Fears of fraud and blackmail as bankruptcy moves online

Bankruptcy courts may see their workload reduced due to the introduction of
online bankruptcy petitions, however the government is hoping its use will not
be a new tool for criminals.

There are concerns among insolvency practitioners that criminals could use
the new online system to blackmail innocent people – threatening to make them
bankrupt unless a “ransom” is paid.

“You don’t want an organised criminal gang to use this as an opportunity to
bankrupt others,” said one IP.

The concern is one of a number of issues to be addressed by the Insolvency
Service before the reform comes into effect from 6 April.

The service is proposing to make it a criminal offence to impersonate a
debtor when filing a bankruptcy application via the internet. It wants to be
“preventative” not “responsive” with plans to force through a law in the coming

Although it isn’t necessarily anticipating a surge in criminal activity with
organised criminals using online petitioning, the service wants to send a
message that this type of fraud will be dealt with seriously.

Identity theft is a criminal offence under the Fraud Act 2006. The service
hopes to push through a change to the Act, essentially adding online bankruptcy
petitions to its remit. However, some in the profession believe the changes
could come too late.

More than 17,000 bankruptcies took place in 2009, with RSM Tenon’s national
head of bankruptcy Mark Sands pleased the process is moving away from the court
system. However, he is dubious the law change will take effect before the system
is up and running.

Previously, the service tried to simplify Individual Voluntary Arrangements,
another form of personal insolvency, through changes to law. But this was vetoed
by the courts, requiring some form of parliamentary debate before the changes
could be made.

Subsequently, the changes were never made, although the service argues there
were other issues surrounding it being shelved and is confident this won’t happ
en again.

Even if the latest changes become law it remains to be seen how the service
can ensure identities won’t be stolen.

Chris Laughton, insolvency and restructuring partner at Mercer & Hole,
believes it depends on the level of training, experience and structure of the
people approving the petitions. “What is the system going to be to make sure the
people who are checking bankruptcies are doing it sensibly?” he asked.
Some insolvency practitioners said they needed at least two years’ experience
before they could sign insolvency letters.

The service admits there is no “new or extra” training for people to approve
bankruptcy applications, however it has “rigorous” continuing professional
development procedures in place and the organisation trains its staff
“stringently” on personal insolvency procedures.

“This is the first time the process is going online so there will be no one
with experience on how to do it. We are working closely with the courts and will
be using their methods on ­how to check the applications,” said an Insolvency
Service spokesman.


Creating a criminal offence for identity theft in an online bankruptcy
petition cannot be the only deterrent. Having the right people in place will be
paramount in making sure criminal activity around this new process is kept to a
minimum. Although online bankruptcy is a unique and welcome solution, it must
have the right safeguards in place if it has any hope of succeeding.

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