Chapter 1
Introduction
The Enterprise Act 2002 (“the Act”) came into effect with the objective of facilitating and promoting an “enterprise” culture across the spectrum of corporate and business structures. Specifically, it recognised the inevitability of failure but in the case of bankrupts, the desire was to offer a “second chance” to those who have failed through no fault of their own, on the basis that entrepreneurialism is necessary for a strong economy.
Bankruptcy stigma has a long history as will be seen in chapter three and the government wanted to reduce it as an integral part of the policy of promoting enterprise. By doing so, it was hoped that the fear of failure would reduce, and enterprising individuals would be less afraid to start a business which in turn would create employment and generate tax revenues. If business failure ensues, the failed business-owner should be given the chance to try again. The dissertation will examine the nature of stigma, its characteristics in bankruptcy and who perceives it. It will be seen how it affects decision-making by debtors looking for the best debt-resolution remedy.
This paper will evaluate the extent to which the objectives of government have been met through the Act. An exploration will be made as to how the Act has impacted on stigma and how fully, honest, insolvent debtors are rehabilitated and how quickly they can start again. It will be seen there can still be obstacles in the way and conflicting regulation and other external factors that impede the second chance desired by the Act.
The current state of bankruptcy law in England and Wales can be contextualised by reference to the evolution of the law over past centuries and to changes in attitude to debt and business failure by society, by enterprising individuals and by government. The law has moved from punishment to rehabilitation, from imprisoning debtors to a wide-ranging regime of bankruptcy restrictions that are for the most part, limited in impact, and discharge from bankruptcy in one year.
Bankruptcy is not the only way in which insolvent debtors can resolve their problems. One writer refers to the range of choices as an “a la carte menu for debtors”.[1] It will be seen that the most popular alternatives (Individual Voluntary Arrangements and Debt Relief Orders) come with a variety of issues of their own and end up either more expensive for the debtor than bankruptcy in the former case or inaccessible because of strict criteria in the latter case.
What can be learned from bankruptcy law elsewhere? The US has long had a strong enterprise culture with rehabilitative measures built into the law. Consideration will be given to the challenge of an adoption in England and Wales where there is a pro-creditor approach, of US laws that have historically reflected a pro-debtor approach. The paper will also examine bankruptcy policies elsewhere that might indicate what else could be done to improve the rehabilitative nature of English bankruptcy law.
The paper focuses on insolvent individuals who have failed through business activities, but bankruptcy law does not differentiate between those who have failed through business activity and consumer bankrupts who become insolvent for other reasons such as through loss of job, illness or marital breakdown. Even those individuals might wish to “start again”, perhaps with their first enterprise, and are therefore also subject to the same issues of stigma and rehabilitation as failed businesses debtors.
Chapter 2
The Evolution of Bankruptcy Law – From Punitive to Rehabilitative
Introduction
An appraisal of how bankruptcy law has evolved provides context and a greater understanding of how modern-day debtors are affected by bankruptcy through a comparison with their treatment over previous centuries. The law has transitioned from being penal in nature to rehabilitative. For centuries, insolvent debtors could be punished by imprisonment whilst nowadays honest debtors suffer no punishment and are limited only by a range of mainly low-impacting restrictions[2] on their activities that last only until their automatic discharge after one year.[3] Those restrictions will be examined later in this paper to assess their impact on a debtor’s ability to rehabilitate and start again.
Penal nature of bankruptcy-
Imprisonment and treatment of bankrupts as criminals in the 13th-19th centuries
Whilst the first bankruptcy legislation is understood to have been introduced in 1542,[4] evidence of punishing insolvent debtors by imprisonment goes back much earlier. Following the introduction of the Statute of Acton Burnell in 1283 and the Statute of Merchants two years later,[5] a debtor could be summonsed to appear before the local Mayor and if the debtor was insolvent, he would be sent to prison until he was able to make settlement with his creditor. Whilst in prison he would live on bread and water at his own expense.[6] Notably, the Act applied only to tradesmen and there was no consideration of whether the debtor was honest or dishonest in his dealings, only that he was unable to pay his debts. It suggests therefore that bankrupts were treated as criminals; that becoming insolvent was a criminal act, punishable by imprisonment. The 1542 Act,[7] gives a similar outlook and was drawn up to specifically cater for fraudulent debtors. It has been suggested that the legislation was enacted because fraud was the cause of most bankruptcies at the time.[8] The same writer adds that at the time of the subsequent act of 1571[9], the number of fraudulent bankrupts had increased further, and the new Act was introduced to deal with them.[10]
Other punitive measures
Punishment for bankrupts was to get worse. By 1604,[11] Parliament determined that a bankrupt would suffer the indignity of being pilloried in a public place for two hours and the brutality of having an ear cut off if he owed ten pounds and could not demonstrate that he did not wilfully deprive his creditor of their money.
A century later, in 1705, bankrupts could face contrasting fortunes.[12] If a bankrupt was convicted of a fraudulent transfer of assets or did not appear before the bankruptcy commissioners[13] and cooperate with creditors he would “suffer as a felon, without benefit of clergy”. The act of non-cooperation was classed as an act of fraud against creditors. Those bankrupts not guilty of such crimes avoided the death penalty and so long as they surrendered to the bankruptcy proceedings and cooperated, they enjoyed better fortunes and received discharge from their debts.[14] This was a huge step forward in bankruptcy law, introducing for the first time the possibility of discharge from debt which remains a cornerstone feature of all rehabilitative bankruptcy regimes today. It marked the beginning of a gradual shift away from the punitive nature of bankruptcy.
The perceived criminality of bankruptcy lay at the heart of bankruptcy law and in the words of Lord Kenyon, “Bankruptcy is considered as a crime, and the bankrupt in the old laws is called an offender”.[15]
The various Acts that catered for bankruptcy law during the 16th to 19th centuries were designed specifically for traders and it was not until the Bankruptcy Act of 1869[16] that the law started to cater for non-trading debtors, who until then were treated rather harshly and were often left to languish in jail as imprisonment was the “remedy” of choice for creditors.[17]
Why, one might wonder, were bankruptcy laws and punishments so severe and to what end? The question certainly turns on the long-held perception of bankrupts being criminals but if one considers the Act of 1705[18] one might conclude, as one writer suggested, that the law was trying to incentivise debtors to cooperate.[19] That if they disclosed all their assets and cooperated fully, they could receive their discharge and make a fresh start. The alternative was death. It did not prove to be a successful strategy as the number of bankruptcies increased whilst the number of people to have hung for their crimes is understood to only be four.[20] The reason being that both creditors and jurors at trial found the death penalty for non-cooperation in bankruptcy, somewhat excessive.[21]
Bankruptcy in the 19th century
With the Industrial Revolution underway and an increasingly complex economy developing, old bankruptcy laws designed for a pre-industrial, less sophisticated trading environment became inadequate. Whilst the first signs of a transition away from a punitive regime to a rehabilitative regime were seen in 1705, it was in the 19th century that the transition took hold.
Recognition was growing that incurring debts was not always necessarily a matter of fraud but an unfortunate and inevitable consequence of trading using credit. As a result, pressure grew to reform bankruptcy laws.
The death penalty for fraudulent bankrupts was abolished in 1820 and replaced with imprisonment, though with the prospect of the sentence including hard labour.[22] The Debtors Act, 1869 abolished imprisonment for debt, albeit with restrictions.[23] The Act applied to non-trading debtors and represented a further step forward in how debtors were perceived and treated under the law.
Public dissatisfaction with the consequences of the Bankruptcy Act, 1869 under which there was evidence of abuse of bankruptcy case administration and of asset misappropriation by the bankruptcy trustee[24], led to a new Act in 1883 which sought to “improve the general tone of commercial morality, to promote honest trading and to lessen the number of failures”.[25] Fairer, more impartial treatment of bankrupts is evidenced by the introduction of supervision of Trustees by the Board of Trade and the requirement for an investigation of the bankrupt’s affairs, including by way of public examination, and the bankrupt’s discharge would depend on the outcome.[26] Whilst the 1883 Act had a spirit of fairness and objectivity and made a distinct move away from any notion of bankruptcy being criminal, it saw a necessity for public enquiry and investigation. Notably, recognition was given to the notion of stigma attaching to bankrupts when the Bill was put forward in the House of Commons. The prevailing view was that the honest debtor should hold no fear of investigation and enquiry and “they might go again into the world acquitted, by the verdict of a competent court, of anything which would cast a stigma upon their character”.[27]
The 1883 Act laid down the foundation for much of today’s bankruptcy legislation; a salient point not missed in the Cork Report in which recommendations were made for new bankruptcy legislation and which led to the Insolvency Act 1986.[28] In the 103 years in between, very little changed of significance other than the introduction of an automatic discharge in 1976 which represented another development in the rehabilitation of bankrupts.[29]
Chapter 3
The Stigma of Bankruptcy
Introduction
A review of the history of bankruptcy law in chapter two certainly helps to inform of the origins of the stigma of bankruptcy. Pilloryings and hangings were public events to which crowds would gather.[30] Bankrupts would suffer embarrassment and shame at the pillory for the amusement of a gathered crowd. Because of the criminal nature of bankruptcy, bankrupts were punished as criminals and liable to be imprisoned or hung.[31] These are the roots from which more recent perceptions of bankruptcy stigma derive and reflect the distrust of debtors who were seen as “elusive social deviants whom the law should criminally punish”.[32] Even today, less informed debtors seeking advice about bankruptcy, fear the consequence of imprisonment for their debts.[33]
The law has come a long way but where misguided perceptions of the consequences of debt continue to prevail, it is important to consider whether more can be done to strip away the stigma so that debtors are better equipped to determine their debt resolution options and not make decisions out of fear or misinformation. Indeed, one of the key elements of stigma is behavioural in nature and this paper will consider how the stigma of bankruptcy drives and affects behaviour and decision-making.
The nature of stigma
Stigma can be described as an attribute that makes someone different to others. That attribute is undesirable and possibly, in extremes, makes that person seem to others to be a bad person. That person is tainted. The stigma can be seen to be a failing or a shortcoming.[34]
Whilst bankrupts are no longer, in normal circumstances, viewed as criminals, one might suggest that one aspect of the modern-day stigma of bankruptcy over the last 100 years or so arises out of failure. The stigma is not only the perception and judgment of others but also that of the bankrupt himself and the failure brings on him a sense of shame.
Another aspect of bankruptcy stigma is the societal attitude to personal debt. Perhaps that particular stigma attaches more to consumer bankrupts. Those who have wantonly abused the credit system to satisfy their desires for consumer goods and services.
