BANKRUPT'S HOME (Hansard, 17 June 2002)

HC Deb 17 June 2002 vol 387 cc41-56 41

§ '(1) The following shall be inserted after section 283 of the Insolvency Act 1986 (definition of bankrupt's estate)—

§ "283A Bankrupt's home ceasing to form part of estate

§ (1) This section applies where property comprised in the bankrupt's estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the bankrupt's sole or principal residence.

§ (2) At the end of the period of three years beginning with the date of the bankruptcy the interest mentioned in subsection (1) shall—

(a) cease to be comprised in the bankrupt's estate, and
(b) vest in the bankrupt (without conveyance, assignment or transfer).

§ (3) Subsection (2) shall not apply if during the period mentioned in that subsection—

(a) the trustee realises the interest mentioned in subsection (1),
(b) the trustee applies for an order for sale in respect of the dwelling-house,
(c) the trustee applies for an order for possession of the dwelling-house,
(d) the trustee applies for an order under section 313 in Chapter IV in respect of that interest, or
(e) the trustee and the bankrupt agree that the bankrupt shall incur a specified liability to his estate (with or without the addition of interest from the date of the agreement) in consideration of which the interest mentioned in subsection (1) shall cease to form part of the estate.

§ (4) Where an application of a kind described in subsection (3)(b) to (d) is made during the period mentioned in subsection (2) and is dismissed, unless the court orders otherwise the interest to which the application relates shall on the dismissal of the application—

(a) cease to be comprised in the bankrupt's estate, and
(b) vest in the bankrupt (without conveyance, assignment or transfer).

§ (5) If the bankrupt does not inform the trustee or the official receiver of his interest in a property before the end of the period of three months beginning with the date of the bankruptcy, the period of three years mentioned in subsection (2)—

(a) shall not begin with the date of the bankruptcy, but
(b) shall begin with the date on which the trustee or official receiver becomes aware of the bankrupt's interest.

§ (6) The court may substitute for the period of three years mentioned in subsection (2) a longer period—

(a) in prescribed circumstances, and
(b) in such other circumstances as the court thinks appropriate.

§ (7) The rules may make provision for this section to have effect with the substitution of a shorter period for the period of three years mentioned in subsection (2) in specified circumstances (which may be described by reference to action to be taken by a trustee in bankruptcy).

§ (8) The rules may also, in particular. make provision—

(a) requiring or enabling the trustee of a bankrupt's estate to give notice that this section applies or does not apply;
(b) about the effect of a notice under paragraph (a);
(c) requiring the trustee of a bankrupt's estate to make an application to the Chief Land Registrar.

§ (9) Rules under subsection (8)(b) may, in particular—

(a) disapply this section;
(b) enable a court to disapply this section;
(c) make provision in consequence of a disapplication of this section;
(d) enable a court to make provision in consequence of a disapplication of this section;
(e) make provision (which may include provision conferring jurisdiction on a court or tribunal) about compensation."

§ (2) Section 313 of the Insolvency Act 1986 (c. 45) (charge on bankrupt's home) shall be amended as follows—

(a) in subsection (2) for ", up to the value from time to time of the property secured," substitute ", up to the charged value from time to time,", and
(b) after subsection (2) insert—

§ "(2A) In subsection (2) the charged value means— 43

(a) the amount specified in the charging order as the value of the bankrupt's interest in the property at the date of the order, plus
(b) interest on that amount from the date of the charging order at the prescribed rate.

§ (2B) In determining the value of an interest for the purposes of this section the court shall disregard any matter which it is required to disregard by the rules."

§ (3) The following shall be inserted after section 313 of that Act—

§ "313A Low value home: application for sale, possession or charge

§ (1) This section applies where—

(a) property comprised in the bankrupt's estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the bankrupt's sole or principal residence, and
(b) the trustee applies for an order for the sale of the property, for an order for possession of the property or for an order under section 313 in respect of the property.

§ (2) The court shall dismiss the application if the value of the interest is below the amount prescribed for the purposes of this subsection.

§ (3) In determining the value of an interest for the purposes of this section the court shall disregard any matter which it is required to disregard by the order which prescribes the amount for the purposes of subsection (2)."

§ (4) The following shall be inserted after section 307(2)(a) of the Insolvency Act 1986 (c. 45) (after-acquired property: exclusions)—

§ "(aa) any property vesting in the bankrupt by virtue of section 283A in Chapter II,".

§ (5) In section 384(2) of that Act (prescribed amounts) after "section 273;" insert—

§ "section 313A;".

§ (6) In section 418(1) of that Act (monetary limits in bankruptcy) after the entry for section 273 insert—

§ section 313A (value of property below which application for sale, possession or charge to be dismissed):".

