The Enterprise Act 2002 contains major reforms to both personal and corporate insolvency laws. The provisions of the act came into force in two stages: the corporate provisions and changes to crown Preference came in on the 15th September 2003, and the personal provisions on the 1st April 2004.
The personal provisions concern five main areas:
The bankrupts home:
Where a Bankrupt has an interest in a house which is his, or his spouse’s or former spouse’s, then the Trustee will have to deal with that interest within three years of the bankruptcy order. If not, then the interest will revert back to the bankrupt and be longer part of the bankruptcy estate.
Discharge from bankruptcy:
The Act changes the duration of bankruptcy. For all cases where a bankruptcy order is made on or after the 1st April 2004 the automatic discharge period will be one year. However where the OR files a notice in Court stating that the investigation into the bankrupt’s conduct and affairs in unnecessary or concluded, the bankrupt’s discharge is effective from the filing of that notice.
Income Payment Agreements (IPAs):
Income payment orders (IPOs) and the new IPAs are designed to ensure that those bankrupts who can afford to make a contribution from their income to their creditors do so.
From 1st April all IPOs will last for 3 years, as will IPAs which are legally binding in the same way as IPOs but which remove the need for a court hearing. The intention is to remove time and cost and lead to increased returns for creditors and earlier contributions from bankrupts.
Fast Track Individual Voluntary Arrangements (FTVAs):
Individual Voluntary Arrangements (IVA’s) are an alternative to bankruptcy, where the debtor agrees a binding contract with all creditors about the repayment of debts. A new “fast track” IVA regime is available to undischarged bankrupts, under which the OR will act as Nominee and Supervisor. There is no meeting of creditors to consider the proposal, the vote is conducted by correspondence, reducing the costs and thereby increasing the returns to creditors.
Bankruptcy Restrictions Orders (BRO’s):
BRO’s are a brand new concept, designed to provide protection for creditors, public and business community against the minority of bankrupts whose conduct has been dishonest or reckless. BRO’s will last for between 2 and 15 years, with restrictions continuing to apply for the relevant period.If a bankrupt agrees that there was misconduct they will be given an opportunity to enter into a Bankruptcy Restriction Undertaking (BRU’s), which has the same legal effect as a BRO, but without the need for a court hearing.
An individual will be found to have acted culpably if they chose to spend money on extravagance, such as holiday, rather than pay their creditors, or apply for further loans, such as car finance, if they are unable to pay their existing borrowings.
Individual Insolvency Register:
There will be a revised Individual Insolvency Register. This will be made available on the web, and will provide details of anyone who is currently bankrupt or has been discharged within the last 3 months, plus details of IVA’s, BRO’s and BRU’s.
The Insolvency service believes that in many cases the investigation into the bankrupts affairs will be conducted within 12 months of the bankruptcy order being made. However, a key part of the investigation is seeking information from creditors. It will require effective dialogue between the OR’s office and creditors in person or more importantly creditors lawyers. Consequently OR’s need to ensure effective dialogue with creditors from the beginning of every case.
Creditors have always had an active role to play, however under the new regime they play an even more important active role. Only if this happens will the “honest” bankrupts be identified and discharged, and BRO’s brought against the “dishonest” within 12 months.
