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Changes to Insolvency Law October 15
New Thresholds for Bankruptcy and Debt Relief Orders
The government has proposed new thresholds for individuals entering bankruptcy or applying for a debt relief order (DRO). The changes which will be implemented from 1 October are:
- Creditors petitioning for an individual's bankruptcy will need to be owed at least £5,000, rather than £750 as at present.
- Individuals will be eligible for a DRO if:
- They owe up to £20,000, rather than £15,000 as at present.
- Have assets worth up to £1000, rather than up to £300 as at present.
- Have a maximum monthly surplus income of £50.
The new monetary limits for DROs are said to reflect the cost of living today and associated debt levels. However, the increase in the threshold for creditors' bankruptcy petitions to £5,000 is well above inflation but reflects the intention from parliament to dissuade creditors using bankruptcy procedure as a means of debt recovery.
The Insolvency (Protection of Essential Supplies) Order 2015 will also come into effect on 1 October 2015.
The Order seeks to prevent suppliers of essential services from using the critical nature of their services to negotiate an unfair advantage when a business enters administration or a voluntary arrangement. An example of a critical service would be gas/electricity or other related utilities. The Order will also offer protection to supplies of IT-related goods and services such as computer hardware and software, server providers, data storage and website hosting facilities.
The Order contains provisions that will void contract terms that allow suppliers to withdraw their supply or demand additional payments in these processes. In these circumstances a supplier can continue to supply services but as a condition of ongoing supply, would ask the appointed insolvency practitioner to guarantee payments of charges incurred after the start of the administration or voluntary arrangement.
If the ongoing supply was to cause hardship, the supplier may apply to court for permission to terminate the contract.
The Insolvency (Amendment) Rules 2015 (SI 2015/443) (Amendment Rules) introduce a new requirement for insolvency practitioners who propose to charge all or part of their fees on a time cost basis to provide the following information to each creditor of whose claim and address they are aware, before asking creditors (or the court) to fix the basis of their remuneration on a time cost basis:
- A written "fees estimate".
- Details of the expenses the IP considers will or are likely to be incurred.
Further, the periodic progress reports to creditors must include information on whether fees or expenses have exceeded or are likely to exceed the fees or expenses estimates given before the basis of their remuneration was set, and if so why. If the fees are likely to exceed the estimate, then practitioners must account to the creditors for the reasons and obtain their approval in the same way the fees estimate was originally approved.
The prospective changes to the insolvency rules are said to reflect the rise in the cost of living. The amendments also show a willingness to avoid unnecessary insolvency where possible.