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Proposed repeal of early discharge from Bankruptcy

The Enterprise and Regulatory Reform Bill is currently being debated in the House of Commons. The main areas of reform in the Bill include changes to competition policy and law, employment law and reducing regulation.

Included in a “miscellaneous” schedule is, however, a provision to repeal s279(2) of the Insolvency Act 1986, which is the part of the Act that enables the Official Receiver to grant early discharge to bankrupts i.e. prior to the automatic discharge after one year.

The stated intention behind the early discharge provisions was to benefit those bankrupts who fully co-operated with the Official Receiver and who posed no risk to the public or the commercial community. It was thought appropriate that these bankrupts should be given the early opportunity of a ‘fresh start’ sooner than one year, which would remove the stigma of bankruptcy and encourage entrepreneurs to try again.

The Insolvency Service has, however, since concluded that discharge from bankruptcy earlier than the automatic one year did not have the desired impact of encouraging early rehabilitation due to the unchanged stigma attaching to bankruptcy, restricted access to the financial market and business’s attitudes to bankrupts. Furthermore the IVA provisions have been partially successful in supporting the “fresh start” of a bankrupt by allowing an annulment once an IVA is approved and by improving returns to creditors.

It is a useful reminder that an IVA can be used to annul a bankruptcy as well as avoid it.

The Restructuring & Insolvency team at Mercer & Hole offer expert advice on Individual Voluntary Arrangements (IVAs) details of which can be found on the Relief4Debt pages of the Mercer & Hole website.

 

 

Date: 5th July, 2012
Author: Steve Smith

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