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Consultation on reform of the process to apply for bankruptcy and compulsory winding up - the results

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At the beginning of 2012, the Government’s consultation process was concluded in respect of the proposals to essentially remove the role of the Court from the bankruptcy petition and compulsory winding up process. 

Those working in the profession were asked to respond to the proposals and many of the comments circulated in reply were less than complimentary about the planned changes and the consequences.

One aspect of the consultation papers which was highlighted by many of those who responded was the nature in which it was presented. The questions themselves were phrased in such as way as to assume that the proposals would automatically be viewed in a positive light and indicated that this may not be any sort of “consultation” in the real sense but merely a process to assist policy makers in respect of implementation of a pre approved new regime.

A summary of the consultation responses has now been made available and a statement from the Minister for Employment Relations, Consumer and Postal Affairs has confirmed that the reform of the bankrupt/winding up process will in fact only extend to debtor bankruptcy petitions and not creditors petitions or those for winding up. 

We can take some comfort that the consultation process was in fact just that and not a toothless paper exercise as it was presented.

So it seems that winding up and creditor petitions will be maintained in their current form but the proposed reforms will be implemented in respect of debtor petitions. These will now be removed from the court process completely and will be dealt with, and determined by, an Adjudicator who will be part of the Insolvency Service. While the abandonment of change on creditor petitions and winding up is to be applauded there is still real concern as to how debtor petitions will fair in the future and what the implications will be for none-contested civil matters generally.

The questions regarding the qualification of the Adjudicator still remain. As do the costs of implementing this new regime rather than simply investing in the current court process.

In the second quarter of 2012, there were 6,430 bankruptcy orders made on debtors’ petitions and it begs the question how is an already overstretched department going to take on work of this volume and what will the monetary and quality cost be?

By insolvency solicitor, Kathryn Maclennan