Stigma and the Cork Report
The examination of the extent to which bankruptcy has been destigmatised since the inception of the Enterprise Act, 2006 finds its foundations in the Insolvency Act, 1986 which remains the main body of insolvency legislation and to which the Enterprise Act invoked changes.
When making recommendations for insolvency law reform, Sir Kenneth Cork made only brief reference to stigma but stated that if the proposals for reform where implemented, insolvency proceedings would no longer carry the stigma under existing legislation.[35] For insolvent individuals, he proposed a variety of alternatives to bankruptcy, with bankruptcy being “reserved for the comparatively few serious cases”.[36] On the face of it, the rationale was good although the effect would have been an increased level of stigma for those made bankrupt, but at least far fewer people would suffer the stigma. Only cases where misconduct requiring investigation was identified would become bankruptcies and all other cases would be dealt with by way of Debt Arrangement Orders or Orders for the Liquidation of Assets.[37] Only the Individual Voluntary Arrangement (“IVA”) was introduced as an alternative in the Insolvency Act, 1986. This was a lost opportunity in making available a better range of non-bankruptcy options that would serve the purpose of offering debt solutions without the stigma of bankruptcy. In summary, the Cork Report proposals sought to “relax the excessive severity of the law towards the individual insolvent, particularly the insolvent who is incompetent rather than dishonest”.[38] Perhaps if the range of options, as suggested in the Cork Report, had been implemented, personal insolvency law would be better aligned with policy now.
Stigma and The Enterprise Act 2002
When the government published a White Paper on insolvency reform in 2001,[39] the intention was to implement a transformative set of new bankruptcy laws that would “address the fear of failure and reduce the stigma of bankruptcy”.[40] Stigma would reduce by removing some of the restrictions and disqualifications placed upon bankrupts whose failure was honest and not reckless.[41] Where debtors have acted recklessly or dishonestly, the new laws would punish them accordingly. The White Paper pointed out that under the prevailing law all bankrupts were treated the same whether their failure was not their fault or was reckless or dishonest.[42] In essence, the intention of the government was to differentiate in pointed terms, between honest and dishonest failure and to set out quite different consequences for the two different types of bankrupts. It will be seen that the government largely failed in meeting its objectives.
The White Paper considered whether stigma might be reduced through a process of educating society rather than through a change in the law. It recognised that such a process would be impractical and would take time and given the pressing need to reduce stigma and give bankrupts a second chance, legislative change was required.[43]
Detail of which restrictions and disqualifications would be lifted was lacking in the White Paper but those that would remain in place would last only for one year for honest debtors as the White Paper proposed that automatic discharge would reduce to one year from three.[44] This certainly attempted to deal with the fear of failure aspect of stigma because it meant that the debtor, free of all restrictions after a year, would rank, and more importantly perhaps feel, as an equal member of society again and be encouraged to start again. It will be seen later on that bankrupts still have obstacles standing in their way in that regard.
When the Act came into effect, only a narrow range of restrictions and disqualifications aimed at destigmatising bankruptcy for honest failures were removed. The restriction on a bankrupt holding office as a Justice of the Peace was lifted[45] as was the restriction on acting as a Member of Parliament[46] or local government.[47] The Act also provided for the Secretary of State to lift other similar disqualifications in the future.[48] This left in place very many restrictions which are said to total some 200 in number.[49]
The Enterprise Act decriminalised two bankruptcy offences: Failure to keep proper accounts[50] and gambling.[51] Whilst this might be argued as having a destigmatising effect, both actions are possible grounds for a Bankruptcy Restrictions Order or Undertaking[52] which has the effect of extending the period to which bankruptcy restrictions remain in effect. As already indicated, the Enterprise Act has strong, stigma-inducing, punitive measures for wrong-doers. Other offences covering such matters as concealment of property,[53] and fraudulent disposal of property[54], were left in place, some with a possible defence of innocent intention.[55] All such offences are relevant to a dishonest bankrupt but leave the honest bankrupt subject to the same range of laws that lack relevance to their situation.
Whilst the destigmatising intentions underpinning these changes were well-intentioned, one might question the extent to which the changes meet the objective. The number of bankrupts likely to benefit from having such disqualifications lifted is few and where a debtor is considering the merits of bankruptcy, few might see such disqualifications as stigmatising or limiting factors. Other restrictions that will more commonly be considered limiting and stigmatising such as obtaining credit without disclosing bankruptcy status,[56] or acting as a company director, or taking part in the management or promotion of a company without leave of the court,[57] remain in place. Therefore, the objective of reducing stigma by reducing the number and range of disqualifications and restrictions has been too limited and was the wrong approach. If the government desires that bankruptcy stigma reduces further, it needs to examine the causes of stigma more closely and implement other measures.
One might suggest that the best outcome in terms of reducing stigma was the reduction in the bankruptcy period to one year.[58] In fact, it became possible for bankrupts to be discharged earlier in cases where the Official Receiver had filed a notice at court that he had completed his investigations or that none were necessary[59] but the provision was repealed in October 2013.[60] Challenging the suggestion that an earlier discharge has had the effect of reducing stigma can be done on a number of footings. Bankrupts continue to suffer the stigmatising effects post-discharge through ongoing problems such as access to bank accounts.[61] Furthermore, if the bankrupt is subject to an Income Payment Order or Agreement, that usually lasts for a three-year period[62] and therefore affects the debtor’s post-bankruptcy life for some time. Also, evidence shows that bankrupts feel stigmatised by the loss of the family home[63] which, in instances where it happens, will likely be post-bankruptcy discharge and must complete within three years of the bankruptcy order.[64]
The view of the courts
In two post-Enterprise Act cases, Judges spoke of the ongoing influence and effect of bankruptcy stigma. In Oraki v Dean and Dean[65], Lady Justice Arden posited that bankruptcy still carried stigma and that in the instant case, the bankrupt could enjoy having the stigma wiped away if his bankruptcy order was annulled. In Hayes v Hayes[66] Judge Pelling said: “the bankruptcy process is one that is still attended by stigma, is one that is attended by significant restrictions on commercial and financial activity”.
How bankrupts and society perceive stigma
Perceptions of stigma derive from three main sources. The perceptions of society at large, the perceptions of businesses and the perceptions of bankrupts personally. Surveys conducted since the inception of the Enterprise Act have found with some consistency that in all categories there remains a strong perception of stigma attaching to bankruptcy.
A Yougov survey conducted on behalf of accountants, KPMG, found across sexes, age groups and social classes, more than half considered that there is a social stigma attaching to bankruptcy.[67]
As for bankrupts, the Insolvency Service found in a survey that bankrupts felt stigmatised by the public advertisement of the bankruptcy and by problems with access to credit after discharge.[68] The survey found that overall, stigma had not reduced in the eyes of bankrupts since the inception of the Act. The Act did not make changes to advertising requirements which are now dealt with under the Insolvency Rules, 2016.[69] The bankruptcy order is also listed on the individual insolvency register[70] and whilst the requirement for the Gazette advert seems necessary, the requirement for newspaper advertisements of bankruptcy orders was abolished in 2009, after the survey by the Insolvency Service.[71] One might expect that bankrupts’ perceptions of stigma by way of advertising have reduced since, now that bankruptcy orders are no longer advertised in a local newspaper. A question remains as to whether a further change could have been made by way of the removal of the individual insolvency register from the public domain.[72] Such a change would further strip away the stigma from bankruptcy.
Decision-making by debtors- choosing the right debt solution
Creditors’ bankruptcy petitions have been on a downward trend for ten years or more and exceeded by some margin by debtors’ petitions[73] and so the insolvent debtor is usually faced with choosing his own debt solution. A question arises as to the extent to which the stigma of bankruptcy influences that choice. If a debtor finds bankruptcy too stigmatising, he may elect for an alternative, the main one being an Individual Voluntary Arrangement (“IVA”).
There are other factors that come into play when an insolvent debtor makes his choice. Professionally qualified workers may find bankruptcy bars them from their field of work, or membership of their professional body. That might be through the law[74] or according to the regulations of their professional body.[75] Therefore for some debtors, it is not stigma that drives their choice. It is a point of consideration that there is a conflict between the desire of government to reduce stigma and promote enterprise and the restrictions placed by organisations and professional bodies on workers’ employment opportunities. Police Officers, for example, must choose their debt solution carefully because of possible consequences for their employment. Police forces see a necessity to “strike a balance between the rights of the individual and those of the rest of the community”.[76] The same policy document adds “any Police Officer or member of Police Staff subject to an Individual Voluntary Arrangement will not normally be subject to a misconduct enquiry”. The consequences for a police officer of bankruptcy or indeed any court procedure can be very different and a “misconduct enquiry should be commenced along with a criminal investigation where appropriate”.[77] Policies like this might be necessary for societal reasons but only add to the stigma of bankruptcy and steer debtors into debt solutions that might not be the best one for their financial circumstances. Therefore, whilst the government tries to ameliorate the effects and pervasiveness of bankruptcy stigma through the law, some organisations are actively reinforcing them.
A corollary between a decline in bankruptcy stigma and an increase in bankruptcies?
There has been much academic debate about whether the increase in the number of bankruptcies after the Enterprise Act was introduced is due to a decline in bankruptcy stigma. The debate invites consideration of three questions. Did the number of people applying for bankruptcy start increasing because of changes made by the Enterprise Act or was the increase in numbers due to a failing economy? Furthermore, does the increase in numbers signify a decline in perceptions of stigma?
Caution must be exercised in considering the debate in the USA where cultural and societal attitudes differ, but some suggest the increase in bankruptcy filings in the 1980s and 1990s in the US could be explained by a decline in stigma.[78] That begs the question as to what drove the decline in stigma? One of the same writers posits that replacing the word “bankrupt” by the word “debtor” in the Bankruptcy Code 1978 helped “strip bankruptcy of its moral and emotional baggage”.[79]
The growth in numbers is explained by the Insolvency Service as being attributable to a large expansion of credit in the early to mid-2000s when personal insolvencies started to rise.[80] The same statistics indicate the number of personal insolvencies peaked in 2010, just after a large recession. From the period 2002 to 2012, bankruptcies exceeded IVAs, and since then IVAs have become more popular than bankruptcy.
