UK Insolvency Blog

12 June

Earlier case on sale of Trustee's interest in the Bankrupt's home on deferred terms upset by Court of Appeal

Some months ago a case hit the courts which drove a coach and horses through the Trustee's 3 year 'use it or lose it' rule. That decision has now been upset by the Court of Appeal in what I believe is an equitable and common sense judgment which prevents legal trickery circumventing parliament's proper intentions. That is to say, the three year rule is intact.

Here's an extract from the recent R3 statement:

In a judgment handed down today, the Court of Appeal reversed the decision of Proudman J that a sale by a trustee in bankruptcy of the debtor’s interest in his dwelling house for a deferred consideration constituted “realisation” of that interest for the purposes of section 283A of the Insolvency Act 1986. The joint trustees in bankruptcy of Mr Lewis and Metropolitan Realisations had entered into a deed, under the terms of which the trustees assigned the estate’s interest to Metropolitan for £1 and in the event of Metropolitan effecting a sale of the property it would pay 25 per cent of the net proceeds to the trustees. The assignment was dated the day before the third anniversary of the bankruptcy. Proudman J had held that this arrangement amounted to a “realisation” of the bankrupt’s interest in the property, and that accordingly it did not re-vest in the bankrupt. The bankrupt appealed. Allowing the appeal, the Court of Appeal considered the meaning of the term “realise” in the broad context of the scheme of the Insolvency Act.The Court concluded that the term “realisation” was used in a sense which involved the turning of the realised property into cash, and was inconsistent with part of its value being left outstanding in an unfulfilled monetary (or other) obligation. The Court concluded that “realise” in section 283A involves getting in the full cash consideration for the deal. As a result, the bankrupt’s interest had reverted to him, and Metropolitan had no interest.

Lewis v Metropolitan Property Realisations Limited [2009] EWCA Civ 448.

23:27 GMT | Read comments(0)

29 May

Oversold Debt Management Plans

Those of you who know me or regularly read my website will know just how 'anti' I am of DMPs. This is because I regularly come across people who have been sold a DMP when it was really not the right answer for them. What is more fightening now is that sellers of DMPs are using automated call generation systems to phone numbers randomly with a message suggesting that if you are in debt you should press a number to be put through to a debt 'expert': I know, we regularly get these calls after hours in the office, I always follow them through, tell the expert a pack of lies as to my circumstances, get put through further up the line to someone with 'greater experience' then make them look fools for having advised me down the wrong route. Cruel I know, but I cannot resist it! Funny, but when I tell them late in the conversation that I am a Licensed IP and that I have great issues with their advice, and explain where they are wrong, they put the phone down, angry that I should waste their time (they are obvioulsy commisssion based) - it matters not that these largely ill-trained peddlers of misery are creating misery in the lives of debtors and their families in the pursuit of a quick buck.

I have set out below a copy of R3's recent press release, which shows that there are currently believed to be about three quarter's of a million people in DMP. A huge number. In some ways what is more frightening is the fact that almost half of the people surveyed either took the wrong option (an IVA or bankruptcy would be better if the DMP is due to last over 5 years) or simply did not understand what they had got themselves into, they had entered into a financial commitment the length of which they did not know. The findings of the R3 survey come as no surprise to me, indeed I suspect more than half of the people in DMPs have no real idea of what they have got themselves into nor properly assessed all of their options - put another way, they have been oversold to by DMP salesmen. This will all end up in tears some time down the line, I know not when but it must do so, all other major missellings of financial products have led to the governing bodies/government stepping in (normally when things have got so far out of hand that they had not option but to do so) with all the proponents of the misselling simply disappearing or themselves going into liquidation/bankruptcy, leaving many thousands with the problem. So when will the appropriate bodies act? - surely the time has now come?

28 May 2009

One million people insolvent in the UK

Around 700,000 people are currently left off the official British insolvency figures, even though they are technically insolvent. Added to the official figures, this means the total of insolvent individuals in the UK is now approaching 1 million. These 700,000 ‘hidden debtors’ are the latest estimate from a YouGov survey, conducted in consultation with R3, of the number of individuals in Great Britain who are currently in a Debt Management Plan (DMP). The 700,000 DMPs dwarfs the combined total of those in an Individual Voluntary Arrangement (IVA) and declared bankruptcy which amounted to 190,000 by the end of 2008. The number of DMPs has also jumped an astonishing 17% in seven months (from August 2008 to February 2009).