§ (7) In subsection (8)—

(a) "pre-commencement bankrupt" means an individual who is adjudged bankrupt on a petition presented before subsection (1) above comes into force, and
(b) "the transitional period" is the period of three years beginning with the date on which subsection (1) above comes into force.

§ (8) If a pre-commencement bankrupt's estate includes an interest in a dwelling-house which at the date of the bankruptcy was his sole or principal residence, at the end of the transitional period that interest shall—

(a) cease to be comprised in the estate, and
(b) vest in the bankrupt (without conveyance, assignment or transfer).

§ (9) But subsection (8) shall not apply if before or during the transitional period—

(a) any of the events mentioned in section 283A(3) of the Insolvency Act 1986 (c.45) (inserted by subsection (1) above) occurs in relation to the interest or the dwelling-house, or
the trustee obtains any order of a court, or makes any agreement with the bankrupt, in respect of the interest or the dwelling-house.

§ (10) Section 283A(4) of that Act shall apply to an application made during the transitional period in relation to a pre-commencement bankrupt as it applies to an application made during the period mentioned in section 283A(2).'.—[Miss Melanie Johnson.]

§ Brought up, and read the First time.

§ Miss Melanie Johnson
I beg to move, That the clause be read a Second time.
New clause 6 was tabled to fulfil a commitment made in Committee to my hon. Friend the Member for South Ribble (Mr. Borrow), who had tabled his own new clause to deal with situations where the bankrupt's family home remains liable for sale by the trustee, and indeed is sometimes sold by him, long after the bankrupt has been discharged. The current provisions can lead to some harsh outcomes and perceived unfairness, and my hon. Friend mentioned representations from a wide range of organizations—including the Insolvency Practices Council, the Bankruptcy Advisory Service and the Association of Business Recovery Professionals—seeking clarification and a change to the law. The hon. Member for Huntingdon (Mr. Djanogly) also spoke in Committee in favour of change.
My hon. Friend accepted that his new clause may not have been perfectly drafted and withdrew it on our undertaking further to consider the issue of the family home. New clause 6 provides for more equitable treatment of the family home in bankruptcy. The home will continue to vest on bankruptcy in the bankrupt's estate, as it does now, but the clause provides a three-year period during which the trustee must act. If he does not do so, the family home reverts to the bankrupt at the end of that period. The clause provides for extending that period in special circumstances, but that will be the exception rather than the norm.
We believe that all the relevant provisions will result in a much fairer regime. They will provide some certainty to the bankrupt, the trustee and the creditors about the time scale, which is currently open ended, for dealing with the family home. They will create a balance between the interests of the bankrupt and his or her family and the creditors. In a minority of cases, that balance can currently unfairly favour the interests of creditors, and the provisions will help lift the stigma of bankruptcy.
In considering the matter further, we have concluded that those who are bankrupt when the new provisions come into force should also benefit. There seems no sound reason why that should not happen, especially since they feel the unfair effects of the current law. The new clause therefore contains transitional provisions.
The provision is detailed because it deals with a complex subject. Nevertheless, we believe that it will create a reasonable balance between the interests of creditors, by providing ample time for the disposal by the trustee of the bankrupt's interest in his or her sole and principal residence in the most appropriate manner, and those of bankrupts and their dependents, by providing a degree of finality about the time scale in which their interests in their homes will be tackled.
I ask hon. Members to support the new clause.

§ Mr. Waterson
I am grateful to the Minister for explaining the thinking behind the new clause. As she rightly says, it is based on a similar amendment which the hon. Member for South Ribble (Mr. Borrow) tabled in Committee. As she also said, a central reason for the new 45 clause is removing the stigma of bankruptcy. The Opposition and the Government differ sharply on the matter. As the Minister knows from our Committee proceedings, we have genuine anxieties about whether removing the stigma to the extent for which the Bill provides is commendable. We have examined in some detail experience in the USA, Hong Kong and Scotland to ascertain what has happened in other parts of the world where similar proposals pertain.

§ Mr. McWalter
The hon. Gentleman mentions removing the stigma on bankrupts. Does he accept that the new clause would remove it from some but possibly make it worse for those whom one might regard as maleficent bankrupts?