Any argument that bankruptcy numbers increased because of changes made by the Enterprise Act is difficult to advance as is the argument that more people filed for bankruptcy because the stigma attaching to it was receding. More likely is the reason posited by the Insolvency Service that bankruptcy numbers started to rise because of easier access to credit. In addition to the survey results already cited,[81] another post Enterprise Act survey that took place in 2005, concluded emphatically that the perceptions of insolvent debtors of bankruptcy stigma remains “very strong” and further observes that “there is some work to be done in changing the perception of bankruptcy”.[82]
The Enterprise Act does not appear to have played much part in increasing bankruptcy numbers and has failed in the policy objective of reducing stigma. Increased bankruptcy numbers appear to be attributable to easier access to credit and recession. The facts that debtors still worry that they may go to prison[83] and that bankruptcy can affect some people’s ability to earn a living[84] add weight to the evidence that stigma remains a key characteristic of bankruptcy.
Bankruptcy numbers increased at a time when personal insolvency numbers increased across all debt solution options,[85] which is a further indication that the rise does not derive from changes made by the Act nor any reduction in stigma but merely from the increase in personal debt generally. One recent study shows that since IVAs overtook bankruptcies by number, the chief reason was the avoidance of stigma[86] notwithstanding the fact that an IVA will generally cost the debtor more money in contributions from income than bankruptcy.[87] Stigma is clearly a key driver when it comes to selecting a debt solution. Two academic writers make a distinction between stigma and pride and shame and point to their influence on the selection of debt solution.[88] The same writers also express concern that there is an insufficient level of impartiality in debt advice in instances where the debtor is seeking advice from a firm whose business is selling IVAs.[89] It is debatable whether debtors are choosing an IVA over bankruptcy for fear of stigma or because of improper advice.
What more could the Enterprise Act have done to reduce stigma?
On 6 April 2016, the bankruptcy application process changed, removing the need to file a petition at court. Applications for bankruptcy are now made online and considered by an Adjudicator from the Insolvency Service.[90] There can be little doubt that the granting of bankruptcy orders being a court-driven process added to the stigma felt by bankrupts. This is a point made by the Insolvency Service who said of the new application process prior to its introduction, “any delays involved in having a petition heard at court would be removed, as would the stigma of attending hearings for the debtor, thus improving the accessibility of bankruptcy”.[91] Nevertheless, Chief Bankruptcy Registrar, Baister considered that placing adjudication in the hands of a civil servant was “preposterous” and that making an order involves discretion and discretion should only be exercised by a judge. He further noted a conflict of the adjudicator being in the same agency as the Official Receiver.[92] Given that a key intention common to changes to the bankruptcy application process and the Enterprise Act before it was to reduce stigma, it is surprising that consideration was not given to changing the bankruptcy application process within the Act.
One might wonder whether Registrar Baister’s rationale could be extended to the consideration of who is an honest bankrupt and who isn’t. That remains the responsibility of the Official Receiver as part of his enquiries into a bankrupt’s affairs. Perhaps that is also a matter of discretion that should only be exercised by a Judge.
Maybe consideration should have been given to further enhancing and defining the difference between “good” and “bad” bankruptcies by adopting the approach suggested by Sir Kenneth Cork more than a decade prior. Reserving bankruptcy only for the more serious cases and creating alternative debt solutions under an entirely different name would have helped eradicate the stigma of bankruptcy for most debtors. That could be facilitated at the application stage and accord with the rationale of a judge making the decision and not the Official Receiver. That approach would involve a deeper court involvement in the personal insolvency application process with all the inherent costs and time that would involve. The case for further burdening the court system with additional responsibilities in personal insolvency cases is a difficult one to advance but might be necessary for a successful honest and dishonest debtor regime. It is suggested that making a clear distinction between fraudulent and non-fraudulent bankruptcies will improve the attitudes of third parties to the honest debtor and reduce stigma.[93] Those third parties include lenders, employers and professional bodies who presently stigmatise honest bankrupts through their policies.
Removing the bankruptcy “tag” for honest debtors and having a procedure with a different name would certainly be a positive change. Even more would need to be done because the various restrictions and disqualifications are applied both within and outside of insolvency legislation. A lot of coordinated effort would be required by third-party organisations to start lifting these stigmatising limitations against honest debtors.
It is evident that to some extent, it is within the word “bankrupt” itself that the stigma lies. The word invokes an emotive response. Those not subject to bankruptcy but dealing with their insolvency by other means avoid the stigma. In a similar spirit, licensed insolvency practitioners have largely moved away from describing their businesses as that of insolvency practitioners and describe their activities under various guises such as “corporate recovery”, “business rescue”, “restructuring”.[94] The intent being to put a more positive spin on their activities and perhaps instil less fear in troubled businesses approaching them for assistance. Insolvent and honest personal debtors could also benefit from having their affairs dealt with under a different guise.
Chapter 4
A Second Chance
Introduction
In terms of bankruptcy, at the heart of the objectives underpinning the Enterprise Act lies the principle of a fresh start for honest failures, on the basis that “honest failure is an inevitable part of a dynamic market economy”.[95]
The opportunity of a “second chance” means the opportunity to try again and with the backing of government through legislative change whose purpose is to promote entrepreneurial activity. In turn, such activity contributes positively to the economy.
The government saw an early discharge from bankruptcy as being a key part of the strategy. In fact, the whole notion of rehabilitation and a fresh start turns on the legal effects that discharge from bankruptcy have.
It has already been seen that evidence points towards an early discharge failing to meet the objective of reducing stigma[96] and similarly it will be seen that notwithstanding discharge from bankruptcy in one year[97], barriers remain in the way of discharged bankrupts who have failed honestly and desire a fresh start.
Discharge from bankruptcy
The legal effects of discharge from bankruptcy are twofold. The release of the debtor from pre-bankruptcy debts[98] (with some exclusions for fraudulent and non-provable debts[99]) and the lifting of restrictions and disqualifications that bankruptcy imposes unless he is subject to a Bankruptcy Restrictions Order (“BRO”) or Agreement (“BRA”).[100] Discharge does not release the trustee from the performance of his duties, including the realisation of assets[101] and the bankrupt remains obligated to cooperate with his trustee after discharge.[102] Indeed the consequences for non-cooperation can be serious and may place the bankrupt in contempt of court[103] which can result in a custodial sentence.[104] Therefore, discharge does not necessarily mean that the discharged bankrupt is completely free and clear of his bankruptcy and all its effects. In addition, he may be subject to an Income Payment Order (“IPO”) or Agreement (“IPA”) lasting 3 years, also introduced under the Act.[105] Whilst bankrupts could be required to make income payments prior to the Act, the Act reinforced this requirement on the basis that “those who can pay should pay”.[106] They could be seen to be impediments to the fresh start desired by the Act. It would not be appropriate to suggest that these impediments should be lifted so that a fresh start is more completely facilitated but it will only be debtors with no assets nor surplus income that will enjoy a more unfettered fresh start after only one year. It will be seen later on, even those discharged bankrupts have obstacles standing in their way.
One observer points out that in one sense, nothing has changed from discharge prior to the Enterprise Act. Discharge does not depend on debtor’s conduct. Honest and dishonest debtors alike receive discharge after one year. Any wrong-doing by a debtor that gives rise to bankruptcy restrictions does not give grounds for stopping automatic discharge.[107] Grounds upon which a debtor could have his automatic discharge suspended are limited to the end of a specified period being reached or the fulfilment of a specific condition.[108] Prior to the Act, debtors would be discharged in the same way and could only have discharge stopped in the same way. Dishonesty is dealt with only by way of bankruptcy restrictions post-discharge and not by way of any different treatment in the discharge process.[109] Therefore the only aspect that has changed is the reduction in the bankruptcy period from three years to one.
Rise in bankruptcies and reduction in bankruptcy period
As with the discussion about a link between a reduction in stigma and a rise in bankruptcy numbers[110], there is a similar debate about whether an earlier bankruptcy discharge led to the surge in bankruptcy orders post-Enterprise Act or whether there are other influences at play such as easy access to credit. An argument has been advanced that a more lenient bankruptcy discharge policy encourages more responsible lending. The argument is that lenders would not wish to encumber a debtor with a liability he can escape from with ease. It encourages more responsible lending to minimise that risk.[111] That argument is at odds with one that points to easier access to credit leading to a rise in bankruptcy numbers and suggests that there are other reasons.
The weakness in the argument that a quicker discharge has led to increased bankruptcy numbers is the similar increase in IVAs over the same period, noted in chapter three[112] and therefore the counter-argument points to easier access to credit being the main driver. Again, as noted in chapter three[113], that is also the conclusion of the Insolvency Service. The fact that the surge in bankruptcies occurred at the same time as the Enterprise Act coming into effect appears to be coincidental. Furthermore, an Insolvency Service survey of bankrupts in 2006 found that only 16 per cent of post-Enterprise Act bankrupts knew of the changes in law and were influenced by an earlier discharge.[114]
The argument cannot be left there. What has motivated insolvent EU citizens to strategically plan a move to England or Wales to file their bankruptcy petitions? The suggestion is that early discharge is a key attraction, but it appears to be only one of many factors attributable to the phenomenon known as “forum shopping or “bankruptcy tourism”.[115] Generally, England and Wales are seen as debtor-friendly compared to more punitive insolvency regimes elsewhere in the EU and it is inescapable that given discharge in some other countries isn’t even automatic, let alone after only a year,[116] the early, automatic discharge has acted as a lure to some EU citizens.
The end of the early discharge
The possibility of discharge in less than a year as provided for under the Insolvency Act 1986 s279(2) was subsequently repealed.[117] Given the centrality of the reduction in the bankruptcy period to the government’s desire to promote rehabilitation and a fresh start, it is a curiosity to make a legislative change to abolish it. The Insolvency Service gave two reasons for it being abolished: that it failed to meet the objective of promoting early rehabilitation of honest bankrupts and that it imposed an unsustainable financial and administrative burden on the Insolvency Service.[118] This provides an insight into how the Insolvency Service perceived the effect of early discharge four years after the implementation of the Enterprise Act, albeit the assessment relates specifically to discharge in less than one year. Further insight is provided, and the Insolvency Service conceded that any benefit in discharge is negated by the fact that discharged bankrupts will continue to have problems accessing credit,[119] notwithstanding the lifting of the legal restriction on borrowing by the discharge.[120] Also, according to the Insolvency Service’s own data analysis, only 0.5% of employed bankrupts were in employment that might be affected by bankruptcy and therefore the impact of an early discharge on employment was negligible.[121]
Access to credit and financial products, post-bankruptcy
Even the Insolvency Service accepts that access to credit and banking products remains difficult for bankrupts, post-discharge and in any assessment of the merits of a fresh start for discharged bankrupts, access to credit and bank accounts will be seen as a considerable obstacle to rehabilitation.
