Introduction

The following is a summary of the results of the Insolvency Service’s recent consultation on Section 371 of the Insolvency Act 1986 and whether specific rules are required in relation to postal re-direction applications and orders in order to address concerns raised by the European Court of Human Rights.   

We would like to thank all those that took part in this exercise.  

Replies were received from:  

• Association of Business Recovery Professionals
• Court Service
• Insolvency Court Users’ Committee
• Insolvency Lawyers’ Association
• Institute of Credit Management
• KPMG LLP
• Marshman & Co.

As this was a very limited consultation on a technical issue we have decided to summarise the results, however individual replies may be made available on request unless the respondent has indicated that they wish their comments to remain confidential. If you would like a copy of an individual response please contact: 

Lee Hewlett

The Insolvency Service

Policy Unit

Area 5.7

21 Bloomsbury Street

London

WC1B 3QW 

Tel: 020 7291 6730

Fax: 020 7291 6746

E-Mail: lee.hewlett@insolvency.gsi.gov.uk 

Results

Q1. Is section 371 of the Insolvency Act sufficiently useful to justify its retention, or should it be repealed?

Most respondents noted that mail re-direction orders are rarely used in practice but all agreed that s.371 should be retained as re-directed post can provide useful information in cases where a bankrupt does not co-operate in the proceedings.   

Q2. Do you consider it necessary or desirable to amend section 371 (as primary legislation)? If so, please give reasons, and what amendments would you suggest?

None of the respondents believe that it is necessary to amend s.371 to address the issues raised in the consultation. Some noted that the section is somewhat out-of-date in that it does not for instance cover electronic communications and this is something that may need to be addressed at a later stage.   

Q3. Do you consider that the Insolvency Rules 1986 should be amended to introduce specific rules in relation to applications and orders under section 371 of the Insolvency Act 1986 to give guidance to official receivers and trustees in bankruptcy on standard procedures for applying for, and operating, postal re-direction orders?

A clear majority of respondents believe that the Insolvency Rules 1986 could be amended to introduce specific rules in relation to applications to the court and possibly the operation of re-direction orders.   

Q4. Are there any circumstances in which it would be worth applying for a mail re-direction order on notice to the bankrupt?

The overwhelming response was no – giving notice could negate any possible benefits to creditors from obtaining a re-direction order as it would give an un-cooperative bankrupt an opportunity to rearrange their affairs. 

Q5. On what, if any, grounds should a bankrupt be able to resist or set aside a mail re-direction order?

Comments varied but there were some common themes, e.g. the bankrupt should be able to challenge a re-direction order if it is improperly obtained or should not have been made, or the bankrupt has co-operated fully in the proceedings. 

Q6. Do you consider that the rules should provide for all post to first be re-directed to a third party filter, such as an independent solicitor, or should it be left to the court to impose such conditions as it thinks fit as appropriate to a particular case?

None of the respondents consider that the rules should provide for all post to first be re-directed to a third party filter as this would cause unnecessary delays in obtaining information and incur additional costs. Most suggested that such a measure should be left to the discretion of the court who should be able to impose conditions as it thinks appropriate in a particular case.

Q7. Do you have any other comments or suggestions?

A variety of comments were made here and throughout the responses to the effect that Section 371 is a useful provision and it is in the interests of creditors for the official receiver/trustee to be able to seek a court order for the re-direction of a bankrupt’s mail in appropriate cases. Some specific amendments to the Insolvency Rules 1986 were suggested.

What happens next?

1) We are satisfied that there is no need to repeal or amend Section 371 of the Insolvency Act 1986 to address the concerns expressed by the European Court of Human Rights. 

2) We intend to amend the Insolvency Rules 1986 to introduce a new rule in relation to postal re-direction orders and a draft rule has been submitted to the Insolvency Rules Committee. The main provisions of that draft rule (which may be subject to change) are that:

• An application for a re-direction order shall be made without notice to the bankrupt unless the court directs otherwise.

§         The applicant will be required to file a report/affidavit setting out the reasons why it appears to him that a postal re-direction order should be made.

• The court may make an order on such conditions as it thinks fit.
• The order need not be served on the bankrupt unless the court directs otherwise.

3) We aim to bring any amendments to the Insolvency Rules into force in April 2005.