New bankruptcy applications regime to come into force

The Enterprise and Regulatory Reform Act 2013 (ERRA 2013) received Royal Assent on 25 April 2013 and ERRA 2013, s 71 introduced a new bankruptcy applications regime to replace debtors' bankruptcy petitions. On 22 February 2016, three statutory instruments were published providing for the coming into force of the new regime on 6 April 2016.

What are the main changes to be brought in by the new bankruptcy applications regime?

The new bankruptcy applications regime is borne out of government consultations published since 2007 that, broadly, invited views on debtor bankruptcy petitions being dealt with administratively rather than by the court, and how such administrative process should operate.

ERRA 2013, s 71 inserts a new section 398A and (under ERRA 2013, Sch 18) sections 263H–263O into the Insolvency Act 1986 (IA 1986). ERRA 2013, Sch 19 also contains minor and consequential amendments.

The main changes are:

  • individuals can still apply for bankruptcy orders to be made against them, however, rather than presenting a debtor's bankruptcy petition, individuals will instead make a bankruptcy application
  • bankruptcy applications must be made through an online portal, unless there are technical issues with the portal
  • the court will not (save in certain circumstances) be involved in determining bankruptcy applications—instead applications must be made to, and determined by, an adjudicator
  • creditors' bankruptcy petitions will continue to be dealt with by the court and are unaffected by these changes

According to the Insolvency Service's latest insolvency statistics, there were 4,374 creditors' bankruptcy petitions and 11,423 debtors' bankruptcy petitions presented in 2015. On the face of it, therefore, the introduction of the new bankruptcy applications regime will remove a significant amount of the court's workload.

What secondary legislation has been passed?

On 22 February 2016, a number of statutory instruments were published in relation to the new bankruptcy applications regime:

  • the Enterprise and Regulatory Reform Act 2013 (Commencement No 9 and Saving Provisions) Order 2016, SI 2016/191—this provides that ERRA 2013, s 71 comes into force on 6 April 2016. By virtue of ERRA 2013, s 71(2) and (3), this also means that ERRA 2013, Schs 18–19 come into force on the same date
  • the Insolvency (Amendment) Rules 2016, SI 2016/187—this makes various amendments to the Insolvency Rules 1986, SI 1986/1925 (IR 1986) with effect from 6 April 2016. It also replaces IR 1986, Ch 3 which presently deals with debtors' bankruptcy petitions (existing IR 1986, rr 6.37–6.47). It is this new statutory instrument that details the process of making a bankruptcy application
  • the Insolvency Proceedings (Fees) (Amendment) Order 2016/184—this amends the Insolvency Proceedings (Fees) Order 2004, SI 2004/593 and introduces a fee of £130 for a debtor to make a bankruptcy application (the court fee for a debtor's bankruptcy petition is presently £180). A debtor wishing to make a bankruptcy application will also still need to pay the official receiver's deposit of £525

A draft statutory instrument entitled 'Enterprise and Regulatory Reform Act 2013 (Consequential Amendments) (Bankruptcy) and the Small Business, Enterprise and Employment Act 2015 (Consequential Amendments) Regulations 2016' was also released on the same day. Among other changes, the purpose of this draft statutory instrument is to make consequential amendments to other legislation (for example, the Land Registration Act 2002 and the Charities Act 2011) to reflect the new bankruptcy applications regime.

Broadly, how will the new bankruptcy applications regime operate?

An individual wishing to be made bankrupt will need to complete a bankruptcy application containing prescribed information, authenticate the application, and submit it electronically to the adjudicator. The date of the application is the date on which it is submitted.

Upon receiving a bankruptcy application, the adjudicator must acknowledge receipt and it is at that moment that the application is 'made'. The adjudicator must as soon as reasonably practicable apply to the Chief Land Registrar to register the bankruptcy application.

In order to determine the bankruptcy application, the adjudicator can request further information from the debtor, and can also undertake verification checks, ie a search of the electoral roll to confirm the debtor's residence.

The adjudicator must determine the bankruptcy application within 28 days from the date on which the application was made, although there is scope in certain circumstances for that period to be extended by 14 days where the adjudicator requests further information from the debtor.

The adjudicator can, at the debtor's request, review a refusal to make a bankruptcy order, so long as the request is made within 14 days of the debtor being informed of the refusal. A debtor cannot, however, introduce additional information that was not available to the adjudicator at the time the refusal was made. If the review still does not result in a bankruptcy order being made, the debtor can, within 28 days of being notified of the decision, appeal to the county court hearing centre where the debtor resides. On such an appeal, the court can either dismiss the debtor's application, or make a bankruptcy order.

If a bankruptcy order is made, various actions need to be taken, including the delivery to the official receiver of a bankruptcy file made up by the adjudicator containing a copy of the bankruptcy application and any documents delivered to the adjudicator during the application process.

Transitional and saving provisions

As mentioned above, the new bankruptcy applications regime comes into effect on 6 April 2016. Accordingly, from that date onwards, an individual will no longer be able to petition the court for a bankruptcy order to be made against him. However, debtors' bankruptcy petitions presented to the court on or before 5 April 2016 will continue to be determined by the court and are therefore unaffected by the changes.

Bankruptcy petitions presented by:

  • personal representatives of insolvent estates, or
  • partners on behalf of an insolvent partnership

are not affected by the changes, even if presented on or after 6 April 2016. IA 1986, ss 272(1) and 273—which are repealed by ERRA 2013, Sch 19, para 9—will continue to apply in the above circumstances.

Further Reading

If you are a LexisPSL subscriber, click the link below for further information:

How to present a bankruptcy petition and the documents you need to complete

Issuing bankruptcy petitions—where to issue, the fee to pay and the documents to file

At which court should I issue the bankruptcy petition?

Not a subscriber? Find out more about how LexisPSL can help you and click here for a free trial of LexisPSL Restructuring and Insolvency.

First published on LexisPSL Restructuring and Insolvency

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