It is suggested that the government’s efforts to differentiate between honest and dishonest bankrupts within the Enterprise Act intended to signal that differential to the credit markets.[122] BROs and BRAs were to be added to the Bankruptcy Restrictions Register[123], being a separate register to the Individual Insolvency Register that lists all bankruptcies, IVAs and Debt Relief Orders[124]. Discharged bankrupts have their entries from the register removed automatically three months after discharge.[125] The argument is that removal from the register of discharged bankrupts and the registration of bankruptcy restrictions on a separate register invites credit providers to “adjust their lending practices so as not to tar all bankrupts with the same brush”.[126] One problem is apparent from an inspection of the registers online and that is that whilst the registers are said to be two distinct registers, the search function is one unified search, indicating no register differential at all in practical terms to the user.[127] The separation of the two is not distinct enough. Furthermore, the Insolvency Service concedes that access to the financial markets for discharged bankrupts has not improved because credit providers have not amended their policies or adopted different policies towards honest bankrupts, discharged after one year and not subject to any ongoing restrictions.[128] The Insolvency Service’s reaction to these findings was to plan to engage with lenders and credit reference agencies and to carry out surveys to learn more about attitudes to bankruptcy.[129] In fact, it is not just credit facilities that discharged bankrupts struggled to obtain; around 84 per cent found it difficult to obtain bank accounts.[130]
One must not lose sight of the central aim of the Act- to promote enterprise and give failed debtors a second chance. Without access to such a basic financial tool as a bank account, receiving payment from customers and paying suppliers would not be easy. The good news for both discharged and undischarged bankrupts is that since 2016, most mainstream high street banks have launched basic bank accounts that are easy to open and do not require a credit check. This step forward for bankrupts derives from a Treasury initiative that resulted in The Payment Accounts Regulations 2015,[131] requiring the nine largest personal current account providers to offer fee-free basic bank accounts. The accounts exclude the provision of credit by way of overdraft[132] but at least one obstacle to a fresh start has been removed.
There is a suggestion that the attempt to differentiate between honest debtors discharged restriction-free after one year and dishonest debtors subject to ongoing restrictions lacks credibility in the eyes of lenders.[133] In Official Receiver v Randhawa,[134] the court found that an element of culpability or irresponsibility would usually need to be demonstrated for a BRO to be granted. The suggestion is that if lenders see bankruptcy restrictions only as a measure of risk prevention, then whether a bankrupt is dishonest, or irresponsible or not is irrelevant. All the lender is interested in is the likelihood of being paid back.[135] In essence, lenders continue to tar all bankrupts with the same brush. Whether they are honest or dishonest, in the eyes of the lender there remains the same risk of not being paid back. It is difficult to see how government policy or legislation can resolve this issue when the attitudes of post-bankruptcy lenders are deep-ingrained and based upon perceptions of risk, not on their culpability or otherwise.
Where lenders adopt a different strategy that inevitably results in the perceived lending risk being priced into the credit product. Some credit providers target their products at borrowers with poor credit ratings.[136] Therefore, discharged bankrupts who seek out such products have their fresh start impacted by higher borrowing costs.
There is a balancing act for the government which it has found hard to strike. The fresh start desired by the Act requires the cooperation of the credit market which sees lending to discharged bankrupts as high risk and yet at the same time the government is keen to discourage and indeed legislate against irresponsible lending.[137]
It is difficult to see what steps can be taken to bring the fresh start seeking, post-bankruptcy debtor back into the credit environment that satisfies both parties. The Insolvency Service considered the role of financial education in providing a fresh start[138] and found a lack of support for the initiative. Notably, in Scotland, the legislation provides for it and debtors can be obligated to attend a “financial education course”.[139] The aims of such initiatives are to reduce the chance of debtors making the same mistakes and becoming over-indebted again. It begs the question as to how well received such an initiative would be by lenders to whom discharged debtors seek financing for a fresh start. One academic suggests that lenders could issue borrowers with a “Code of Good Financial Behaviour” which borrowers would be required to sign and confirm they have read. For discharged bankrupts, requirement could be made for them to attend a “Credit Responsibility Day” to help prevent them running into debt problems again.[140] Given the lack of support found by the Insolvency Service, it appears unlikely that these ideas will be implemented anytime soon.
Credit Report and Credit Reference Agencies
It is clear that rehabilitation and a fresh start rely on the discharged bankrupt being free from his debts, and also free from all the effects of bankruptcy. The debtor needs to be free of the stigma, free of restrictions, free of his responsibilities to the Trustee and have access to the credit market. Only then can the debtor truly enjoy a fresh start.
A fresh start is further hampered by the ongoing post-bankruptcy effects of credit reporting to and by credit reference agencies (“CRAs”) and the registration of county court judgments (“CCJs”) at Registry Trust.[141]
The reporting of credit information and registration of CCJs play a key role in the ongoing problems discharged debtors have in rebuilding their creditworthy status and accessing credit products that would aid a fresh start and the main problem is the length of time debt default data, bankruptcy orders and CCJs remain on the databases.
Bankruptcy orders and default data remains on the files of the CRAs for six years.[142] Registry Trust records CCJs and bankruptcy orders for the same period.[143] The purpose of the register and credit reference files is to inform prospective lenders so that they can make lending decisions but the length of time the data is kept on record stands squarely in the way of a discharged bankrupt getting his desired fresh start.
It is not only the Individual Insolvency Register that records BROs and BRAs. They are also recorded by the CRAs. Whilst the purpose of the orders and agreements is to help separate the “good” bankrupt from the “bad”, it has already been seen that lenders have not responded to such a differentiation by way of any change in lending policy to the honest discharged bankrupt, because lending models are risk-based, not honesty-based. Therefore, the desired function of BROs and BRAs being recorded by the CRAs falls short of being wholly achieved if ultimately lenders are failing to make that differentiation between good and bad bankrupts.
The credit report plays another role in inhibiting a fresh start. If the debtor elects for a fresh start via employment rather than self-employment, he may find himself subject to a credit check by prospective employers.[144] Pre-employment credit checks are said to be becoming more prevalent.[145] At the very time a discharged bankrupt needs a fresh start, his endeavours to get one by way of employment or self-employment are hindered by a credit report or lack of access to credit.
The role of income payments in a fresh start
The underlying philosophy behind Income Payment Orders (“IPOs”) and Agreements (“IPAs”) under the Enterprise Act is that “those who can pay should pay”.[146] A debtor can consent to make payments from surplus income, usually for three years by way of an IPA[147] or be compelled by the court to do so under an IPO.[148] Such payments therefore extend beyond the date of discharge for the honest debtor. In real terms, the Enterprise Act provisions for income payments are no different to before except that IPAs are now formalised by the Act whilst previously they were made through practice as an alternative to a court order.
The law will always have to strike a balance between maximising a return to creditors and facilitating a fresh start for discharged bankrupts but the imposition of a payment regime that carries on for three years and may have only been put in place just prior to discharge, certainly has the effect of prejudicing the discharged bankrupt’s fresh start. In fact, that might even happen with no benefit to creditors. In Official Receiver v Negus,[149] the court found that an IPO should be granted even if the income payments would not likely result in a return to creditors and that it was no less appropriate that the payments were used to meet the costs of the bankruptcy administration and that in any event, such costs rank ahead of creditors’ claims. The ruling strikes at the heart of a fresh start, leaving the discharged bankrupt paying for his own bankruptcy at the expense of an early rehabilitation and seemingly prioritising the lowering of the cost of bankruptcy to the public purse above the policy of the bankrupt’s fresh start.
Concern has been expressed about the surplus income threshold above which income payments are calculated. The Insolvency Act provision as amended by the Enterprise Act 2002 is silent on the point, saying only that the bankrupt’s income should not be reduced “below what appears to the court to be necessary for meeting the reasonable domestic needs of the bankrupt and his family”.[150] The practice adopted by the Official Receiver is to calculate surplus monthly income where it is over £20 and collect all surplus income above that threshold.[151] The concern is that the threshold is so low that it does not allow for any unexpected bills that might arise.[152] It is suggested that raising the threshold to £50 would provide a better balance between the interests of debtor and creditors.[153] It is a challenge to consider the taking of all surplus income above even £50 for three years as part of a fresh start policy that has as an objective the rehabilitation of a bankrupt that can once again contribute to the economy. A self-employed discharged bankrupt might be motivated to choose to limit his income for the duration of his IPO or IPA, in the knowledge that any increase in income will go to his trustee for the benefit of his bankrupt estate. Similarly, a discharged bankrupt in employment might be demotivated from working overtime knowing that it is ultimately of no personal financial benefit. These are two outcomes that leave the IPO and IPA considerably out of step with a policy of enterprise and a fresh start limiting the bankrupt’s contribution to the economy.
The cost of filing a bankruptcy petition/application
A debtor’s rehabilitation begins when bankruptcy commences because it is at that point that he enjoys protection from his creditors, leaving him safe from enforcement action.[154] For the debtor making his own application seeking that protection and rehabilitation, the costs involved in filing a bankruptcy application (previously a petition) can be a barrier to obtaining that relief. A deposit of £550 and an adjudication fee of £130 are payable at the application stage. Whilst the fees can be paid in instalments, the application is not considered until the fees are paid in full.[155] The National Association of Citizens Advice Bureaux reported that its members’ indebted clients have been denied access to bankruptcy by the prohibitive costs.[156] A debtor’s attempt to challenge that her rights of access to the bankruptcy court were undermined by the bankruptcy deposit which she could not afford, failed on the basis that the deposit was not a prerequisite to access to the court, but a contribution towards the costs of administering her bankruptcy.[157] Whilst it is accepted that that is how the deposit is allocated and spent, it is also the case that the fee payable for a Debt Relief Order is only £90[158] and as will be seen in chapter five, there are numerous common elements between the two procedures with the implication of some similar administration costs. A debtor with no income or assets and whose debts are above the debt ceiling for a Debt Relief Order may also be denied access to the only solution for his situation. This barrier to debt relief also acts as a barrier to a fresh start.[159]
Enterprise Act and the Family Home
It could be argued that the Act helped facilitate a fresh start for bankrupts in relation to the family home by providing certainty as to the timescale in which the bankrupt’s interest would be realised. Like with any other property (subject to some exceptions[160]), the bankrupt’s interest in the family home forms part of the bankrupt estate[161] and is required to be realised for the benefit of creditors.[162] The Act added two new sections to the Insolvency Act affecting the realisation of the bankrupt’s interest in the family home. An unrealised interest revests in the bankrupt after three years which helps solves the problem of an unrealised interest continuing to form part of the bankrupt estate indefinitely. Previously this gave rise to the possibility of an interest being realised many years after bankruptcy commenced and the bankrupt estate benefitting from a rising property market. There is even the suggestion that trustees might deliberately delay realising their interest by speculating on a rising market.[163] A bankrupt now knows that his family home situation will have been resolved within three years maximum.
