The Institute of Credit Management (ICM) has delivered a critical response to the Insolvency Service Consultation Paper on reforming the bankruptcy and compulsory winding up application processes, citing what the Institute describes as ‘a number of flaws’ in the proposed reforms.
Philip King, Chief Executive of the ICM, expressed his concern at the Consultation Paper’s apparent failure to draw some fundamental distinctions: “Bankruptcy is a very different process from a winding up petition. Unfortunately however, several of the reforms suggested in the Consultation Paper apply to both individual bankruptcy and the winding up of limited companies, indicating that the Consultation has failed to adequately recognise the significant disparities between the two.”
He says that a similar lack of proper understanding is demonstrated in relation to third parties: “Expanding the proposed debtor petition process reforms to undisputed third party bankruptcy and winding up petition processes is also, in our view, inappropriate, since the needs, processes and desired outcomes of debtors are entirely different from those of third parties and should be dealt with as such.”
The ICM questions whether the proposed application process would be enough to confirm that bankruptcy was the right decision for an applicant and hints that, if implemented, the changes could even encourage debt avoidance: “For a debtor to simply state that he or she ‘has had an opportunity to take advice’ does not, in our view, sufficiently ensure that bankruptcy is the right step for that individual, nor does it attribute proper gravitas to what ought be seen as a last resort.
“Furthermore, the opportunity to oppose and appeal against applications opens up the possibility for debtors to abuse the process and use it simply as a means of avoiding creditor action by delay and protraction.”
The ICM also harbours a number of concerns in relation to the role of the Adjudicator, questioning what qualifications or expertise that person might have and how their independence from the Insolvency Service could be guaranteed.
“We have serious reservations about whether the responses to previous consultations have been adequately and properly considered and reflected in the drafting of this latest document, and would suggest that more thought is required,” Philip King concludes. “Fundamentally, this consultation focuses on the procedural detail of the proposed changes, rather than asking the far more important question of whether the changes are a good idea at all.”