Chief bankruptcy registrar Stephen Baister last night lambasted Insolvency Service proposals to allow civil servants to act as adjudicators in insolvency cases.
Speaking at the renowned Insolvency Practitioners Association’s annual lecture, Baister said the suggestion that the current court process be replaced by an online service for petitioning for bankruptcy and winding-up was preposterous.
He said a fundamental flaw in the proposed new system was that it ignored the fact many “ostrich” debtors – so-called due to their head-in-the-sand mentality – will not respond to the letters, emails and text messages sent by the creditor or adjudicator.
The result, said Baister, is that many more bankruptcies and company liquidations could occur.
He explained: “The Ostrich debtor bowls up to court and says for the first time, something sensible. It happens all the time. It is in the interest of the creditor to give them a chance. The Insolvency Service’s answer to that is it will all be dealt with in this pre-action process.
“Currently many winding-up petitions result in settlement of the debt, often very late in the process – in the ‘last chance saloon’, perhaps after a court adjournment. Many of those cases in the future could end up with businesses being shut and employees dismissed.”
Baister – who is also the president of the Institute of Credit Management (ICM) – said the industry should give further scrutiny to proposals on how the new approach will deal with the “concept” of dispute.
He said the new proposals mean that the civil servant will decide whether there is a dispute or not, and that, in itself, is wrong.
He added: “Everyone is entitled to a fair and public hearing. The lack of public scrutiny bothers me. It may be inconvenient to the government ….but there is a practical value in a hearing.”
He also invited everyone to consider whether a purely administrative “automatic” mechanism to obtain a bankruptcy order might be the “thin end of the wedge” and suggested this could set a precedent, perhaps leading to ‘undisputed’ divorces without court involvement?
He questioned whether a government employee could have the experience and knowledge, and competence, to adjudicate on the validity of disputes in potentially complex areas of law, and noted an inherent conflict in placing the adjudicator in the same government agency as the Official Receiver.
He said: “The fact that a petition is not in dispute, doesn’t mean you make a bankruptcy order. There are lots of cases where the debt hasn’t been disputed but the order is refused. Deciding when to adjourn really is quite tricky.
“Since 1986, making an order always involved discretion and in all cases, that discretion should only be exercised by a judge.”
He said that, in cases of dispute, the only way to stop the civil servant adjudicator processing the case would be to apply to the court – which he claimed was absurd.
“The only way would be to make an application to the court to get it out of the adjudicator’s hands and pay £80 for the privilege. This is the first time that anyone has ever had to pay to defend themselves as far as I am aware.”