§ Mr. Waterson
Clearly, it affects bankrupts who have a substantial asset in the form of a home in which they live. However, I am sure that the hon. Gentleman and the Minister accept that the new clause is part of the general philosophy of the provisions that we are considering: removing the stigma of bankruptcy, and making it easier for people to become bankrupt and come out of bankruptcy. The argument for that is based on the unsustainable proposition of culpable and non-culpable bankrupts. We do not accept that, and we have argued for a third category: the pathological optimists, who do not mean any harm but leave a trail of debt and destruction.
It is instructive to examine the Minister's initial reaction to what was new clause 12, which the hon. Member for South Ribble tabled in Committee. She did not greet it with special enthusiasm, as it can lead to a certain rough justice in practice and is not entirely compatible with 'A Fresh Start'"—[Official Report, Standing Committee B, 16 May 2002; c. 714.] "A Fresh Start" is the title of the White Paper, and the Minister herself made those remarks.
In Committee, we covered the point that English law makes no distinction between personal and corporate insolvency. We know that after the changes in the law in the USA, 1.5 million bankruptcies a year there have nothing to do with business. The vast proportion constitute consumers who are wiping out consumer—usually credit card—debt. We must be under no illusions about the provision being directed at individuals who run up personal credit bills. In many cases, the only asset available to their creditors will be the remaining equity in their homes. With the current explosion in consumer credit, this problem is likely to get worse rather than better.
5 pm
In addition, another part of the Bill contributes to the problem that will arise from new clause 6. That involves the more limited time that will be available to investigate bankrupts and their assets before they are discharged from bankruptcy. We shall investigate this matter in greater detail under the eighth group of amendments. The Bill sets out a period of 12 months, but makes it clear that, for many bankrupts, that will he the upper ceiling, and that they will come out of bankruptcy well within the 12-month period. One of the arguments against the three-year period relates to whether the ownership of a property comes to light in a reasonable time, and I shall come to that in a minute. We want to ensure that, in introducing these changes—which must all be taken together—we do not produce a kind of rogue's charter.
46 I am sure that the Minister will concede that excluding a bankrupt's home in certain circumstances is a major issue in this legislation, and the proposal has been introduced very much at the last minute. I concede that there was a discussion based on the new clause tabled in Committee by the hon. Member for South Ribble, although, as I recall, that came towards the end of the Committee's deliberations. The Minister, having promised to come back to us on this matter, has, indeed, produced the Government's own new clause. This has come at a very late stage in relation to our discussions on the Bill last Thursday and today.
There are two aspects to the Government's rather detailed new clause. The first issue relates to a bankrupt's sole or principal residence being returned to them, in principle, after three years. The second issue—to which the Minister did not, perhaps, devote as much time as she should have—involves the provision about low-value homes. Subsection (3) of the new clause proposes that, when a bankrupt's sole or principal residence is involved, and a trustee applies for an order for the sale or possession of the property, or for an order under section 313 in respect of the property", The court shall dismiss the application if the value of the interest is below the amount prescribed for the purposes of this subsection. That is quite a dramatic departure, even from the debate that we had in Committee. As I read that paragraph, it seems to be saying that properties below a certain value will be exempt from the bankruptcy process in any event. Presumably, it leaves the fixing of the value—the so-called low value—to regulation. It would be interesting to hear more of the Minister's thinking about what kind of low value we are talking about.
This measure has the potential to be extremely divisive across the country. How is this low value to be established? Judged by London standards, properties in some parts of the country have a very low value indeed, but only on a comparative basis. What attempts, if any, have been made to consult insolvency practitioners, consumer bodies or the credit industry on the effects of this and the earlier part of the new clause? What is the thinking behind this development concerning low-value properties? How is that term to be defined? What is the basis for it? This provision goes significantly beyond the debate that we had in Committee, and it would be interesting to know precisely what the departmental thinking behind it is.
These major concerns are borne out by a letter that was sent to the Minister by an anonymous insolvency practitioner, a copy of which was also sent to me. This person has practised as an insolvency practitioner for many years, and used to work for the Insolvency Service. His first point was that he was unsure when the three-year period would begin to run. As I read the new clause, it would seem to begin when the bankruptcy starts. The gentleman to whom I refer, however, points out that it might make more sense if the three years ran from when the trustee became aware of the existence of the property.

§ Miss Melanie Johnson
Subsection (5) states that if the bankrupt does not notify the official receiver or the trustee of the property, the three-year period will be extended.

