BusinessBusiness RecoveryDebt reform threatens to clog courts

Debt reform threatens to clog courts

Ministry of Justice unveils new insolvency rules that would cut the time in which debt can be chased from six years to three

Debtors could escape their obligations after just three years, under new
plans to reform insolvency rules that have been slated as a ‘nightmare’ by
practitioners.

The Ministry of
Justice
has unveiled proposals that would cut the time debt can be chased
from six years to three.

Creditors would have to launch legal action before the three years to pursue
the debt had expired.

The move may mean that creditors will be more likely to pursue legal action
with IPs not being ‘fully prepared’ and the increased volume of cases ‘clogging’
up the court system, experts said.

Pat Boyden, insolvency partner at PwC, said: ‘It may force litigation before
either side is ready and clog up the courts. Creditors could start issuing
proceedings instead of negotiating because they want to start before the three
years are up. This could prove unhelpful to both sides.’

The move would be likely to affect corporate insolvencies more than personal
arrangements, since the former are more complex.

‘It does not allow enough time to gather evidence if the case needs to go to
court,’ said Louise Brittain, insolvency practitioner at Baker Tilly. ‘Many high
profile cases have international elements; it could take up to two years to
process a case. If it needs to be sped up it could be a nightmare for IPs.’

IPs are hoping that the move will not make it past the consultation stage or
at the very least is tweaked to take into account the various problems that will
arise should the move go ahead.

Recovery and turnaround specialists could be left struggling to keep within
the three year timeframe, particularly in complex and disputed claims.

Mark Sands, insolvency partner at KPMG, said: ‘When IPs are trying to
negotiate a situation, especially complicated investigations, three years can
fly by.’

This could result in creditors tightening their belts further, he said.

A Ministry of
Justice
spokesman said: ‘An announcement about the final legislative
programme is expected to be made in the Queens Speech to Parliament in
December.’

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