Thursday, 25 February 2010

DROs consultation reported by Auntie

The BBC have published a story noting that Debt Relief Orders are to be reviewed. See here. R3 have been characteriustically quick off the mark with a response. A press release has been circulated in which their President, Mr Peter Sargent (pictured sitting) opines:

"When DROs were introduced in April 2009 we had concerns that debtors with any kind of pension pot were effectively barred from this form of debt relief. It seemed counter-intuitive to discourage even those with a very small pension
pot, which would be included as assets and likely prevent them from being eligible for a DRO.

The announcement that those with a small pension pot will not have that value set against the asset ceiling of £300 is good common sense. We await further details on where this value will be set, but this should allow many more to take up this accessible and low-cost form of statutory debt relief."

This news comes at the same time as the Insolvency Service release new 'Information for petitioners on insolvency service deposit and fee charges for 2010.'

Picture Credit: http://www.dodsdata.com/images/22886_Large.jpg

Wednesday, 24 February 2010

New Yale Law Journal article on "Antibankruptcy"

Professor Douglas G. Baird (pictured) and Professor Robert K Rasmussen have published an interesting article in the latest edition of the Yale Law Journal (119 YaleLJ 648 (2010)). The article is entitled "Antibankruptcy." Here is the abstract:

"In large Chapter 11 cases, the prototypical creditor is no longer a small player holding a claim much like everyone else’s, but rather a distressed debt professional advancing her own agenda. Secured creditors are more pervasive and enjoy much more control than they had even a decade ago. Moreover, financial innovation has dramatically increased the complexity of each investor’s position. As a result of these and other changes, the legal system now faces a challenge that is much like assembling a city block that has been broken up into many parcels. There exists an anticommons problem, a world in which ownership interests are fragmented and conflicting. This is quite at odds with the standard account of Chapter 11—that it solves a tragedy of the commons, the collective action problem that exists when general creditors share numerous dispersed, but otherwise similar, interests. This Article draws on the lessons of cooperative game theory to show how, in combination, these recent changes are toxic. They undermine the coalition formation process that is a foundational assumption of Chapter 11."

Picture Credit: http://experts.uchicago.edu/photos/baird_douglas_print.jpg

Interesting paper in the ABI journal on US debtor characteristics and debtor education

The American Bankruptcy Institute (ABI - pictured) journal has published an interesting article entitled "The Class of 2008: The Great Recession and the American Debtor". The article is drafted by Leslie Linfield of the Institute for Financial Literacy. It contains a number of interesting points on debtor education and US consumer debtor characteristics. See here.

Picture Credit: http://www.stjohns.edu/media/1/b72a9c78ef004d45ba14a01c85791592.jpg

Tuesday, 23 February 2010

Imprisonment for Debt - still with us!

Imprisonment for debt was abolished in 1869. No more Newgate debtors' prison (pictured) or other treatment of this nature pursuant to the Debtors' Act 1869. However, a recent story in Credit Today, which has been picked up by Debt Management Today, has highlighted the case of a bankrupt prison officer who has recently been sent to jail for failing to disclose the whereabouts of his assets. See the article in full here.

Picture Credit: http://www.umich.edu/~ece/student_projects/bonifield/pics/newgate1.jpg

New Book - China's New Enterprise Bankruptcy Law

Ashgate Publishing have published a new book entitled: "China's New Enterprise Bankruptcy Law." The book (pictured) looks very interesting. Here is the marketing blurb:
"China has recently entered a significant stage in its economic transition with the introduction of a new and seemingly sophisticated bankruptcy law drawing inspiration from mature insolvency systems. However, this new law is likely to face significant challenges within its implementation due to weaknesses in the countries legal and social infrastructure. China's New Enterprise Bankruptcy Law clearly presents the structure of China’s reformed legal bankruptcy system by introducing the framework and analyzing typical cases which have been or are being heard since the new bankruptcy law was operational. Written by Chinese experts with a professional interest and specialist knowledge of insolvency law, this volume serves as an indispensable guide for academics and researchers in the area, as well as practitioners and professionals involved with Chinese business law.

  • Contents: Preface; Part I China's Bankruptcy Legal Framework: Introduction, Rebecca Parry and Haizheng Zhang; The conceptual structure of China's new corporate bankruptcy law, Roman Tomasic; Corporate governance, accounting procedures and prevention of insolvency, Qingxiu Bu. Part II Contents of the New Law: Bankruptcy petition and acceptance, Haizheng Zhang and Xiaohe Tan; Bankruptcy administrator: status, powers and duties, Jianhua Xiao; Administrator: appointment and remuneration, Rebecca Parry; Bankruptcy estate, Jianhua Xiao; Transaction avoidance, Rebecca Parry; Filing of claims, Bingkun Ye; Creditors' meeting and creditors' committee, Xin Ge; Corporate rescue, Haizheng Zhang; Composition, Xin Ge; Winding up proceedings, Weiwei Zheng; Improper trading in bankruptcy and director liabilities, Bin Wang. Part III State-Owned Enterprises and Financial Institutions: Bankruptcy of state-owned enterprises and planned bankruptcy, Haizheng Zhang; Bankruptcies of financial institutions, Yongqian Xu and Weiwei Zheng; Part IV Cross Border Insolvencies: Cross border insolvency, Jingxia Shi. Part 5 Conclusion: Conclusion, Rebecca Parry and Haizheng Zhang; Index.

  • About the Editor: Rebecca Parry, is Professor of Law at Nottingham Law School, Nottingham Trent University. Her research interests are in the areas of company law and insolvency law at the domestic, international and comparative level. She has a strong interest in the new Chinese law.