§ Mr. Waterson
That is very helpful.
47 As I am sure the Minister will accept, it is not unknown for a bankrupt to hide his interest in a property. This is not a situation in which all or even most bankrupts rush to declare all their assets at the beginning of a bankruptcy.
The gentleman I mentioned writes: What the government appears to be saying to unscrupulous or feckless/reckless bankrupts… is that if you risk, in the main, other people's money and if you are lucky enough for the equity in your house to increase…that windfall benefit will be yours rather than your long suffering creditors', the government needless to say being one of the larger losers. This doesn't encourage enterprise, but a bunch of gamblers gambling recklessly with other people's money. Before proceeding, the Minister should at least ask the insolvency profession whether hers is a sensible approach.
We are prepared to concede that, if there is some unfairness, it could be argued that it is experienced by the bankrupt's spouse rather than the bankrupt if he or she has not been kept fully informed. The hon. Member for South Ribble said, not unreasonably, that it was a shock for someone, having initially kept his home, to use it some years later during a bankruptcy; but I understand that that has been addressed for some years by the Insolvency Service itself.
The bankrupt and/or his or her spouse is given the opportunity, in the event of negative or limited positive equity, to purchase the property for a nominal sum—usually £1—with legal costs of no more than £230. It is difficult to believe that the bankrupt or spouse could not raise that kind of money if the offer were made in the usual way. However, the gentleman's letter continues: I have seen many cases working for an Insolvency Practitioner, where there are many unanswered letters on file from the Official Receiver, to the bankrupt offering to sell his interest in the property for a nominal sum. I have looked at the file of one bankrupt where there were no less than 6 letters on file from the Official Receiver commencing within weeks of the Bankruptcy". The problem seems, however, not to relate so much to the matrimonial home with negative or very limited equity. Any bankrupt with any sense should accept the terms routinely offered. I am told that the practical problem for trustees is dealing with cases in which the bankrupt's share of the equity is perhaps between £2,500 and £10,000, and it is beyond the ability of the bankrupt or his spouse to borrow that sum, but uneconomic for the trustee—in terms of his own fees—to pursue the matter through the courts.
As for bargaining with the bankrupt, the trustee would not give up the potential right to sell the matrimonial home as a way of ensuring a more satisfactory result in terms of the bankruptcy overall. One of the aims of new clause 6 is to prevent such pressure from being exerted on a bankrupt who may be less than willing to volunteer assets or payments to satisfy creditors.
One answer proposed by our anonymous correspondent is that the Insolvency Service should review its files far more regularly, not just when the assets fall into its lap—usually when the bankrupt wants to sell or remortgage his home. He says: in my experience this is the most common way insolvency practitioners get appointed. He says, in conclusion: There is a cheap and effective way for many bankrupts/spouses to protect their homes, the fact that the way has not been taken is normally the ostrich response of many bankrupts and the fact it takes 48 some years to discover is due at best to the under resourced and under trained Insolvency Service, at worst due to their inability to apply or understand their own procedures. On any view, this provision must shift the balance of power between creditors and debtors. It is bound to have a knock-on effect on the credit industry, quite apart from the effects, which we discussed at length in Committee and will discuss at length again today, of other provisions relating, in particular, to personal insolvency. It is important that Ministers and officials consult fully before proceeding with the proposals, because the ghost at the banquet—the law of unintended consequences—is bound to arise again here, as sure as eggs is eggs. As the Opposition, we must at least try to guard against that.
With all due respect to the hon. Member for South Ribble, who advanced arguments that were sometimes simple and emotional, there is always another side to the question. It is important that the Government do not rush to try to right an apparent injustice, when the real injustice is often the one visited on creditors, who may be not banks or credit companies but simply other individuals, family or friends, who have advanced money to a bankrupt. All too often, the lender of last resort is a close family member or friend.

§ Mr. David Borrow (South Ribble)
I welcome the new clause. I am extremely grateful that the Minister delivered on the promise made in Committee. The new clause is long and complex, because this is a complex and difficult area of law, but the principles are simple, to echo the word used by the hon. Member for Eastbourne (Mr. Waterson). When a person goes bankrupt, it is reasonable for the creditors to be able to get access to all the assets, but we are talking not about assets but about a family home in which there is no interest, or only marginal interest, at the time of bankruptcy.
The new clause means that the creditors must, within three years, either take possession of the property and dispose of it or allow the bankrupt to continue to own it so that equity builds up, either by an increase in its value or by a lessening of the mortgage debt. If the house were a moveable chattel, it would be sold and the value would be distributed among the creditors, but at the time of bankruptcy there is nothing for the creditors to get hold of, because it does not exist.
Under the current law, the value in the property that is built up, through hard work and paying off the mortgage and through changes in the property's value after the bankrupt is discharged, can end up being distributed to the creditors a decade or more later, when any other asset belonging to the bankrupt at the time of bankruptcy would already have been sold and distributed.
In my view, it is important to be able to say that, once a bankrupt has been discharged, a line has been drawn under the matter and he can get on with his life, build up equity in the home and anticipate being able to retire with a property that has been bought and paid for. Under the current law, that may not happen. The hon. Member for Eastbourne asked about what happens if the family home does not come to the attention of the trustee at the time of bankruptcy, but that point is adequately dealt with in new clause 6, which points out that the three-year period begins when the property's existence comes to the attention of the trustee.
49 5.15 pm
This is a modest but important new clause for certain people. I welcome its introduction by my hon. Friend the Minister, and the fact that her officials have found time to ensure its correct drafting. I hope that the House will accept it.