Further protection for bankrupts and their families is given for properties with equity of less than £1,000[164] and any application for an order for possession or sale of such low-value property interests would be dismissed.[165] These measures help bankrupts and their families plan their futures with more certainty and thereby contribute to a fresh start.
Whilst these provisions are good news for the rehabilitation-seeking discharged bankrupt, there remains one potentially disruptive element in some instances. If the trustee has been unable to realise his interest within three years, he may take steps to secure for the interest by way of a charge.[166] The value of the charge is determined at the date of the order[167] which means that any rise in the future value of the property will be to the benefit of the bankrupt and not the bankrupt estate, albeit the charge will be subject to the accrual of interest at the prescribed rate.[168] The effect in such instances is that the bankrupt and family remain in a state of uncertainty. Hence, on one hand, the spirit of the fresh start for bankrupts is given by the three-year realisation rule, and on the other hand, potentially inhibited by the prospect of a charge on the property to secure the interest. Nevertheless, it is suggested[169] that the circumstances in which such an event arises are likely to be limited to where a trustee has insufficient funds to fight a contested application for possession and sale or where such an application is likely to fail due to exceptional circumstances.[170]
Social Aspects and Public Interest
Any consideration of the bankrupt’s fresh start and the balancing of interests cannot be limited only to the debtor and his creditors. The Cork Report recognised the wider importance of the public interest, noting “Insolvency proceedings have never been treated in English law as an exclusively private matter between the debtor and his creditors; the community itself has always been recognised as having an important interest in them.[171] It has been said that both lenders and society generally would lose “faith in a system which fails to facilitate the payment by debtors of legitimate debts”.[172] Just as the law tries to balance the interests of all parties, so too must society because society must also acknowledge and have tolerance for the debtor’s right to a fresh start and that means accepting a legal framework that allows a debtor relief from debts incurred in an honourable manner and which he is now unable to pay through no fault of his own. It is argued that this is a “humanitarian concern of a developed and caring society” that also allows for a debtor to regain self-respect.[173] Ultimately, what is in the interests of the debtor is also in the interests of society in this respect and aligns well with the policy objective of giving a debtor a fresh start so that he once more is able to make an economically productive contribution to society through his future endeavours.
Chapter 5
Alternatives to Bankruptcy
Introduction
It has been seen how debtors might be motivated to select other debt solutions if they are concerned about the consequences of bankruptcy for their employment, their professional status or because of perceived stigma.[174] The Enterprise Act produced just one possible new alternative, the Fast Track IVA[175], and post-Enterprise Act, the Debt Relief Order was introduced in 2009.
Fast- track IVA
When the Insolvency Service published its “second chance” report,[176] details were included of what were described as “post-bankruptcy individual voluntary arrangements”[177] which would allow for the Official Receiver to act as Nominee and Supervisor of IVAs for undischarged bankrupts. The rationale was not framed in terms of another alternative for a fresh start but more in terms of cost savings on fees and better returns to creditors.[178]
The procedure was introduced as the fast-track voluntary arrangement.[179] It has not proved to be successful which is likely because of IVAs being so well known by debtors through widespread advertising campaigns that they would have already considered an IVA prior to filing for bankruptcy.[180] Furthermore, it has been posited that it would be difficult to persuade a debtor that a fast-track IVA is better for his fresh start endeavours when he will be discharged from his bankruptcy after only one year.[181] Indeed, because of the lack of take-up and the overall failure of the fast-track IVA, they were abolished in May 2015.[182]
IVAs were introduced by the Insolvency Act 1986[183] and whilst it was seen in chapter three how their popularity increased in the mid-2000s, they can be difficult for the enterprising debtor seeking a fresh start because of the lengthy monthly payment regime. The law does not provide for a standard time period for an IVA, but it is typically five years.[184] With contributions from income usually forming a key part of the arrangement, it can be difficult for a self-employed debtor to make consistent contributions from an inconsistent income. Perhaps unsurprisingly, therefore, it is consumer debtors with employment income that are most attracted to IVAs,[185] not the fresh start seeking entrepreneur. Further critique of IVAs is beyond the scope of this paper but the five-year period of an IVA compared to a three-year payment regime under bankruptcy, certainly impacts upon both the consumer debtor and entrepreneurial debtor’s ability to rehabilitate and find a fresh start quickly. Importantly for some though, a debtor does not suffer the restrictions of bankruptcy and could therefore also be a company director or take part in the management of a company.
Debt Relief Orders
Debt Relief Orders (“DROs”) do not find their origins in the Act and were introduced subsequently in 2009 by the Tribunals, Courts and Enforcement Act 2007.[186] The intention of the government was to introduce an alternative solution for debtors with no income or assets to ensure that those debtors who would be excluded from other debt solutions had a way of dealing with their debts.[187] The granting of orders and administration of cases is dealt with by the Insolvency Service but with less cost to the debtor and without the involvement of the court.
DROs cost only £90[188] to set up and whilst they offer a more simple and cheaper alternative to bankruptcy, the criteria for qualifying for them is strict and therefore exclude access to any debtor not meeting all criteria. In summary, revised conditions from October 2015 mean that debtors must have debts of no more than £20,000, less than £1,000 in assets and less than £50 monthly surplus income.[189]
This route to a fresh start could potentially be cheap and quick leaving the debtor debt-free after twelve months.[190] However, some features of DROs are not dissimilar to bankruptcy and indicate that the process possesses serious underlying characteristics with possibly major consequences. The debtor has a duty to cooperate with the Official Receiver,[191] he could be made subject to an investigation[192] and be subject to a debt relief restrictions order or undertaking with similar restrictions to a BRO or BRA.[193]
Even an honest debtor seeking a fresh start after one year, by way of a DRO can encounter problems with employment and possibly self-employment. An array of legislation and regulation may prevent the honest debtor from earning a living during the currency of the DRO in just the same way as in bankruptcy. For example, the holder of a goods vehicle operator’s license is treated the same as an undischarged bankrupt and may have his license “revoked, suspended or curtailed”.[194] Nor may somebody subject to a DRO engage in the work of an estate agent except as an employee.[195] These various features common to both bankruptcy and DROs offer the seeker of a fresh start little extra as an advantage in a DRO beyond the avoidance of the tag and stigma of bankruptcy. In a practical sense, the only advantage is that the price of entry into a DRO is lower.
Chapter 6
Observations from Other Countries
Politicians and legislators turn their attention to the USA (and elsewhere), to examine the way in which a well-established, entrepreneur-friendly insolvency system operates and to see if anything can be learned and imported into the English legal system.
Caution must be exercised when considering a wholesale or even partial adoption of other countries’ laws and systems because differences in culture, social attitudes, and political imperatives might be substantially different. In the words of one legal academic, “any attempt to use a pattern of law outside the environment of its origin continues to entail the risk of rejection”.[196]
Education/Debt Counselling
It has already been noted that Scotland’s insolvency law provides for a financial education course for bankrupts. Canada has similar provisions which are mandatory for personal bankrupts[197] and failure to attend and complete the course of counselling results in the loss of automatic discharge.[198] If such a strategy of post-bankruptcy financial education is to prevent a second bankruptcy then it certainly might help facilitate a fresh start and aid rehabilitation. The strategy pre-supposes that bankruptcy results from a lack of knowledge or financial awareness and has no regard for the victim of misfortune or other external factors that might have contributed to their insolvency. In effect, the law signals to all bankrupts that they have failed because they lacked sufficient knowledge to manage their financial affairs and that they cannot be discharged from their bankruptcy until they have learned their lesson. The Canadian counselling model consists of just two sessions.[199] Counselling also operates in the US where debtors can only file for bankruptcy if they agree to credit counselling.[200] Therefore the principle of post-bankruptcy credit counselling finds favour in numerous jurisdictions notwithstanding the fact that all debtors must comply even if their insolvency results from reasons other than irresponsible borrowing or lack of financial education. If education is to play a role in reducing bankruptcies, perhaps it needs to do so much sooner as part of a policy of financial literacy in schools.[201]
Post-bankruptcy credit
In England and Wales, the debtor’s fresh start is hampered by access to the credit market.[202] In the USA there is evidence of a different attitude amongst lenders. There is a suggestion that because US law prohibits more than one bankruptcy discharge in eight years,[203] lenders feel more comfortable knowing that they will not be prevented from collection by another bankruptcy and ultimately, the risk of non-payment is therefore lower.[204] It is of note that as a result of the Enterprise Act, English law made a shift in the opposite direction and debtors made bankrupt for the second time are entitled to an automatic discharge in just the same way as for a first bankruptcy.[205] In effect, an honest failure can be rewarded with an automatic discharge and fresh start after one year, not just once but more than once. Prior to the Act, debtors made bankrupt within a 15-year period since a first bankruptcy were not entitled to an automatic discharge.[206] The question is, would UK lenders adopt the same lending policy if the discharge policy mirrored that in the US? One might suggest that would be unlikely because of fundamentally different attitudes to risk and lending policies. US lenders appear to see discharged bankrupts as a new, profitable client-base for whom new borrowings cannot be washed away in another bankruptcy, whereas UK lenders see discharged bankrupts as a poor risk.
The family home
Certainty about how and when the family home will be dealt with is crucial for the fresh start seeking discharged bankrupt. In England and Wales, the whole of a bankrupt’s assets comprises his bankrupt estate[207] with only a small number of exemptions.[208] Therefore the whole of the debtor’s interest in the family home is comprised in his estate subject only to the rights of other parties, such as secured creditors.[209] In the USA however, debtors may elect either under state law or federal law to exempt a range of assets[210] Locally enacted state laws have led to an opting out of allowing for that choice under federal law and hence generally it is state law that prevails.[211] In the US, the exemption system is seen as “pivotal to the individual fresh start in bankruptcy”[212] and acts as a strong indicator of a more debtor-friendly bankruptcy regime.
