“Bankruptcy is a small matter in the broad context of the financial system, but its treatment is critical to the operation of that system. Both the public’s perception of it either as stigma or misfortune and its legal weight affect the entire psychology of risk-taking in the personal and corporate spheres. So the profound differences between the interim report of the Insolvency Law Review Committee and the Government’s Green Paper are disturbing, representing as they do radically opposed solutions to the problem of dismantling the existing and cumbersome provisions.
Sir Kenneth Cork and his committee proceeded slowly and produced an elaborate and thorough system whose main objective would be the separation of the wrongdoer from the unfortunate or rash. Its provisions are developments of the existing system in recognition of the soundness of its principles of speed, fairness and the ultimate rehabilitation of the bankruptcy. Most importantly, while freeing the small and blameless debtor it preserves a high level of vigilance born by the courts and the Department of Trade.
In contrast there is a stark simplicity about the Green Paper in its abolition of the Official Receiver in personal bankruptcies and its reallocation of his functions to the private sector. The procedures themselves will also be trimmed, most notably by the abolition of the first meeting of creditors. With the underwriting of the receiver’s bill by the creditor the net effect is to exert pressure in favour of private settlements. The Government has been encouraged to follow this route by the Insolvency Act 1976 which reduced the number of bankruptcies by 40 per cent by increasing the monetary limits in the original statutes and yet did not result in any harassment by creditors bent on taking the law into their own hands.
That, however, was a small step compared to the Green Paper’s radical changes. Apart from reducing the total number these also would tend to make the bankruptcies which do occur less visible and consequently more open to abuse. The Government answers this criticism by pointing out that these private sector receivers will be answerable to the Court: but that is only one level of answerability compared to the more elaborate checks and balances involved in the Cork proposals. The comparison makes the Green Paper appear a rushed and incomplete affair whose inspiration seems to be more the cutting of 570 Civil Service jobs than a fundamental reconsideration of insolvency law. It was this reconsideration towards which the Cork Committee was heading, albeit slowly, and the Government should not have pre-empted it at this late stage.”
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