§ Mr. Mark Field
I accept the points made by the hon. Member for South Ribble (Mr. Borrow) today and in Committee. It seems unusual and perhaps unfair on a bankrupt to be left in limbo for such a period, particularly in cases where the matrimonial home is clearly part of the bankrupt's estate when proceedings begin, and the risk of needing to sell it off to pay the bankrupt's debts is therefore small or non-existent. Such uncertainty would be especially unfair on the bankrupt's spouse and children, for example. However, there are also concerns—articulated well by my hon. Friend the Member for Eastbourne (Mr. Waterson)—about stigma and the position of creditors. In tabling this and other provisions, the position of creditors has perhaps been forgotten, or at least downgraded somewhat.
Although I appreciate that the same could be said of any arbitrary time limit, my concern about a strict three-year limit is that it might be deemed necessary to sell the bankrupt's home—to realise perhaps only a relatively small proportion of the equity—at a difficult time in the property market. I am a relatively new MP, with 12 and a half months' experience in this place, but those who were MPs during the mid-1990s will be familiar with stories of individuals who, on becoming bankrupt, had their property taken over by the mortgage company or building society, and sold for a very low value. Any arbitrary time limit such as that proposed involves the inevitable risk that the property will have to be sold at a time disadvantageous to the bankrupt. Notwithstanding the level of discretion provided by the clause, such risk remains.

§ Mr. Waterson
Although the Minister rightly pointed out that a court can apply a period longer than three years, under subsection (7) it is possible, in principle, for a period of less than three years to be applied.

§ Mr. Field
I fully appreciate that there is flexibility, but if the clause is too flexible, it risks going against the grain of the intended aim of achieving some certainty. Such certainty is necessary in the light of the concerns of the bankrupt, and particularly of the state, about housing any dependants.
It seems that the new clause will ultimately be accepted, and instinctive support does indeed exist on both sides of the House for some of the aims of the hon. Member for South Ribble and the Government. I hope, however, that thought will be given to the underlying concern that it might be made far too easy to apply for individual bankruptcies. The real risk of this clause and other clauses is that the interests of creditors will be undermined.
We will no doubt brandish statistics later in the debate, but newspapers have recently reported that significant numbers of graduates leave university with large personal debts. They may not have the benefit of owning property, but such debts could lead to less of a stigma for being bankrupt, and students with large debts may go into bankruptcy at an early stage in order to draw a line under 50 them. As I have said, the fear is that the interests of creditors—as my hon. Friend the Member for Eastbourne pointed out, the creditor of last resort is all too often friends and family—will be undermined by allowing further rights to those with debts.
I hope that the Minister will be able to provide some assurances on the points that have been made. Given the debate that we had in Committee, we can understand why the new clause is considered a good idea, but we are worried that creditors' interests will be downgraded in some way and that the strict time limits—notwithstanding the potential for some flexibility—will cause grave injustices. Examples of such injustices will no doubt have a high profile press coverage, and that will not do any of us any credit. We may find that the good intentions behind the clause will be undermined by the reality.

§ Mr. McWalter
I congratulate my hon. Friends the Member for South Ribble (Mr. Borrow) and the Minister on the new clause. It will significantly strengthen the Bill in terms of trying to promote a culture of enterprise. People will have greater opportunities to set up businesses—to implement a business idea—without risking all the assets that they have accumulated before setting out on a venture that will always be hazardous and difficult, no matter what the Government do. People who try to develop new businesses will always win the respect of Members of Parliament.
The new clause exposes again the fault line between the Government and the Opposition. The Opposition say that they do not support the idea that one can distinguish between bankrupts who are benign and those who are malign. Of course, the third category of serial optimist—or people who might be described as reckless—will come to the attention of the courts after the first or second reckless venture. In such cases, the courts would begin to think that such persons were malign.

§ Mr. Field
The legislation on individual bankruptcy and, to an extent, corporate insolvency is predicated on the basis that some bankrupts and insolvent companies are good and some are bad. However, does the hon. Gentleman agree that there are shades of grey? We are concerned that the Government's approach is naive. The issue therefore should be dealt with as a matter of fact, rather than of strict law.