The exemptions include the “homestead exemption.” For example, under Federal law, a bankrupt can exempt $23,675 of equity in his primary residence.[213] Even if bankruptcy results in the debtor losing his home, he is afforded the protection of the first $23,675 of equity which remains his. The benefit is a fresh start enhanced by the exempted equity in contrast with English law where a bankrupt might lose his home and receive nothing to aid his rehabilitation and fresh start. At state level, there are wide differences in exemption levels. For example, in Florida, a debtor can exempt the whole of his primary residence for unlimited value, subject to some length of residency requirements and property size.[214]
The difference between the treatment of the family home in the US and England and Wales could barely be more different. English law provides only for the interests of the family outweighing that of creditors in the 12 months following bankruptcy and thereafter the interests of creditors shall prevail.[215] A court would then find in favour of a trustee in bankruptcy seeking an order for possession and sale. Thereafter, the bankrupt and his family have only the certainty of the property being dealt with within three years of bankruptcy with no equity preservation for the bankrupt.[216]
The English approach showcases very well the balance that the law tries to find between the interests of bankrupts and creditors, whereas the US approach indicates a more favourable approach to the bankrupt and his family than creditors. There is evidence of there being a notable consequence in states with high exemption rates. Credit is more difficult and more expensive to obtain in those states,[217] which suggests that creditors are factoring into their lending policies that they will have poor access to debtors’ assets upon default.
Whilst the exemption of the family home from the bankrupt estate in the US helps with the rehabilitation process, it is a challenge to see such a policy adopted under English law where the law strives to balance the interests of debtors and creditors. It is inescapable also that there could potentially be a negative impact on the lending market in the UK if such a radical shift in insolvency policy-making was adopted. Ultimately, the US exemption laws as they relate to the family home, are a fine illustration of the difficulties that can be encountered in transplanting the laws of one country into another.
Chapter 7
Conclusions
The objectives of destigmatising bankruptcy for honest debtors and of promoting a fresh start in a spirit of enterprise have for the most part failed. Even the Insolvency Service has conceded numerous shortcomings in that regard.[218]
Given the deep-rooted nature of stigma that has existed and suffered by bankrupts for centuries, it is proving difficult to shake off despite the best intentions of government. Whilst bankrupts are no longer viewed as being criminally dishonest by default in the eyes of the law and society, there remains the problem of the law not discriminating sufficiently between honest and dishonest debtors.
Stigma comes at a price. Most crucially, it stands in the way of a fresh start because post-bankruptcy lenders treat all bankrupts the same way. Measures to overcome this by the separation of the individual insolvency register from the BRO and BRA register are inadequate. Stigma also means that debtors may choose the wrong debt solution purely to avoid the stigma of bankruptcy.
The key to reducing stigma lies in reducing the number of people being made bankrupt by way of a personal insolvency regime that separates dishonest and honest debtors with unambiguous clarity. Dishonest debtors would be made bankrupt and be subject to the restrictions and disqualifications that bankruptcy entails, whilst honest failed debtors would be subject to a rehabilitative regime that provides for early discharge and few restrictions, and all under a differently named system. This should be central to the next insolvency reform agenda. The separation of the two different types of debtors may best be dealt with at the adjudication stage but it is challenging to embrace the idea of a reinvolvement of the court in the application process that would see the court not only assessing whether a debtor is insolvent but also whether they became insolvent in an honest or dishonest manner. The removal of the court from the application process in 2016 made bankruptcy more easily accessible for debtors but one wonders whether the lack of judicial discretion spoken of by the chief bankruptcy registrar, means that some debtors might be entering into bankruptcy inappropriately.
Dividing debtors into honest and dishonest categories would help deal with stigma but what about the fresh start? An alternative division of consumer and “entrepreneur bankrupts” has been suggested[219] but the changing nature of the workforce and the “gig economy” makes such a division difficult to establish when the self-employed are often little different to employees.[220]
An earlier discharge appears to be a progressive move yet in practical terms it offers the discharged bankrupt little benefit in terms of making a fresh start because of the number of obstacles remaining in the way. Access to credit is not only difficult because of the risk-based approach of lenders but also because of credit reference agencies keeping data on file for six years- long after a debtor’s bankruptcy discharge. Furthermore, pre-employment credit checks are becoming more common and debts discharged by the bankruptcy remain on file and present a threat to employment prospects.
Income payments present multiple barriers to a fresh start. Bankrupts are left with little room to manoeuvre for three years with such a low surplus income threshold and disincentivised from improving their income through employment or self-employment, thereby limiting the debtor’s contribution to the economy either way.
There is better news in terms of the family home as the bankrupt and his family are afforded some certainty as to the time period in which it must be dealt with. Even if the property interest is not disposed of within three years and secured for by way of a charging order, the bankrupt benefits from any future growth in value and not the bankrupt estate.
Alternatives to bankruptcy might be attractive to debtors concerned by stigma but the fast-track IVA born out of the Enterprise Act proved unsuccessful and was abolished. Debt Relief Orders, introduced subsequently, are quick and inexpensive to set up but the strict qualification criteria exclude many debtors and carry common features and consequences to bankruptcy.
Finding solutions to a better destigmatised fresh start overseas is not easy. Educational programmes targeted at improving the financial savvy of bankrupts so that they do not make the same mistakes again have no regard for bankrupts becoming insolvent for reasons other than financial mismanagement.
Lending policies and attitudes are radically different in the US and it is difficult to see a change in attitude in England and Wales without a clearer delineation between honest and dishonest debtors.
English law does not have anything like a homestead exemption and in any event, there is evidence that the protection of assets in this way impacts upon the credit market which plays such a large role in the UK economy.
Table of Cases
Fowler v Padget (1798) 7 Term Reports 509 101 ER 1103
Hayes v Hayes [2012] EWHC 1240 Ch, [2012] BPIR 739
Lightfoot v Lord Chancellor [2000] QB 597, [2000] 2 WLR 318
Official Receiver v Negus [2011] EWHC 3719 (Ch), [2012] 1 WLR 1598
Official Receiver v Randhawa [2006] EWHC 2946 (Ch), [2007] 1 WLR 1700
Oraki v Dean and Dean [2013] EWCA Civ 1629, [2017] Bus LR 545
Simmonds v Pearce [2017] EWHC 3126 (Admin), [2018] 1 WLR 1849
Table of Legislation: UK
1 Jac 1 c 15 s V 1604
Bankruptcy Act 1820, 1 Geo 4 c 115
Company Directors Disqualification Act 1986
Debtors Act 1869, 32 and 33 Vict
Enterprise Act 2002
Enterprise and Regulatory Reform Act 2013
Estate Agents Act 1979
Fraudulent Bankrupts Act, 1705, 4 & 5 Anne c 4
Goods Vehicles (Licensing of Operators) Act 1995
Insolvency Act 1976
Insolvency Act 1986
Small Business Enterprise and Employment Act 2015
Statute of Bankrupts Act, 1542, 34 & 35 Henry VIII, c4
Statute of Merchants 1285, 13 Edward 1
The Fraudulent Conveyances Act 1571 13 Eliz 1, c 5
Table of Legislation: Other Jurisdictions
Canada
Bankruptcy and Insolvency Act 1985
Ireland
Bankruptcy Act 1988
Personal Insolvency Act 2012
Scotland
Bankruptcy (Scotland) Act 2016
USA
11 US Code
Florida Statutes, Title XV, and Constitution of State of Florida, Article X
Table of Statutory Instruments
Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004 (SI 2004/547)
Insolvency Proceedings (Monetary Limits) (Amendment) Order 2009 (SI 2009/465)
Insolvency Rules 2016
Insolvency (Amendment) Rules 2009
The Insolvency Proceedings (Fees) Order 2016
The Payment Accounts Regulations 2015
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Porter K, ‘Bankrupt Profits: The Credit Industry’s Business Model for Postbankruptcy Lending’ (2008) 93 Iowa Law Review 1369
Ramsay I, ‘Towards an International Paradigm of Personal Insolvency Law? A Critical View’ (2017 17) QUT Law Review 15
Spooner J, ‘Recalling the Public Interest in Personal Insolvency Law: A Note on Professor Fletcher’s Foresight’ (2015) 3 NIBLeJ 29
Tribe J, ‘Personal insolvency law: debtor education, debtor advice and the credit
environment: Part 1’ (2007) Insolvency Intelligence
— ‘Discharge in bankruptcy: an examination of personal insolvency’s fresh start
function in English law’ (2012) 25 Insolvency Intelligence
— ‘Discharge in bankruptcy: an examination of personal insolvency’s fresh start function in insolvency law: Part Three’ (2013) Insolvency Intelligence
Walters A, ’Personal Insolvency Law After the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies
— and Smith A, ‘Bankruptcy Tourism under the EC Regulation on Insolvency Proceedings: a View from England and Wales’ (2010) 19 Int Insolv Rev 181
Weisberg R, ‘Commercial Morality, the Merchant Character, and the History of the Voidable Preference’ (1986) 39 Stan. L. Rev. 3
Zywicki TJ, ‘Institutions, Incentives and Consumer Bankruptcy Reform’ (2005) 62 Washington and Lee Law Review
Newspaper Articles
‘Baister lambasts Insolvency Service at IPA lecture’ Insolvency News (20 January 2012)
Other papers and Reports
Citizens’ Advice Bureau,’A life in debt-the profile of CAB debt clients in 2008’
Cork K, ‘Report of the Review Committee on insolvency law and practice’ (1982) Cmnd 8558 HMSO, London
Derbyshire Constabulary, ‘Unmanageable Debt Procedure’
European Commission, ‘Best Project on Restructuring, Bankruptcy and a Fresh Start-Final Report of the Expert Group’ (2003)
Experian, ‘Employment and credit checks’
Experian, ‘Your credit report and bankruptcy’ (2011)
Office of the Superintendent of Bankruptcy Canada, Directive no 1R4
Organisation for Economic Co-operation and Development, ‘Financial Education in Schools’ available at < https://www.oecd.org/finance/financial-education/FinEdSchool_web.pdf> accessed 13 July 2018
R3, ‘The Personal Insolvency Landscape-a way forward for formal debt relief’ (2014)
Tribe J, Centre for Insolvency Law and Policy, ’Bankruptcy Courts Survey 2005- A Pilot Study’ (Final Report, January 2006 Kingston Law School)
YouGov Omnibus Survey Results – KPMG (Bankruptcy) (2005)
Websites
Begbies Traynor < https://www.begbies-traynorgroup.com/> accessed 26 June 2018
ICAEW,’Chartered Accountants in financial difficulty’ < https://www.icaew.com/membership/support-throughout-your-career/support-members-scheme/information-sheets/chartered-accountants-in-financial-difficulty> accessed 29 June 2018
Insolvency Service, Individual Insolvency Register, available at < https://www.insolvencydirect.bis.gov.uk/eiir/> accessed 6 July 2018
Reed Global, ‘Five things you need to know about pre-employment credit checks’ available at https://www.reedglobal.com/blog/2018/01/five-things-you-need-to-know-about-pre-employment-credit-checks accessed 19 July 2018
Registry Trust,’Trust Online FAQs and help’ < https://www.trustonline.org.uk/ accessed 7 July 2018
Stepchange, ‘Can I go to prison for debt?’ < https://www.stepchange.org/debt-info/your-rights/can-you-go-to-prison-for-debt.aspx> accessed 25 June 2018
Vanquis < https://www.vanquis.co.uk/> accessed 7 July 2018
[1] David Milman, ‘Personal Insolvency Law and the Challenges of a Dynamic, Enterprise-Driven Economy’ (2008) 20 Singapore Academy of Law Journal 457
[2] The restrictions derive from numerous Acts, bye-laws and regulations and are not embodied in totality within the Insolvency Act 1986.
