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Insolvency Service - Reform of the Process to Apply for Bankruptcy and Compulsory Winding Up

Executive Summary

Credit unions, as co-operative financial institutions owned and controlled by their members, are responsible lenders with a statutory responsibility under the Credit Unions Act 1979  to act in the best financial interests of their member-customers. As such, they have been central to Government efforts to promote financial inclusion taking a pivotal role, for example, in delivering the Department for Work & Pensions Financial Inclusion Growth Fund which provided capital for on-lending to those without access to a source of affordable credit.  Ending in March 2011, the loans provided under the fund totalled 405,000 with a value of £175 million  and an independent evaluation of the scheme found that it saved loan recipients between £119 million and £135 million in interest payments compared with high cost alternatives.   The present Coalition Government, too, recognises the role credit unions can play and passed the Legislative Reform (Industrial & Provident Societies and Credit Unions) Order 2011  whilst earmarking a £73 million credit union modernisation and expansion fund  as measures to further support the development of the sector.

As a responsible lending sector, therefore, credit unions have no objection to making the system for bankruptcy more efficient, effective and affordable and agree with the objective of seeking to free up the courts to adjudicate on disputed claims which has the double benefit of speeding up the bankruptcy process in undisputed cases and allowing the courts to focus their finite resources upon those cases where a dispute occurs.

Similarly, and again as responsible lenders, credit unions actively engage debtors who experience difficulty in repaying their debts and, therefore, we have no objection to the proposed Pre-Action Notice which seeks to engage debtors in a constructive and positive manner in order that early dialogue between creditor and debtor can result in more positive outcomes for all involved.  As a sector concerned with promoting financial well-being and the mutual benefit of the credit union and its members, credit unions are fully aware of the unforeseen circumstances that can unfortunately befall individuals and prevent them from meeting the obligations of their credit agreements and are therefore as flexible as possible in considering renegotiated settlements. 

We do have some limited concerns around some of the proposals and their effect on smaller credit unions.  Whilst the largest credit unions operate on a scale comparable to the smallest building societies, many remain very small, entirely volunteer-run organisations with little or no access to computing and the internet therefore paper-based applications and non-electronic means of payment should be made available to creditors that wish to use these methods.

Similarly, we feel that special provision ought to be made to identify credit union debts in bankruptcy proceedings – often small credit unions with limited resources might find difficulty in tracing outstanding debts or in keeping abreast of the insolvency register and, in consideration of the fact that Government policy is to promote credit union development, special efforts should be made to identify credit union debts in a bankruptcy case.

Again in relation to the size of some credit unions, we would like to see produced a comprehensive, clear, step-by-step guide for creditors applying for the bankruptcy of a debtor.  This should be accessible both online and in paper for no more than cost price.  The guidance should provide all the information that a creditor might need as well as providing information about where the creditor might seek further information if required.  The insolvency system should be obliged to provide such guidance to ensure that all parties are able to exercise their rights.

We accept the proposal for creditors to supply email address(es) and mobile telephone number(s) where these are held as long as it is fully understood that people – especially those that might be trying to avoid their obligations – often change their numbers and addresses frequently and therefore an inability to produce accurate information of this sort should not be penalised.

Finally, only from 8 January 2012 – the effective date of the Legislative Reform (Industrial and Provident Societies and Credit Unions) Order 2011 – have credit unions been permitted by law to admit organisations into membership as well as individuals and so, as yet, no credit union has any experience of lending to business nor, therefore, of petitioning for a winding up order.  This being so we make no comment on the detail of the proposals here other than to say that, as with personal insolvency, we agree with the principle of the reforms and the thrust of what they seek to achieve which is to create a more efficient and effective process which results in better more speedy outcomes for creditor and debtor and which relieves pressure on the courts allowing finite resources to be focussed on those cases where a dispute arises.

The full response can be downloaded on the right hand side of the screen.