In November 2011, the Government issued a Consultation Document on ‘Reforming the process to apply for bankruptcy and compulsory winding up.’ Most respondents to the Consultation, including the Chief Bankruptcy Registrar himself, declared the proposal fundamentally flawed.
The Consultation Document proposed taking the majority of winding-up and bankruptcy petitions away from the Courts and putting them into the hands of an Adjudicator, employed by the Insolvency Service. Uncontested petitions would be rubber stamped by the Adjudicator. In the event of a contested petition, the adjudicator would be able to decide whether or not the company or individual was insolvent.
We believe this proposal probably originated from the fact that nowadays consumers maxed out on credit cards, and with no assets, file the vast majority of bankruptcies. These types of bankruptcies have undoubtedly clogged up the Courts. So allowing consumers to file for bankruptcy direct with the Official Receiver was deemed a good solution.
However, the Government Proposals went far beyond that simple reform. Experienced Insolvency Practitioners know all too well the phone call from a panic-stricken director or debtor. Finally realising that a petition is to be heard in a matter of days, he will finally take his head out of the sand.
Generally, if an alternative to bankruptcy or compulsory winding up looks viable, an Insolvency Practitioner will seek an adjournment, which the Courts will invariably grant at the first hearing.
An adjournment buys an insolvency practitioner time to find the best solution. For a company, this might mean an Administration, a proposal for a Company Voluntary Arrangement or even a more cost-effective Voluntary Liquidation. For an individual, this might mean putting together an Individual Voluntary Arrangement.
Judges are generally sympathetic if they see a debtor taking proper professional advice, albeit invariably at the last minute. However, this would not be the case with the Adjudicator. His task is simply to determine insolvency. Unless a debtor can show that he is not insolvent, a winding-up or bankruptcy will be granted to the petitioning creditor. Rescue remedies will not be considered.
Bankruptcy judges are independent of the state. They have the experience and the culture to find solutions to problems. An Insolvency Service employee will inevitably have a tick-box mentality. He will have an eye on targets to improve financial returns, by ensuring Official Receivers get more cases with assets in them.