[3] Insolvency Act 1986, s 279(1)
[4] Statute of Bankrupts Act, 1542, 34 & 35 Henry VIII, c 4
[5] 13 Edward 1 s 3 c 1
[6] John Cannon, ‘The Oxford Companion to British History’ (2nd edn, Oxford University Press, 2015)
[7] ‘Statute of Bankrupts Act 1542, 34 & 35 Henry VIII
[8] Louis Edward Levinthal, ‘The Early History of English Bankruptcy’ (1919) 67 The University of Pennsylvania Law Review 1, 14
[9] The Fraudulent Conveyances Act 1571 13 Eliz 1, c 5
[10] Louis Edward Levinthal, ‘The Early History of English Bankruptcy’ (1919) 67 The University of Pennsylvania Law Review 1, 16
[11] 1 Jac 1 c 15 s V 1604
[12] Fraudulent Bankrupts Act 1705 4 & 5 Anne c 4
[13] A Bankruptcy Commissioner was, in effect, similar to a modern-day trustee in bankruptcy
[14] Fraudulent Bankrupts Act 1705, 4 & 5 Anne c 4 sec VIII
[15] Fowler v Padget (1798) 7 Term Reports 509 101 ER 1103
[16] Debtors Act 1869 32 and 33 Vict
[17] Andrew Keay, ‘Balancing interests in Bankruptcy Law’ [2001] Common Law World Review 206, 223
[18] Fraudulent Bankrupts Act 4 and 5 Anne c 4
[19] Emily Kadens, ‘The Last Bankrupt Hanged: Balancing Incentives in the Development of Bankruptcy Law’ (2010) 59 Duke Law Journal 1229
[20] Ibid 1231
[21] Ibid
[22] Bankruptcy Act 1820 1 Geo 4 c 115
[23] Debtors Act 1869 32 and 33 Vict 1 4(4)
[24] Kenneth Cork, ‘Report of the Review Committee on insolvency law and practice’ (1982) Cmnd 8558 HMSO, London 19
[25] HC Deb 19 March 1883 vol 277 cols 816-912
[26] MD Chalmers and E Hough, ‘Bankruptcy Act, 1883 with Introduction, Index and Brief Notes’ (Waterlow & Sons Limited 1883) vii
[27] HC Deb 19 March 1883 vol 277 cols 816-912
[28] Kenneth Cork, ‘Report of the Review Committee on insolvency law and practice’ (1982) Cmnd 8558 HMSO, London 20
[29] Insolvency Act 1976, s 7(4)
[30] n 11
[31] n 12
[32] Robert Weisberg, ‘Commercial Morality, the Merchant Character, and the History of the Voidable Preference’ (1986) 39 Stan L Rev 3, 6
[33] A common question asked of debt advisors.
Stepchange, ‘Can I go to prison for debt?’< https://www.stepchange.org/debt-info/your-rights/can-you-go-to-prison-for-debt.aspx> accessed 25 June 2018
[34] Erving Goffman, ‘Stigma: Notes on the Management of Spoiled Identity’ (First Touchstone edition, 1986, Simon & Schuster) 3
[35] Kenneth Cork, ‘Report of the Review Committee on insolvency law and practice’ (1982) Cmnd 8558 HMSO, London 235
[36] Ibid 133
[37] Ibid 446
[38] Ibid 448
[39] The Insolvency Service, ‘Insolvency-A Second Chance’ (CM 5234, The Stationery Office, 2001)
[40] Ibid
[41] Ibid 1.1
[42] Ibid 1.21
[43] Ibid 3.8
[44] Ibid 1.6
[45] Enterprise Act 2002, s 265
[46] Enterprise Act 2002, s 266
[47] Enterprise Act 2002, s 267
[48] Enterprise Act 2002, s 268
[49] European Commission, ‘Best Project on Restructuring, Bankruptcy and a Fresh Start-Final Report of the Expert Group’ (2003) 22
[50] Insolvency Act 1986, s 361
[51] Insolvency Act 1986, s 362
[52] Insolvency Act, 1986, schedule 4A
[53] Insolvency Act 1986, s 354
[54] Insolvency Act 1986, s 357
[55] Insolvency Act 1986, s 352
[56] Insolvency Act 1986, s 360
[57] Company Directors Disqualification Act 1986, s 11(2)(a)(i)
[58] Insolvency Act 1986, s 279(1)
[59] Insolvency Act 1986, s 279(2)
[60] Enterprise and Regulatory Reform Act 2013, s 73 and Sch 21
[61] John Tribe, ‘Discharge in bankruptcy: an examination of personal insolvency’s fresh start function in insolvency law: Part Three’ (2013) Insolvency Intelligence 26 (1) 8
[62] Insolvency Act 1986, s 310(6)(b) and s 310A(5)(b)
[63] Insolvency Service, ‘Enterprise Act 2002: Attitudes to Bankruptcy 2009 Update’ 16
[64] Insolvency Act 1986, s 283A
[65] [2013] EWCA Civ 1629, [2017] Bus LR 545
[66] [2012] EWHC 1240 Ch, [2012] BPIR 739
[67] YouGov Omnibus Survey Results – KPMG (Bankruptcy) (2005) https://d25d2506sfb94s.cloudfront.net/today_uk_import/YG-Archives-Fin-kpmg-Bankruptcy-050401.pdf accessed 29 June 2018
[68] The Insolvency Service, ‘Enterprise Act 2002- the Personal Insolvency Provisions: Final Evaluation Report November 2007’
[69] Rule 10.32
[70] Insolvency Rules 2016, rule 11.16
[71] Insolvency (Amendment) Rules 2009
[72] The Individual Insolvency Register is viewable and searchable at < https://www.insolvencydirect.bis.gov.uk/eiir/> accessed 29 June 2018
[73] The Insolvency Service, ‘Insolvency Statistics- January to March 2018(Q1 2018) 13
[74] For example, a bankrupt cannot act as a licensed insolvency practitioner, Insolvency Act 1986 s 390(4)(a)
[75] For example, members of the Institute of Chartered Accountants in England and Wales lose their membership automatically upon bankruptcy. ‘Chartered Accountants in Financial Difficulty’ < https://www.icaew.com/membership/support-throughout-your-career/support-members-scheme/information-sheets/chartered-accountants-in-financial-difficulty> accessed 29 June 2018
[76] Derbyshire Constabulary, ‘Unmanageable Debt Procedure’ available at < http://www.derbyshire.police.uk/Documents/About-Us/Freedom-of-Information/Policies/Unmanageable-Debt-Procedure.pdf> accessed 30 June 2018
[77] Ibid
[78] Edith H Jones and Todd J Zywicki, ‘It’s time for means-testing’ (1999) 1999 BYUL Rev 209
[79] Todd J Zywicki, ‘Institutions, Incentives and Consumer Bankruptcy Reform’ (2005) 62 Washington and Lee Law Review 1108
[80] The Insolvency Service, ‘Insolvency Statistics- January to March 2018(Q1 2018) 12
[81] n 67 and n 68
[82] John Tribe, Centre for Insolvency Law and Policy, ’Bankruptcy Courts Survey 2005- A Pilot Study’ (Final Report, January 2006 Kingston Law School)
[83] n 33
[84] n 74 and n 75
[85] The Insolvency Service, ‘Insolvency Statistics- January to March 2018(Q1 2018) 12
[86] Paul Bishop, ‘Spatial variations in personal insolvency choices: The role of stigma and social capital’ (2017) 54 Urban Studies Journal 3738
[87] An income payments order in bankruptcy normally lasts for three years, monthly payments are usually made in an IVA for five years
[88] Donna McKenzie and Adrian Walters, ‘Consumer Bankruptcy Law Reform in Great Britain’ (2006) 80 American Bankruptcy Law Journal 477, 515
[89] Ibid 497
[90] Enterprise and Regulatory Reform Act 2013, s 71 and schedules 18 and 19
[91] Insolvency Service ‘Reform of the process by which debtors apply for bankruptcy’ (Impact Assessment, 2012) Available at https://www.legislation.gov.uk/ukia/2012/93/pdfs/ukia_20120093_en.pdf accessed 1 July 2018
[92] ‘Baister lambasts Insolvency Service at IPA lecture’ Insolvency News (20 January 2012)
[93] European Commission, ‘Best Project on Restructuring, Bankruptcy and a Fresh Start-Final Report of the Expert Group’ (2003)
[94] For example, the homepage of insolvency practitioners, Begbies Traynor < https://www.begbies-traynorgroup.com/> accessed 26 June 2018
[95] The Insolvency Service, ‘Insolvency-A Second Chance’ (CM 5234, The Stationery Office, 2001)
[96] n 68
[97] Insolvency Act 1986, s 279(1)
[98] Insolvency Act 1986, s 281(1)
[99] Insolvency Act 1986, s281(3) and s281(6)
[100] Insolvency Act 1986, s 281A and schedule 4A
[101] Insolvency Act 1986, s 281(1)(a)
[102] Insolvency Act 1986, s 333(1) and s 333(3)
[103] Insolvency Act 1986, s 333(4)
[104] Simmonds v Pearce [2017] EWHC 3126 (Admin), [2018] 1 WLR 1849
[105] Insolvency Act 1986, s 310(6)(b) and s 310A(5)(b)
[106] The Insolvency Service, ‘Insolvency-A Second Chance’ (CM 5234, The Stationery Office, 2001) 4
[107] Adrian Walters, ’Personal Insolvency Law After the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies, 65, 77
[108] Insolvency Act 1986, s 279(3)
[109] Adrian Walters, ’Personal Insolvency Law After the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies, 65, 78
[110] pp19-21
[111] John Tribe, ‘Discharge in bankruptcy: an examination of personal insolvency’s fresh start
function in English law’ (2012) 25 Insolvency Intelligence 111
[112] p 21
[113] Text to n 80
[114] The Insolvency Service, ‘Enterprise Act 2002- the Personal Insolvency Provisions: Final Evaluation Report November 2007’ 55
[115] Adrian Walters and Anton Smith, ‘Bankruptcy Tourism under the EC Regulation on Insolvency Proceedings: a View from England and Wales’ (2010) 19 Int Insolv Rev 181
[116] Prior to the Personal Insolvency Act 2012, Irish bankrupts could not receive discharge until after being bankrupt for 12 years, under Bankruptcy Act 1988, s85
[117] n 60