“The official figures are only the tip of the iceberg in counting the UK’s insolvent individuals. If the government wants to take an accurate picture of our debt problem, DMPs should be included in the official figures,” said R3 President Peter Sargent.

DMPs are unofficial but formalised agreements with creditors who often prefer this route to formal insolvency procedures, even though such people are technically insolvent. DMPs may not always be the best deal for those in financial difficulty as unlike statutory procedures there is no debt forgiveness, no freeze on interest nor are DMPs binding on either creditor or debtor.

The survey reveals that 26% of those in a DMP had the terms of the plan changed, with 64% of these people seeing an increase in the amount of their monthly repayments. Moreover, 18% of those in a DMP stated the DMP was due to last longer than ten years, with another 27% didn’t even know how long the plan was due to last.

“We hear of people being strong-armed in DMPs when clearly an IVA or bankruptcy was in fact the right solution. Sometimes people will then end up in a formal insolvency procedure anyway. While DMPs are appropriate in certain cases, they are not the only option and they come with strings attached, the most troubling being the length of the plan; effectively ‘debt slavery’.

“The latest statutory measure, Debt Relief Orders (DROs) introduced in April will only take a tiny percentage of this group into formal insolvency procedures. DROs are targeted at those with low income and very low assets only,” concluded Peter Sargent.

Notes to editors:

The data included in this paper represents the findings from the third wave of the quarterly YouGov debt tracker. Data is taken from a nationally representative sample – total of 3804 adults aged 18 and over between 16th and 23rd February 2009 in Great Britain. Where relevant, data has been compared with the first and second wave of the tracker which took place in July and October 2008 respectively. All figures, unless otherwise stated, are from YouGov Plc.
The figure of 190,000 UK insolvencies is made up of 125,000 in a typically 3-5 year IVA and 68,500 declared bankrupt in 2008 in UK, source The Insolvency Service.

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21:54 GMT | Read comments(1)

29 November

Decision published in leading debt adviser case

The decision in the case involving what was one of the UK's leading debt advisers has now been published, and can be accessed by all.

In summary the DTI had become concerned over the way in which Abacrombie operated and took steps to wind the company up 'in the public interest'.

Click here to go to the decision. It certainly makes interesting reading!

23:12 GMT | Read comments(0)

Trustee 'gets around' the 3 year use it or lose it rule for the home in a bankruptcy

Since 2004 trustees have only had a three year window in which to secure their interest in the matrimonial home. A few days ago, a case passed through the courts which I believe will have a huge impact on way trustees approach the three year 'use it or lose it' rule.

The case involved was 'Lewis & Anor v Metropolitan Property Realizations'. In this case, before the three years elapsed the trustee sold his interest in the home to Metropolitan Property Realizations ('MPR') on terms which provided for the trustee to share in MPR's share of the equity when the home was eventually sold.

A nominal £1 was paid up front by MPR to the trustee, the remainder of the sale price was to be paid later, after the sale, and was to be calculated as a percentage of the equity realised.

The question was did such a transaction, on largely deferred terms and for an uncertain amount, amount to a realisation of the trustee's interest under s283 of the Insolvency Act 1986, the section that governs the three year rule? The court said that it did, the deal was sound. And having read the case, I find no reason to query the court's decision. The likelihood of appeal seems, in my view, to be remote.

We can now expect trustees to sell their interest, where say there is currently no equity in the home, on similar terms to a major creditor of the bankrupt or to an operator in a new industry spawned by the decision. Trustees will not be as quick as they were before to hand over their interest in the home to the bankrupt without some payment, even if there is no equity.

Quite how this pans out practically and whether trustees' response to it could lead to a change in the legislation remains to be seen. What is clear is that the case drives a coach and horses through the three year rule, which was put in place to prevent bankrupts and their families having as the judge said 'a sword of Damocles' continuing to hang over them.

22:40 GMT | Read comments(0)

29 October

Debt adviser bites the dust

Over the years I have become increasingly concerned over the advice given by people who claim to be specialists in debt advice, but for the most part have little more than a few hours inhouse training on how to fill out a template questionnaire. Many, many times have I seen individuals and companies who have followed a course that provides the adviser with an often substantial fee, where there is no benefit to the individual/company. The fact that one adviser's debt management business was put up for sale on ebay to anyone who may have the ready cash, even if they had no experience or training, says a lot.

Have the authorities eventually started to do something about this wholesale miss-selling of debt advice? Possibly so. Here are extracts from a press release just issued by the government, showing that they have taken action against one such firm. The release also highlights some of the things such companies can and often do get up to.

