the stigma of bankruptcy and to encourage entrepreneurs to start new businesses, or to restart in cases in which they failed through no fault of their own. In most cases, the official receiver will have reached an initial view about a bankrupt's conduct within eight to 12 weeks of a bankruptcy order, when a report is sent to creditors. If the creditors contact the official receiver with further information, they normally do so shortly after receipt of that report. That allows sufficient time for further investigation. Information that is received after 12 months can be used to support criminal prosecution. The legislation will allow for a bankruptcy restriction order after 12 months by leave of the court.
We do not expect all bankrupts to be discharged before the 12-month period expires. That will only happen if the bankrupt co-operates fully with the official receiver and if matters raised by the creditors are investigated to the satisfaction of the Insolvency Service. If the grounds are not satisfied, the discharge period will stay at 12 months. Again, we are not talking about reckless bankrupts. There will be the tougher regime of the BROs, with the process that I have outlined, for bankrupts whose conduct has been reckless, irresponsible or otherwise culpable and, as bankrupts, they will have restrictions of between two and 15 years placed on them. I reassure my hon. Friend the Member for Wolverhampton, North-East that the difference between the two regimes is very important. The second, the BROs, reflects the seriousness of reckless bankruptcy.
Mr. Purchase: I do not want to harass the Minister, but it is exceedingly important to know what we mean by reckless and not reckless behaviour. In my experience, people who understand the nature of their business and take care over understanding how it is doing make arrangements to wind up the business
Column Number: 638long before bankruptcy is on the horizon to ensure that they will not be left with creditors. Experience is important; some academic understanding of bankruptcy is no substitute for what happens to small businesses on the ground.
Miss Johnson: I appreciate my hon. Friend's points. I reassure him that matters are dealt with not by someone with a purely academic understanding of bankruptcy, but by official receivers who deal with such things all the time.
Earlier bankruptcy would be a key factor taken into account when deciding whether an application for a bankruptcy restriction order should be made. Serial bankruptcy is likely to raise issues immediately. It is much more likely, although not inevitable, that under such circumstances the bankrupt will find themselves subject to a BRO.
I shall return to a couple of earlier points raised by my hon. Friend the Member for Wolverhampton, North-East. First, the recklessness of Freddie Laker would now be tackled by the regime for company director disqualification, which gives substantial periods—I believe it is up to 15 years—for the disqualification of directors. That would be a different way of tackling a serious issue.
My hon. Friend also raised the question of multiple bankrupts, which we are addressing from a number of angles. Little can be done through the present regime to tackle those who abuse creditors except for prosecution, which, as my hon. Friend will appreciate, comes with a high standard of proof. The BRO regime will solve the very problem of which he talks, as the civil procedure will enable effective action to be taken against people on a lower standard of proof. There will be new ways to tackle problems, which I agree are serious and need tackling.
The court will decide whether an order should be made on the facts of the case. It will take specific account of the fact that the bankrupt may have been bankrupted more than once. For company director disqualification, case law will develop over time and previous judgments will provide guidance on what constitutes culpability, and on the length of orders. That approach has received wide-ranging support. In its response to the White Paper, the CBI commented:
The hon. Member for Eastbourne made wide-ranging remarks about our understanding of enterprise and support for the Bill. Its main measures have received support from all sorts of business organisations, including the CBI, the British Chambers of Commerce and the Federation of Small Businesses.
On amendment No. 44, in the majority of bankruptcies most administrative work is completed within the 12-month period in the Bill. In any case, the ability to realise assets is not affected by discharge.
On amendment No. 44, for the majority of bankruptcies, most administrative work is completed
Column Number: 639in the 12-month period proposed in the Bill, and the ability to realise assets is not affected by discharge. The Bill implements bankruptcy restrictions orders to deal with rogues and could impose restrictions for up to 15 years. Furthermore, the ability to suspend the discharge period for those bankrupts who do not co-operate with the official receiver or trustee will remain, as will most of the existing criminal offences. There will be no lightening of the context in which the measures are being introduced, so going bankrupt under the new proposals will not be an easy option and will be no more attractive to rogues than the current regime. Indeed, I believe that it will be less attractive to them. However, some people become bankrupt through no fault of their own, and we believe that a distinction that has never existed in this country should now be made.
Amendments Nos. 430 and 519 would remove the possibility of discharge from bankruptcy earlier than one year from the date of the order. Amendment No. 519 would also remove the right of the official receiver or trustee to apply for suspension of discharge in cases of non-surrender and non-co-operation of bankrupts in the proceedings. I assume that hon. Members intended line 1 on page 172 to be omitted, otherwise paragraph (b) of new section 279(3) would be cast adrift with no purpose. In any event, we do not support the amendments. Our policy is to move from a ''one size fits all'' regime to one in which the discharge period reflects the circumstances of the case. The amendments go in the other direction and would recreate a ''one size fits all'' approach.
We do not expect all bankrupts to be discharged before the automatic 12-month period. That will happen only in a straightforward case when the bankrupt co-operates with the official receiver and any matters raised by creditors are investigated to the satisfaction of the Insolvency Service. The period will remain at 12 months if those grounds are not satisfied. There is no merit in preventing bankrupts who failed through no fault of their own from getting through the process as quickly as possible. That will be a factor, but only a factor, in encouraging potential entrepreneurs to restart or to start up in business and to secure their financial rehabilitation. I accept the point made by my hon. Friend the Member for Wolverhampton, North-East that many other issues to do with people's fitness to run a business must be taken into consideration.
When the administrative work on a case has been concluded, and if there are no issues of public protection, it is difficult to see any advantages or any purpose to the amendments other than a punitive one. Specifically on amendment No. 519, no purpose would be served by removing the ability to suspend a bankrupt's discharge. It is an extremely effective sanction against those who decide to ignore their obligations, so I am not sure why that was suggested. Indeed, the purpose of subsection (3) is to extend the power to enable a trustee to make a suspension application without having to refer it to the official receiver, as he does under the current regime.
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Amendment No. 520 would remove the discharge cross-reference in new section 279(6)(b), the purpose of which is to help the reader when reading the section. The amendment may be consequential to another amendment, but if it is not, one is left wondering what would happen to someone who is subject to a criminal bankruptcy order and discharged by application under section 280.
I may not have gone through all the points of general principle, but I want to respond to a point on which the hon. Member for Eastbourne commented specifically on compiling reports on early discharge and whether that is an additional burden on the official receiver. The official receiver already reports to creditors in every case, and we hope that in the majority of cases the notice to which the hon. Gentleman referred will be combined with those reports. I reassure him about the nature of the process and how it would be incorporated into existing processes. There may be other more general issues of principle to which we will come during the stand part debate.
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