[118] Impact Assessment no BIS0302, ‘Repeal of the early discharge from bankruptcy provision’ The Insolvency Service 10 February 2012 available at < http://www.legislation.gov.uk/ukia/2013/1054/pdfs/ukia_20131054_en.pdf> accessed 5 July 2018
[119] Ibid para 41
[120] Insolvency Act 1986 s 360
[121] Impact Assessment no BIS0302, ‘Repeal of the early discharge from bankruptcy provision’ The Insolvency Service 10 February 2012 para 45 available at < http://www.legislation.gov.uk/ukia/2013/1054/pdfs/ukia_20131054_en.pdf> accessed 5 July 2018
[122] Adrian Walters, ’Personal Insolvency Law After the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies, 65, 86
[123] Insolvency Rules 2016, r 11.13(2)
[124] Insolvency Rules 2016, r 11.13(1)
[125] Insolvency Rules 2016, r 11.17(b)
[126] Adrian Walters, ’Personal Insolvency Law After the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies, 65, 86
[127] Insolvency Service, Individual Insolvency Register, available at < https://www.insolvencydirect.bis.gov.uk/eiir/> accessed 6 July 2018
[128] Insolvency Service. ‘Enterprise Act 2002 – the Personal Insolvency Provisions: Final Evaluation Report November 2007 7
[129] Ibid 9
[130] Ibid 82
[131] S 22(1)
[132] S 19(5)
[133] Katharina Möser, ‘Restrictions after personal insolvency’ (2013) Journal of Business Law 697
[134] [2006] EWHC 2946 (Ch), [2007] 1 WLR 1700
[135] Katharina Möser, ‘Restrictions after personal insolvency’ (2013) Journal of Business Law 697
[136] Vanquis credit card for example < https://www.vanquis.co.uk/> accessed 7 July 2018
[137] Financial Conduct Authority, ’Financial Conduct Authority Handbook, CONC5’ available at https://www.handbook.fca.org.uk/handbook/CONC/5/?view=chapter accessed 7 July 2018
[138]The Insolvency Service,’ Bankruptcy-A Fresh Start’ DTI publication, April 2000, at paras 7.19-7.21
[139] Bankruptcy (Scotland) Act 2016, s 117
[140] John Tribe, ‘Personal insolvency law: debtor education, debtor advice and the credit
environment: Part 1’ (2007) Insolvency Intelligence 25
[141] The CCJ database is searchable at < https://www.trustonline.org.uk/ accessed 7 July 2018
[142] Experian, ‘Your credit report and bankruptcy’ (2011) available at https://www.experian.co.uk/assets/consumer/downloads/resources/bankruptcy-oct11.pdf accessed 7 July 2018
[143] Registry Trust, ‘Trust Online FAQs and help’, available at https://www.trustonline.org.uk/faqs-help accessed 7 July 2018
[144] Experian, ‘Employment and credit checks’ Available at https://www.experian.co.uk/consumer/guides/employment.html accessed 8 July 2018
[145] Reed Global, ‘Five things you need to know about pre-employment credit checks’ available at https://www.reedglobal.com/blog/2018/01/five-things-you-need-to-know-about-pre-employment-credit-checks accessed 19 July 2018
[146] The Insolvency Service, ‘Insolvency-A Second Chance’ (CM 5234, The Stationery Office, 2001) para 1.20
[147] Insolvency Act 1986, s 310A
[148] Insolvency Act 1986, s 310
[149] [2011] EWHC 3719 (Ch), [2012] 1 WLR 1598
[150] Insolvency Act 1986, s 310(2)
[151] Insolvency Service, Technical Manual, Chapter 31, Part 7 available at https://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch25-36/Chapter31/part7/part2/part_2.htm accessed 8 July 2018
[152] R3, ‘The Personal Insolvency Landscape-a way forward for formal debt relief’ (2014) 14, available at https://www.r3.org.uk/media/documents/policy/policy_papers/personal_insolvency/R3_Personal_Insolvency_Landscape_Jan_2014.pdf accessed 8 July 2018
[153] Ibid
[154] Insolvency Act 1986, s 285(3)
[155] Insolvency Service, ‘Applying to become bankrupt’ https://www.gov.uk/bankruptcy accessed 9 July 2018
[156] ‘A life in debt-the profile of CAB debt clients in 2008’ available at http://www.infohub.moneyadvicetrust.org/content_files/files/a_life_in_debt_final1.pdf accessed 9 July 2018
[157] Lightfoot v Lord Chancellor [2000] QB 597, [2000] 2 WLR 318
[158] N186
[159] Joseph Spooner, ‘Recalling the Public Interest in Personal Insolvency Law: A Note on Professor Fletcher’s Foresight’ (2015) 3 NIBLeJ 29, 544
[160] Insolvency Act 1986, s 283(2)
[161] Insolvency Act 1986, s 283(1)
[162] Insolvency Act 1986, s 305(2)
[163] Adrian Walters, ’Personal Insolvency Law after the Enterprise Act: An Appraisal (2005) 5 Journal of Corporate Law Studies, 65, 79
[164] Insolvency Act 1986, s 313A and Insolvency Proceedings (Monetary Limits) (Amendment) Order 2004 SI
2004/547
[165] Insolvency Act 1986, s 313A(2)
[166] Insolvency Act 1986, s 313(1)
[167] Insolvency Act 1986, s 313(2)(a)
[168] Insolvency Act 1986, s 313(2)(b)
[169] Muir Hunter, ‘Muir Hunter on Personal Insolvency’ 3-1035 Charge on bankrupt’s home
[170] Insolvency Act 1986, s 336(5) and s337(6)
[171] Kenneth Cork, ‘Report of the Review Committee on insolvency law and practice’ (1982) Cmnd 8558 HMSO, London, chapter 43 para 1734
[172] Andrew Keay, ‘Balancing interests in Bankruptcy Law’ [2001] Common Law World Review 206, 217
[173] Ibid
[174] pp18 and 19
[175] Enterprise Act 2002, s 264
[176] The Insolvency Service, ‘Insolvency-A Second Chance’ (CM 5234, The Stationery Office, 2001)
[177] Ibid para 1.42
[178] Ibid para 1.44
[179] Insolvency Act 1986, s 263A
[180] David Milman, ‘Personal Insolvency Law and the Challenges of a Dynamic, Enterprise-Driven Economy’ (2008) 20 Singapore Academy of Law Journal 455
[181] Len Sealy and David Milman, ‘Annotated Guide to the Insolvency Legislation’ (fifteenth edn vol 1, 2012, Sweet and Maxwell) 304
[182] Small Business Enterprise and Employment Act 2015 s 135
[183] Part VIII
[184] R3, ‘The Personal Insolvency Landscape-a way forward for formal debt relief’ (2014) 14, available at https://www.r3.org.uk/media/documents/policy/policy_papers/personal_insolvency/R3_Personal_Insolvency_Landscape_Jan_2014.pdf 11
[185] Ibid 18
[186] S108
[187] Lorraine Conway, ‘Debt Relief Orders’ (House of Commons Library, briefing paper no CPB4982, 2016)
[188] The Insolvency Proceedings (Fees) Order 2016, schedule 1
[189] Insolvency Act 1986, schedule 4ZA and Insolvency Proceedings (Monetary Limits) (Amendment) Order 2009 (SI 2009/465)
[190] Insolvency Act 1986, S 251H(1) and s 251I(1)
[191] Insolvency Act 1986, s 251J
[192] Insolvency Act 1986, s 251K and s 251N
[193] Insolvency Act 1986, s 251V and sch 4ZB
[194] Goods Vehicles (Licensing of Operators) Act 1995, s 26(1)(g)
[195] Estate Agents Act 1979, s 23(1)(a)
[196] Otto Kahn-Freund, ‘On Uses and Misuses of Comparative Law’ (1974) 37 Mod L Rev 1, 27
[197] Bankruptcy and Insolvency Act 1985 s 157.1(1)
[198] Bankruptcy and Insolvency Act 1985 s 157.1(3)
[199] Office of the Superintendent of Bankruptcy Canada, Directive no 1R4, 25&26
[200] 11 US Code 109(h)
[201] Organisation for Economic Co-operation and Development, ‘Financial Education in Schools’ available at < https://www.oecd.org/finance/financial-education/FinEdSchool_web.pdf> accessed 13 July 2018
[202] pp 28 and 29
[203] 11 US Code 727
[204] Katherine Porter, ‘Bankrupt Profits: The Credit Industry’s Business Model for Postbankruptcy Lending’ (2008) 93 Iowa Law Review 1369, 1414
[205] Insolvency Act 1986, s 279(1) and Enterprise Act 2002 sch 19 5(1)
[206] Enterprise Act 2002, sch 19 5(1) and Insolvency Act 1986, s 280(2)
[207] Insolvency Act 1986, s 283(1)
[208] Insolvency Act 1986, s 283(2)
[209] Insolvency Act 1986, s 283(5)
[210] 11 US Code s 522(b)(3)(A)
[211] David G Epstein and Steve H Nickles, ‘Principles of Bankruptcy Law’ (2nd edition, West Academic Publishing, 2017) 234
[212] L Ponoroff and F S Knippenberg, ‘Debtors Who Convert Their Assets on the Eve of Bankruptcy: Villains or Victims of the Fresh Start’ (1995) 70 NYULR 235, 240
[213] 11 US Code s 522(d)(1)
[214] Florida Statutes, Title XV, s222.01 and 22.02, and Constitution of State of Florida, Article X, s4
[215] Insolvency Act 1986, s 336(5)
[216] n 64
[217] Todd J Zywicki, ‘Institutions, Incentives and Consumer Bankruptcy Reform’ (2005) 62 Washington and Lee Law Review 1086
[218] Insolvency Service. ‘Enterprise Act 2002 – the Personal Insolvency Provisions: Final Evaluation Report November 2007
[219] John Tribe, Centre for Insolvency Law and Policy, ’Bankruptcy Courts Survey 2005- A Pilot Study’ (Final Report, January 2006 Kingston Law School) 192
[220] Iain Ramsay, ‘Towards an International Paradigm of Personal Insolvency Law? A Critical View’ (2017 17) QUT Law Review 15, 21