Business minister Edward Davey MP today announced the proposals – called Reform of the Process to Apply for Bankruptcy and Compulsory Winding Up Petition Reform - which aim to save time and money when it comes to “simpler” cases.
Davey believes the plans could save taxpayers millions of pounds if the move away from an entirely court-based process is agreed.
The minister – who urged interested parties to respond to the consultation - said: "Courts have an important role to play in bankruptcy and winding up applications where there is a real dispute between parties.
"But in simpler cases where there is no real disagreement, a more streamlined route into bankruptcy is needed.
"These reforms should help to deliver better outcomes, reduce unnecessary burdens on creditors and debtors, and bring substantial savings for the taxpayer.
"It is essential that we get the detail right, particularly in relation to the level of safeguards required to ensure better results for debtors, while respecting creditors’ rights."
Overall, the consultation proposes electronic applications would be made to a specially-appointed Adjudicator, based at the Insolvency Service.
The Adjudicator would then decide the outcome of each application where there is no disagreement between the parties, allowing courts to focus on dealing with disputes requiring a judicial settlement.
Debtors who want to apply for bankruptcy would have the choice of submitted electronic or paper applications, and the option of making the required payment to enter the process by installments.
Meanwhile, creditors looking to begin proceedings would need to take ‘all reasonable steps’ towards reaching a mutually-satisfactory solution to the debt problem. And debtors will also be encouraged to seek early, free, independent debt advice.
Proposal safeguards include the right to respond to a creditor’s application, the ability to refer a dispute to the court, the right to request a review of the Adjudicator’s decision and to appeal to the court, as well as the introduction of a new criminal offence for submitting false information.
Justice minister Jonathan Djanogly said: "The Government is committed to delivering a modern, efficient justice system.
"We want to make sure the right cases are dealt with in the right ways and this means in some situations, like some debt cases, they should not need to go before the courts at all.
"These proposals form part of our wider work to use courts as a last rather than first resort. The outcomes of this consultation will help us consider our next steps."
A spokesperson for R3 said: "We are not in a position to comment about the latest proposal today but we will do so in the coming days."
The consultation – spearheaded by the Insolvency Service – will last 12 weeks, closing on January 31 2012.
By Andy Pearce