§ Mr. McWalter
I agree with the hon. Gentleman. It is a matter of shades of grey and difficult decisions need to be made about whether somebody who has left a lot of creditors in the lurch is so culpable that they should face a long period of imprisonment or be banned from being a company director. In other cases, people might go bankrupt because someone defaulted on a large debt that was owed to them, so it was no fault of theirs—especially if the default was unforeseeable. There is a spectrum of cases and it is ultimately for the courts to decide some of them.
Under the new clause, it must be decided whether someone is malign or benign. People heading for bankruptcy can do everything possible to salt away resources so that when they go bankrupt and default on their obligations to their creditors, they can live off the fat of the resources that they have salted away. I have come across a case in my constituency of someone making extraordinary payments into a pension plan which can be 51 drawn down early so that he can live high on the hog while the enterprises of many of his creditors are significantly diminished. That is a malign case.
Similarly, people can vest in their property a significant amount of resources that they should have been paying out on the bills to those who supplied commodities and services to their companies. However, new clause 6 caters for that eventuality. Someone may develop a significant capital in a property that is in council tax band H, for example, at the same time as they have been defaulting on their obligations, and if the company and its directors fail to take account of the process of giving an early warning and indicating to the authorities that they will have difficulty in meeting their obligations, I am sure that when the trustee applies for an order for sale in respect of the dwelling house, it will be granted. That is the process envisaged by the new clause.
Of course, much of the time, people genuinely have a single dwelling house—a principal residence—where not only they but their family and children live. Under the old regime, that asset is taken away and it falls to the state to house the family and children. These days, it is difficult for local authorities to respond positively in those circumstances. I agree with the hon. Member for Cities of London and Westminster (Mr. Field) about grey areas, but if we assume that the person has built up an inordinate amount of capital as a result of malign activities, it is ultimately for the courts to decide on which side of the line they fall. Have they built up that capital while failing to co-operate with the authorities? Some cases might be difficult to decide. Sometimes the order for sale will be granted because it will be reasonable to expect the family to rehouse itself in a lower value property, paid for out of residual assets.

5.30 pm

§ Mr. Waterson
Does the hon. Gentleman at least accept my concern that, in other parts of the Bill, the actual period for investigation and then discharge of a bankrupt could be much less even than 12 months? Given existing pressure on the relevant resources, that could mean that if the information that a property was not the sole, but could be the principal, residence, was not volunteered, that asset might not be available at all for the satisfaction of the creditors due to the dishonesty of the bankrupt and the lack of proper investigation by the trustee.

§ Mr. McWalter
I thank the hon. Gentleman for that intervention. Where there is non-disclosure, the person is automatically in danger of instantly being labelled a malign bankrupt; because of the failure to disclose, the kind of protection for the principal home envisaged in the new clause would not apply. Such behaviour would thus immediately constitute a prima facie case for the person not benefiting from the provision.

§ Mr. Waterson
The hon. Gentleman is generous in giving way to me again. The point I was trying to make was that the non-disclosure might remain undiscovered—although the hon. Gentleman is right about the effects, if it was discovered.

§ Mr. McWalter
I accept what the hon. Gentleman says, although if it became clear at a later stage that 52 someone had failed to disclose, other statutes might be applicable, depending on the precise nature of the non-disclosure; for instance, the Proceeds of Crime Bill might apply.

§ Mr. Ken Purchase (Wolverhampton, North-East)
Although I have huge sympathy with the new clause in its widest sense because it will bring a little more justice in those situations, on the narrow point that my hon. Friend makes about malignity and non-malignity, does he agree that determining between the two would be an enormous task to give anyone? Within that narrow context, does he agree that a person who fails to keep themselves fully and properly informed of good business practice might as well be acting malignly if it leads to the difficulties that we are discussing?

§ Mr. McWalter
As always, my hon. Friend makes a substantive point: someone might fail to co-operate in disclosing their difficulties meeting their obligations because they simply do not know that to do so could result in those difficulties being obviated. That raises interesting questions about the custodians of that process, although insolvency practitioners increasingly seek such changes in the law. When a person makes an initial approach to such a practitioner, they will rapidly be made aware of the arrangements whereby they could be assisted to discharge their obligations to their creditors.
To return to the point that I was making, the procedure admits of coping with two very different kinds of case, and even with the slightly in-between grey cases on which Opposition Members are especially keen. The result of the change—for which I have already commended my hon. Friend the Under-Secretary of State for Trade and Industry—would be that people could think about setting up a business without its threatening the welfare of their family. That would be a marvellous change for the business culture of this country and I sincerely hope that we can make the provision work.
I accept the point made by my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) that its implementation will require extremely good communication between the Government and business, hopefully, for instance, through the agency of the Small Business Service. We should try to ensure that it becomes a prime agency for helping businesses that experience the sort of difficulties to which he adverted.