It is surely about time that there was substantial legislation and increased supervision in the area of general debt advice and DMPs: after all as a Licensed Insolvency Practitioner my actions can have similar severe consequences on people and companies, and I have to comply with a huge amount of legislation and my governing body does come in to review, and thus quality control, my work.

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29/10/2008 13:54

	Insolvency Service (National)

	(Insolvency Service) Insolvency "specialist" wound up


	A company offering advice and services to those in financial hardship has been wound-up by the High Court in Liverpool following an investigation by the Companies Investigation Branch (CIB) of the Insolvency Service. Abacrombie & Co Limited, based in Sheffield and operating throughout England & Wales commenced trading in 2003 purportedly carrying on business as "Insolvency Specialists" offering insolvency advice to individuals and directors of limited companies. During its trading it gave insolvency advice to around 530 clients. In the case of individuals, for a minimum fee of £1,500 plus VAT, the company stated that it would deal with a debtor's creditors, complete the bankruptcy petition, attend at Court with the debtor and attend with the debtor at any subsequently arranged meeting with the Official Receiver. In practice, the company charged individuals up to £44,000 for these services and, in the period of its trading, took fees in excess of £2 million. CIB's investigation found that there was a lack of commercial benefit to the company's clients, that the company charged excessive fees and lacked any clear charging structure. It was also found that the company operated an inappropriate banking structure and the business model operated by the company was unsustainable. In addition, the company operated with a lack of probity involving inappropriate transactions and advice and there was a lack of transparency as to who was controlling the company. In making the Winding-up Order the Court found, amongst other things, that:- * arrangements made by the company on behalf of debtors to dispose of the debtor's interest in property, subverted the proper functioning of the law and procedures of bankruptcy * the overwhelming factor in determining the fees charged in each case was the amount of money available and held by the company * the company's reliance on receipts from new clients to meet payments due in respect of existing clients was unacceptable * documents were backdated to deceive the Official Receiver or trustee in bankruptcy * advice given by the company to a debtor was wrong with the result that assets were dissipated to the detriment of his creditors generally and of the proper administration of the estate * the company's stated aim to assist the debtor and their spouses or partners by minimising the debtor' interests in their jointly owned properties, combined with the lack of understanding of the applicable legal principles on the part of Nicholas Buchanan, a director, and the other consultants, posed a serious risk to the proper administration of the debtors' bankruptcies * Mr Buchanan improperly used the company's bank account as his own, posing a real risk to the solvency of the company and * That there were serious issues including dishonesty in some instances such as back-dating off documents which fully justified the making of the Order Stephen Speed, Chief Executive of the Insolvency Service said, those running companies which exploit people in financial difficulty and abuse the insolvency regime should be aware that we can and will investigate them and, where necessary, ask the Court to close them down". NOTES TO EDITORS 1. The registered office and trading address of Abacrombie & Co Limited was at 180 London Road, Sheffield, South Yorkshire, S2 4LT. The company was incorporated on 20 September 2002. 2. The petition to wind-up the company in the public interest was presented on 22 August 2008 under the provisions of s124A of the Insolvency Act 1986 following investigations carried out under section 447 of the Companies Act 1985 by the Companies Investigation Branch of the Insolvency Service. The Winding-up Order was made on 23 October 2008. 3. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver to establish why they became insolvent. 4. The Insolvency Service carries out confidential enquiries on behalf of the Secretary of State for Business Enterprise and Regulatory Reform through Companies Investigation Branch. The Service also authorizes and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice. 5. The Consumer Credit Act 1974 (the Act) requires debt management companies to be licensed by the Office of Fair Trading (OFT). Abacrombie & Co Ltd previously held a consumer credit licence (number 537807) which lapsed on 20 June 2008. The OFT has been reviewing its application for a new consumer credit licence which was made on 21 July 2008 As a result of the Insolvency Service's action to wind-up the company, the application will automatically be made of 'no effect'. 6. All public enquiries concerning the affairs of the company should be made to: The Official Receiver, Public Interest Unit, PO Box 326, 17 - 21 Chorlton Street, Manchester, M60 3ZZ. Tele: 0161 934 4182 Email: piu.north@insolvency.gsi.gov.uk 7. Further information about the work of The Insolvency Service is available from http://www.insolvency.gov.uk Insolvency Service, 21 Bloomsbury Street, London, WC1B 3QW

23:17 GMT | Read comments(0)

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