Insolvency profession to be ‘revolutionised’

Proposed changes to the restructuring of consumer debt are set to
revolutionise the personal insolvency industry, and could lead to a fall in UK
bankruptcy figures.

As UK creditors struggle to manage a growing consumer debt mountain, with the
Bank of England recently revealing that personal debt has passed a trillion
pounds, new proposals by a working group of insolvency experts and creditors
could reduce bankruptcies and provide better returns on debt restructuring,
opening up a bigger marketplace for practitioners.

The group, which was facilitated by the Insolvency Service, has proposed a
more efficient and quicker debt restructuring scheme for consumers with debt
below £75,000.

The scheme, a reworking of the individual voluntary arrangement (IVA) rules
currently in place, could discourage more consumers from entering into
bankruptcy proceedings, which in turn would grow the market for personal
insolvency practitioners to provide debt restructuring advice.

Charles Howson, chief executive of AIM-listed Accuma Insolvency Practitioners
and a member of the working group, said that the proposals had been set to
provide the ‘best deal for both creditors and debtors’.

‘It should mean that bankruptcies don’t fly through the roof, creditors will
get better returns and it means our processes will be a lot more efficient… if
creditors see it for what it is,’ said Howson.

The group was set up last September by the government to discuss the future
of personal insolvency regulation, against a backdrop of spiraling consumer
debt. It concluded that the current scheme for IVAs was not providing enough of
an alternative for consumers considering entering bankruptcy.

It has recommended, in a consultation document, the introduction of a
streamlined and lower cost two-tier ‘simple’ IVA regime (SIVA).

The new system is two-tier, based upon debt levels. Individuals with debts
below £25,000/£30,000 could enter into SIVA1, where the practitioner proposes
the debt restructuring without creditors voting on the proposal – subject to
there being a better return than bankruptcy.

SIVA2 is designed for individual in debt between £25,000/£30,000 but below
£75,000. Creditors could vote for or against the practitioner’s proposal (but
not making modifications to the deal) could accept the scheme by a simple
majority vote, compared with the current figure of 75%.

Tracy Stanhope, an assistant director in the policy unit at the Insolvency
Service, said that comments from both creditors and insolvency practitioners was
welcome going forward.

However, she warned that the process to implement the proposed changes into
law were still a long way off.

‘We’re not expecting it to be implemented this time next year,’ said

Nick Hood, senior London partner at Begbies Traynor, said the proposals were
‘a very good idea’.

‘The clear intention is less bankruptcies,’ said Hood. ‘It’s an elegant way
of dealing with this for both creditors and debtors.’

The consultation period runs until 7 October.

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