§ Mr. Carmichael
I shall not detain the House long. I have already given hon. Members the benefit of the Presbyterian perspective and stigma in Committee, and I do not intend to rehearse it again. However, as the hon. Member for Cities of London and Westminster (Mr. Field) has said, this is a question of shades of grey, and even in the Church of Scotland, we recognise shades of grey.

§ Mr. Purchase
Does the hon. Gentleman speak for the Wee Frees?

§ Mr. Carmichael
I cannot speak for the Wee Frees; I am not one of them.
The hon. Member for Eastbourne (Mr. Waterson) said that he was aware of difficulties in other jurisdictions, including Scotland. I am not, in all honesty, aware of a great groundswell of opinion among insolvency 53 practitioners or others in Scotland seeking the sort of changes that he seeks to promote. Unless he can supply us with more concrete examples, I wonder about the extent to which he perhaps seeks to manufacture a problem that does not exist.
I had some difficulty in reconciling the hon. Gentleman's remarks and, indeed, those of his colleague, the hon. Member for Cities of London and Westminster, with those made by those on the Government Benches. When all else fails on these occasions, my approach is always to read the amendment, and it seems to me that the new clause was being painted rather blacker than necessary.
The hon. Member for Cities of London and Westminster says that the application should be a matter of fact, rather than of law. Indeed, if one has regard to the terms of the new clause, that is, in fact, the case. We are dealing with a number of instances in which discretion will be given to trustees, and we hope that that discretion will be excised responsibly and properly on the basis of the information available to them at any given time. Indeed, in the circumstances, I would go so far as to say that the trustees will be best qualified to judge the appropriate application.
Discretion is the important aspect. As the hon. Member for Hemel Hempstead (Mr. McWalter) said, where someone seeks to avoid disclosure, it is highly likely that the trustee will regard that as an act that would divest the individuals concerned of the protection provided under new clause 6. In other words, they would not be protected by it. On balance, the Government's approach is correct.
I have only one concern, which has not yet been properly aired: low-value homes. I want to hear more from the Minister about how those proposals will work and how the variation in property prices will be accommodated. In certain parts of my constituency, two or three-bedroom cottages can still be bought for £10,000 or £15,000.

§ Mr. Purchase
Are they in a nice part of the hon. Gentleman's constituency?

§ Mr. Carmichael
The hon. Gentleman should be aware that there are no nasty parts of Shetland. If he has learned nothing else in past eight weeks, I have surely taught him that much.
The situation in Shetland is very different from that which pertains in other parts of the country, and I wonder just how that circle will be squared. I would want to hear rather greater assurance from the Government that those concerns have been met before we rush headlong into the difficulties that I have outlined.

§ Miss Melanie Johnson
On a few occasions, I wonder whether all hon. Members have listened carefully to what is said in the opening remarks. I thought that I had sketched out very clearly the fact that there are two situations. I refer in particular to the comments made by the hon. Member for Eastbourne (Mr. Waterson) in his opening remarks. The new clause is intended to deal with uncertainty and variation and to achieve a balance. I thought that I had emphasised those points in my opening remarks, but I obviously failed in several regards and I shall endeavour to set the record straight.
54 First, let us be absolutely clear that the new clause does not exclude the family home in any sense. Were there to be a failure to disclose the existence of a family home, it would be an offence under the Insolvency Act 1986, and it would be taken into consideration by the courts. If there is equity in the property, the creditors will get the benefit of it. The effect of the new clause is that the trustee must act within three years. That is the core and central purpose of the new clause, albeit, as Members have recognised, a lengthy and complicated way of achieving it. It responds to a significant number of views that were expressed. Again, the hon. Member for Eastbourne questioned the views of the insolvency profession.

§ Mr. Borrow
I am sure that my hon. Friend has received a great many representations on this matter. Is she in the same position as me, however, in that the only hostile representation that I have received was from the anonymous insolvency practitioner? Does she regard anonymous representations as I do, and give very little weight to them?

