Clause 252 - Individual voluntary arrangement

Enterprise Bill – in a Public Bill Committee am 5:00 pm ar 14 Mai 2002.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I hope that this clause stand part debate will be short, but I have no control over such matters. I am sure that the Under-Secretary will cite the figures—I do not have them to hand, but I remember seeing them—that tell us that there are a relatively small number of individual voluntary arrangements compared with the overall picture of insolvency.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

I recall that the numbers have gone down slightly in recent years, but IVAs obviously have carved a niche for themselves in our system. Many people, especially professionals, will strive for an IVA rather than formally enter insolvency proceedings, for the obvious reason that they may be able to continue to practise as, for example, solicitors. People have used IVAs on a fairly widespread basis over several years. In terms of saving court time and professional fees, I am sure that we would all encourage a relatively informal solution whereby a debtor sat down with his creditors and hammered out an agreement on how he would repay them over a period, in whole or in part.

All the commentators seem to agree—which is a blessing—that IVAs will become significantly less popular because of the Bill. To put it broadly, if someone can go in and out of bankruptcy in a year or possibly much less time, what is the attraction of an IVA? It might be interesting to discuss under a later clause whether IVAs would still be any attraction when professions were involved. The Under-Secretary may be able to help me in an intervention.

We are clearly changing the position somewhat for Members of Parliament and others such as justices of the peace, although I read only two days ago in the paper that they are no longer supposed to call themselves that. If not in this debate, I hope that later we can clear up what the attitude of professional bodies such as the Law Society will be. Perhaps they will take a similar view and say that if someone goes into insolvency he will not suffer the risk of being unable to practise his profession unless a bankruptcy restrictions order applies to him. In any event, it is clear that IVAs have fulfilled a purpose in the treatment of people in this country with financial difficulties. However, they do not always achieve what they are supposed to.

In the context of the clause and how the Under-Secretary might reconsider it, I want to raise an issue

on behalf of my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond). He asked me to mention a case in which two of his constituents were put to some trouble and cost when one of the other leaseholders went in for an IVA, which was ran by an insolvency practitioner based at the other end of the country. Many of my hon. Friend's constituents' difficulties were caused—at least indirectly—by the fact that the gentleman in the IVA had failed to declare what amounted to beneficial ownership of his flat in the block. It was difficult to pin down who was speaking on his behalf, but it became apparent in the course of the IVA that the man had not fully declared his assets and, in particular, his beneficial ownership of the flat.

The problems generated by that failure provoked correspondence between my hon. Friend and the chief executive—the inspector general and agency chief executive, to give him his full title—of the Insolvency Service. The inspector general confirmed that, although the person nominated to run the IVA must be a licensed insolvency practitioner, he must take only reasonable steps to satisfy himself about the debtor's true position as to assets and liabilities, and ensure that it does not differ in any material respect from that represented to the creditors.

We do not believe that IVAs always work splendidly. I have provided just one example of an IVA that was undermined by the very informality of the IVA procedure. What role does the Under-Secretary predict for IVAs? Will they become a thing of the past, and if so, will that be a good thing?

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.

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.

Photo of Mark Field Mark Field Ceidwadwyr, Cities of London and Westminster 5:15, 14 Mai 2002

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.

Photo of Nigel Waterson Nigel Waterson Ceidwadwyr, Eastbourne

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.

Photo of Miss Melanie Johnson Miss Melanie Johnson Parliamentary Under-Secretary, Department of Trade and Industry

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.