201509 CM September

INSOLVENCY
THE GOOD, THE
BAD AND THE UGLY
Jeremy Sutcliffe poses three key questions around personal insolvency and offers
some insight into what is working presently and what might be a better approach.
STALWART readers will know how
regularly and passionately I have
covered personal insolvency, during
20 years commentating on judicial
statistics in Credit Management. I make no
apologies for continuing to draw attention
to this important – but neglected – credit
industry component. This time I am posing
three questions key to the industry, and
offering some answers and insight, in an
attempt to highlight what’s not working at
present, and suggest a better approach.
What is the overall cost of personal
insolvency?
The figure isn’t in the public arena. Each
individual bankruptcy estate concludes
with a financial account submitted to the
Insolvency Service (the Agency) by the
licence-holding insolvency practitioner (IP)
responsible for it, which creditors of that
estate can scrutinise. The Agency thus has
all the information at its fingertips, but it’s
not generally available. It’s possible the
figure has been deliberately supressed to
avoid creditor shock, but inefficiency is
the more likely reason. I doubt the Agency
has ever got to grips with the overall
financial statistics, which its position of
responsibility should have dictated.
As regards individual voluntary
arrangements (IVAs), the information
resides with the IPs and their insolvency
firms involved in the procedure. A register
of IVAs is maintained by the Insolvency
Practitioners Unit in Birmingham, available
to the public as part of the Individual
Insolvency Register on the Agency website,
but this doesn’t include either individual or
overall cost figures.
In neither case does the Agency provide
any general cost information/advice to
creditors, because IPs and their firms –
who remain its main point of contact, rather
than the creditors and debtors who pay for
insolvency – have been continually able
to persuade the Agency that publication
would breach IPs rights of confidentiality,
and commercial information.
Why is regulated work effectively
limited to estates with excess assets?
I’m referring to excess unsecured assets,
naturally, since by definition secured ones
belong to the charge holders. If there’s
nothing in the kitty, the choice facing an IP,
or in default the Official Receiver (OR), is
threefold (1) ask the creditors to stump up
for the work, (2) pay for it personally, or (3)
not do it, and the first two are mostly nonstarters.
Since the ‘rebirth’ of insolvency
in the mid-eighties, money owed to
unsecured creditors has fuelled an
extensive programme of regulated work
on bankruptcy estates. While it’s essential
to produce a basic financial account
for each estate, regulated work is more
comprehensive, and creditors offered the
choice of whether to take what’s left in the
estate as a dividend, or ‘donate’ it to the IP
for further work/investigation would be very
unlikely to choose the latter!
Historically, creditors tended not to
become aware of the distinction between
estates with excess assets and those
without, because the latter languished
out of sight and mind under the control
of the OR. Since 2009 the inception of
Debt Relief Orders (DROs) has brought
the dichotomy clearly to their attention,
albeit DROs involve no work, regulated or
otherwise in looking after creditor interests,
and are rather designed to protect debtors
from creditor collection activity up to a debt
limit of £15,000 (imminently increasing to
£20,000), rather than to investigate their
estates!
The vast majority of personal
insolvencies contain nothing suspicious
or controversial, so why should creditors
not be able to influence the amount of
work done, beyond a necessary minimum?
I accept that Turkeys are unlikely to vote for
Christmas, but since IPs have not sought
to reduce regulated work, why isn’t the
Agency putting this idea forward? The only
type of reform currently being offered by
IPs is better ways for creditors to complain
about the quality of work actually done!
Who should be responsible for
personal insolvency?
The Agency is part of a business
department that has little contiguity with
insolvent individuals, and the methodology
for dealing with them is essentially a cutdown
version of corporate insolvency.
Personal insolvency would fit better within
the Ministry of Justice (MoJ).
In the past 10 years there have been
just over 1,176,000 personal insolvency
procedures, consisting of bankruptcy
petitions, IVAs and debt relief orders
(DROs). Bankruptcy petitions have reduced
considerably over the decade, but IVAs
actually reached an all-time high last year,
and together with DROs - both designed to
avoid insolvency – they totalled 574,000, 47
percent of the total.
The Agency has recently announced that
future debtor bankruptcies will no longer
require sign off from an IP, which means
that a further proportion of cases have no
INSOLVENCY CREDITORS
BANKRUPTCY PETITIONS
DEBTORS BANKRUPTCY
PETITIONS
WINDING-UP PETITIONS
DEBT RELIEF ORDERS
INDIVIDUAL VOLUNTARY
ARRANGEMENTS
TOTAL
2005 2006 2007
20,777 20,891 20,055
36,897 52,678 53,106
12,099 12,108 11,676
_ _ _
20,293 43,630 42,723
90,066 129,307 127,560
36 September 2015 www.cicm.com
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