The first revision to the bankruptcy threshold in almost 30 years came into force on 1 October 2015. The changes increase the minimum level of debt for which a creditor can commence bankruptcy proceedings from £750 to £5,000.
The new £5,000 threshold – introduced through the Insolvency Act 1986 (Amendment) Order 2015, which amends section 267(4) of the Insolvency Act 1986 – is intended to dissuade creditors from using the threat of bankruptcy to collect relatively low level debts. It means that clients pursuing debts lower than £5,000 are essentially left with two choices: an informal agreement with the debtor or formal court proceedings in the small claims court. [As a result, the number of people becoming bankrupt is expected to drop substantially.]
Other changes are also afoot, with the draft Insolvency Rules 2016 likely to be made in the Spring, followed by a commencement date of 1 October 2016. The rules are intended to: (1) consolidate the existing rules and their amendments into a single set of rules; (2) modernise and simplify the language; and (3) incorporate various changes in the law that are intended to reduce the burden of red tape.
Key policy changes expected include:
- Removing meetings of creditors as the default position in insolvencies, in an attempt to modernise the methods by which office holders engage with creditors
- The abolition of final meetings of creditors as they have been found to have little value and are rarely attended
- The ability for creditors to opt out of further correspondence, to reduce unnecessary paperwork from being produced and issued
- Allowing an office-holder to pay a dividend in respect of a debt of less than £1,000 without the need for the creditor to submit a formal claim, which will streamline the process of distributing funds from an insolvent estate
- Easing of the rules around electronic communications
- All applications for bankruptcy on the petition of the debtor will be submitted to an adjudicator (who will be a person appointed to that role by the Secretary of State) to make the process more efficient
In principle the proposals are welcomed, but it is important that practitioners and creditors keep up to date with the changes. For more information please contact Danny Davis.