The Tribunals, Courts and Enforcement Act 2007 (c. 15), introduced a number of reforms to existing personal insolvency regimes (i.e. the County Court Administration Order) and some new additions to the personal insolvency procedure menu. In particular s.251A is introduced into the Insolvency Act 1986 (IA86) bringing about a new Debt Relief Order (DRO). I have discussed the personal insolvency law reform process that led up to this act elsewhere. In a previous blog entry I mentioned some issues surrounding the problems that might possibly arise when two Government agencies are involved in reforming one area of law and policy, namely the law relating to personal insolvency. These two areas will now be revisited.
We can now revisit the DRO process again, especially in light of the recent Insolvency Service (IS) DRO Creditor Conference, which was recently held to discuss the DRO regime and its implementation. Approximately seventy people attended the conference on 10 March 2009 that was held at the Insolvency Service, 21 Bloomsbury St, London. The conference began with an introduction from Mr Jon McGurk who is the Plymouth Official Receiver and the person who is heading up the DRO unit. Mr Nick Howard, Director of Policy, then followed and gave a presentation on the background to the DRO and a summary of the principal policy points regarding the DRO regime. Mr Roger Waetherley (DRO Project Manager) and Mr Rob Woolley (Assistant Official Receiver and DRO Unit Manager) then followed with a detailed presentation on the DRO (the PowerPoint slides are available from me if required). A whole range of matters relating to DROs were discussed. For a thorough discussion of the DRO regime see Professor Keay and Dr Walton’s second edition at page 201. Here are some highlights from the 10 March session and general points on the DRO regime:
- The DRO regime is in essence a partnership between the IS and the skilled debt advice sector that harnesses an automated web based system. The IS says that, “fee will be kept to a minimum and the regime will be largely self financing.”
- The key functionaries are the Competent Authorities (CA) and the Approved Intermediaries (AI, see s.251B IA86).
- The eligibility criteria for a DRO is:
- “Total liabilities (not including unliquidated or excluded debts) must not exceed £15,000
- Gross Assets less than £300
- Motor vehicles under £1000 in value will not be included in the calculation of total assets
- Surplus income less than £50 a month.
- Cannot have had DRO in last 6 years
- Cannot be undischarged bankrupt or have current IVA, or subject to a Bankruptcy Restrictions Order or Debt Relief Restrictions Order
- Must be unable to pay debts
- Must be domiciled in England & Wales, or resident or carried on business there in last 3 years
- Any existing bankruptcy petition must be dealt with”
- Decisions as to the DRO application and its acceptance are made by the Official Receiver (OR – see s.251C IA86). This decision will be notified by email and postal notification (an example letter is available from me if required).
- To those sceptics who think that the DRO regime is an easy way to escape debts the IS offer the following rebuttals:
- “Subject to restrictions during the Order
- OR can revoke Order if circumstances change
- Sanctions against those guilty of misconduct
- Duty to co-operate with Official Receiver
- Recorded on the Individual Insolvency Register.”
- There are currently six CAs who will be able to administer the DRO regime: the Citizens' Advice Bureau (CAB), the Consumer Credit Counselling Service (CCCS), Payplan, Paymex (Baines & Ernst), National Debtline and the Institute of Money Advisors. Some fee paying debt management companies and the Insolvency Practitioners’ Association (IPA) may in due course also become CAs. These bodies will have to be monitored closely especially against the backdrop of what the Times is reporting today (“Beware of the debt traps set by companies that trade on misery”).
- The CAs have to complete a detailed and rigorous application process before being accredited. The CAs have to ensure that the AI (of which there are approximately 1400) met all the pertinent criteria, i.e. clear demonstration of experience and expertise in provision of debt advice. The criteria is:
- “No convictions
- No insolvency/restriction
- Independence & integrity
- Consumer credit licence and indemnity insurance.”
- The CAs themselves have to provide the following information to support their application:
- “Type of organisation, operations and purpose
- That DRO function compatible with purpose
- Solvency, source of income
- Full details of educational programme for Intermediaries – both initial and CPD
- Detailed monitoring programme to ensure intermediary quality/competence
- Complaints procedure
- The internet based application process for a DRO is now in place and screenshots of the website have been circulated. The launch date for the site is the 6 April 2009. The speed and simplicity of the process is not in doubt and on this basis alone the new procedure should be a very valuable option for debtor and intermediary users.
- The process for the DRO is relatively straightforward. The AI will interview the debtor and then fill in the web based forms if the appropriate criteria and tests have been met in relation to entry into a DRO. Documentary evidence must support the finding of suitability by the AI.
- Once the (anticipated) £90.00 fee has been received (see below on this sum) then the AI will submit the DRO application via the website to the IS. IS acceptance will come in the shape of an email to the debtor or by post.
- Creditors then have thirty days to lodge objections to the DRO which has been accepted by the IS.
Some issues arising
There are a number of issues that come out of the day, which will now be highlighted. The first main issue arising relates to quantification of the sum owed by the debtor. If a debtor thinks they owe £3000 and the creditor thinks they owe £5000 only £3000 is caught in the DRO and the creditor can continue to chase for the remaining £2000. This seems a strange anomaly that certainly differentiates a DRO from bankruptcy. It will be interesting to see how this aspect is going to work. It is respectfully submitted that it would have been better if the the whole debt should be caught.
The second main issue relates to debt collection charges. How will this affect the above when creditors add on additional debt collection charges? This area has the potential to be a minefield especially when the over-indebtedness is nearing the £15,000 limit.
The third issue relates to charges for the DRO procedure. There will be a (anticipated) £90.00 charge to enter a DRO. This can be paid at the Post office or through Payzone. This figure still appears to be quite high in my view. The respondents to the BCS 2005 certainly had some issues with entry into bankruptcy. I am sure these concerns will be replicated in relation to this new procedure. The £90.00 can be paid over a 6 month time period. This may go someway to alleviate the burden of entry. It is only once this sum has been paid that the AI can submit the DRO application.
Despite my earlier contentions regarding potential crossover between the Ministry of Justice’s remit and the Insolvency Service's remit, the whole process seems to progressing in an efficient and timely manner. In summary then the DRO implementation process has not highlighted a conflict between two Government departments dealing with very similar debt related issues. From a publication perception point of view however it must seem strange to the lay person that the Insolvency Service is not the only department with responsibility for dealing with insolvency issues.
Picture Credit: Muir Hunter Museum of Bankruptcy, KU (GP).