§ Miss Johnson
Indeed. I have not seen the anonymous representation, as I suspect that it is hard to answer such an anonymous representation. It has not come to my attention, although the hon. Member for Eastbourne has raised it in his remarks.
I should like to set the record straight. On the issue of the matrimonial home, the Insolvency Practices Council said: It is accepted there are many different circumstances affecting the value of the equity and the potential value to the bankruptcy estate. When should a decision be taken on realisation? At present some of the variations do not seem to be soundly based. The Bankruptcy Advisory Service said: We continue to hear from people who were bankrupt some years ago and who have not taken steps to secure their home from any action by their Official Receiver/Trustee in Bankruptcy. Now years later, they find that the property has increased in value and their regular mortgage repayments have reduced the borrowing, putting substantial equity in the property for the Official Receiver/Trustee to claim". Clearly, a balance must be struck, which is why the opportunity is provided of three years in which to take the property into account. My hon. Friend the Member for Dudley, South (Mr. Pearson), who cannot contribute to our debate, commented to me earlier that he has a constituent—the wife of a bankrupt—for whom this is an issue after 13 years of bankruptcy. Clearly, these issues can cause considerable distress when they crop up much later.
The Association of Business Recovery Professionals also commented: This is the concern, which has been identified…about variations in practice between trustees in bankruptcy in how they deal with the matrimonial home, and a perceived unfairness in selling the home many years after the bankrupt's discharge. As my hon. Friend the Member for South Ribble (Mr. Borrow) recognises, all those groups, unlike the single anonymous contributor, represent a wide range of practitioner views. Indeed, they recognise that there is a problem of exactly the kind that the Government seek to address with the new clause.

§ Mr. Mark Field
I thank the Minister for clarifying the issue in part. To achieve the goal of certainty, which I 55 fully appreciate— many Members have constituents who have been left in limbo for 10 or 15 years with debt hanging over them and the worry of the matrimonial home being sold—was thought given to allowing the trustee to put a charge on the matrimonial home? That charge would be for a set amount of money after three years, five years or whatever period. That would not necessarily take the whole home outside the confines of bankruptcy but it would provide a second mortgage that could be reclaimed when the property was sold.

5.45 pm

§ Miss Johnson
Consideration was given to that and several other possibilities. We thought that there were considerable practical difficulties with such a suggestion and that it might have a downside for creditors. Although it is realistic to say that the home should be taken into consideration within the three-year period and that vesting should take place, it might be better for creditors if it is disposed of a year down the line. That seems perfectly reasonable. However, it is not reasonable for the issue to arise 10 or 15 years later or for the home not to be recognised as an asset earlier.
We have tried to seek a balance. The distinctions between benign and malign or recklessness and bad luck do not come into play; it is a question of how the home is dealt with in the bankruptcy. We seek certainty while giving the trustees time to achieve a good realisation of the assets for the creditors. It is important that a time scale exists, which is why we have chosen the period of three years and tabled new clause 6.

§ Mr. Waterson
May I urge the Under-Secretary not to be so quick to dismiss the comments of the anonymous correspondent? I could understand that if his comments were in capital letters and green ink and liberally sprinkled with four-letter words. However, they seem closely argued and based on long experience of how things work. Does she accept or reject the practical points that he makes? She cannot get away with merely saying that, because the comments are anonymous, she does not need to deal with them. Does she accept the central thesis that there are any number of reasons for a delay in a home becoming available as an asset in a bankruptcy?

§ Miss Johnson
Of course there are a number of reasons for delay, but I have made it clear that the new clause already recognises that point. It is reflected in its drafting and in the provisions that will be made if it becomes a part of the Bill.
The hon. Member for Orkney and Shetland (Mr. Carmichael) said that the issue of low-value properties was of particular concern to him, and the hon. Member for Eastbourne said that it was among his list of concerns. It may be a high or low-value property, but the degree of equity in it is a separate matter. The provision will therefore deal with cases in which there is little or no equity in the property and the cost of disposal may be disproportionate in relation to the funds that could be realised for the estate by the property's sale. The provision will not apply in every case, only when there is an application for a charging order or an order for sale.
56 The value will be set in the light of extensive consultation with interested parties, which is the point made by the hon. Member for Eastbourne. There will be extensive consultation, and our intention is to make that clear in rules; it is not an appropriate matter for primary legislation, not least because of the changes that occur to the way in which the property market works. Equity in housing may or may not exist.

§ Mr. Carmichael
I am grateful to the Under-Secretary for that clarification, but the amount of equity in a property will largely depend on the health of the property market in a particular area. Although I appreciate the point that it is not necessarily a question of the value of the property itself, there will still be great disparities between different parts of the nation.

§ Miss Johnson
I accept that. We are all aware of the huge disparities. Indeed, those hon. Members who are in the Chamber represent constituencies with wildly differing house prices. The important consideration, however, is that we tease out in discussion how the rule will work and what figure should be used. For that reason. we believe that it is not appropriate to include it in the Bill. Instead, we should return to it in more detail after consultation.
The new clause does not encourage people to gamble with other people's money. I thought that that suggestion was beneath the hon. Member for Eastbourne. II is patently about providing a degree of certainty and balance that is currently missing. Many professionals in the insolvency sector recognise that it would be desirable to address that problem. It would make things fairer because a balance needs to be struck. The new clause will do that and it merits the support of the House.

§ Question put and agreed to.

§ Clause read a Second time, and added to the Bill.