    Yongqian Xu is the director of the Supervisory Committee of Dacheng Law Firm, a qualified lawyer, legal advisor, insolvency practitioner and senior partner. He also works as the vice-director of the civil law committee of the China Bar Association. He is a member of the Commercial Law Institute of the China Law Society and visiting professor of Beijing Technology and Business University and the Training Centre of China Entrepreneurial Confederation. He has published several works about Chinese bankruptcy law. Mr Xu is currently producing an insolvency guideline for the Chinese qualified insolvency practitioners under the authorisation of Ministry of Justice of PRC.

    Haizheng Zhang is a PhD candidate at the University of Leicester. He has strong research interests in corporate insolvency and rescue law. He has published articles on China's bankruptcy law in both Chinese and English.

  • Reviews: 'A timely volume considering China's development and its emerging market economy with a helpful exposition and analysis of the law in one place, for easy reference. The work contains substantial references to other sources which facilitates further reading and research and provides a thorough treatment of theoretical, substantive and procedural issues with useful introductory material.'
    Andrew Keay, University of Leeds, UK

    'A methodical exposition of the modern law of Chinese insolvency, this text brings together expertise from academia and practice in order to provide a conceptual basis for the workings of the modern law as well as an incredibly detailed analysis of its provisions with additional information about the participants in the insolvency process.'
    Paul Omar, University of Sussex, UK"

Monday, 22 February 2010

Re Kaupthing Singer & Friedlander Ltd [2010] EWHC 316 (Ch) (19 February 2010) - Insolvency Act 1986, Schedule B1, para 63 and academics considered

"The administrator of a company may apply to the court for directions in connection with his functions."
"The legal background is as follows. The Enterprise Act 2002 created what Mr Tom Smith, counsel for the Joint Administrators, described as a "two-stage process" for administration. As he put it in his submissions (to which I am indebted), the "first stage" involves the performance by the administrator of his functions with the objectives of rescue, achieving a better result than liquidation and/or making a distribution to secured or preferential creditors. The "second stage" arises where the Court gives permission under paragraph 65(3) of Schedule B1 of the Insolvency Act 1986 to make a distribution to creditors who are neither secured nor preferential, i.e. unsecured creditors. (Schedule B1 was substituted by the 2002 Act for the existing provisions as to administration in the IA 1986.) This involves the administrator receiving proofs of debt, adjudicating such proofs and making a distribution to creditors in much the same way as in a liquidation. In order to facilitate the change, a new Chapter 10 to Part 2 of the Insolvency Rules 1986 was introduced to provide machinery for making distributions, modelled on the equivalent rules applicable to liquidations. Rules 2.72 to 2.105 are in essentially the same terms as the equivalent rules which apply to a liquidation."
The learned judge continues:

    (1) The administrator of a company may make a distribution to a creditor of the company.
    (2) Section 175 [preferential debts] shall apply in relation to a distribution under this paragraph as it applies in relation to a winding up.
    (3) A payment may not be made by way of distribution under this paragraph to a creditor of the company who is neither secured nor preferential unless the court gives permission."
    ...Consistent with the "second stage" of an administration, Mr Smith points out that paragraph 84, Schedule B1, IA 1986 Act provides that a company may move directly from administration to dissolution. In other words, it is now possible for a company to go into administration, to have its assets realised and distributed to creditors and then to be dissolved without going into liquidation. I am told that as a result of these changes, a number of insolvencies where distributions to unsecured creditors would previously have been made by way of a liquidation are proceeding without the company going into liquidation. Instead, distributions are being made to unsecured creditors through the enabling provisions of Schedule B1, paragraph 65, IA 1986, and the machinery in Part 2, Chapter 10, IR 1986 (which as I have said, are modelled on the equivalent rules applicable to liquidations). Examples of this in the banking field are Lehman Brothers International (Europe), as well as the present case...
Picture Credit: http://3.bp.blogspot.com/_9NoJu-v82gY/R8qeHTaFsjI/AAAAAAAAAbI/yhWcZ62YAYY/s400/BlairW.jpg

Interesting piece in the Financial Times on CVAs - "CVAs make a comeback as Landlords change their tune"

The Financial Times has published an interesting article on CVAs. See here.

Picture Credit: http://www.nek.lu.se/NEKHBY/ft-fig.jpg

Thursday, 18 February 2010

HOBS: In re LOVE (J. W.). Ex parte THE OFFICIAL RECEIVER v. KINGSTON-ON-THAMES COUNTY COURT REGISTRAR. [No. 612 of 1949. - Kingston and Hunter

The Royal Borough of Kingston upon Thames, its long held and close connection with the administration of the law and equity, and the administration of the bankruptcy jurisdiction, have been mentioned on this blog before. We can now revisit Kingston upon Thames and the bankruptcy jurisdiction with the case of In re LOVE (J. W.). Ex parte THE OFFICIAL RECEIVER v. KINGSTON-ON-THAMES COUNTY COURT REGISTRAR. [No. 612 of 1949.] [1952] Ch. 138. The case is interesting for a number of reasons, not least because one of Kingston Law School's late visiting professors, Professor Muir Hunter QC, appeared for the trustee in bankruptcy.

The case concerned a critical examination of Section 40 (1) of the Bankruptcy Act, 1914, which provides that "where a creditor has issued execution against the goods or lands of a debtor … he shall not be entitled to retain the benefit of the execution …, against the trustee in bankruptcy of the debtor, unless he has completed the execution … before the date of the receiving order and before notice of the presentation of any bankruptcy petition by or against the debtor or of the commission of any available act of bankruptcy by the debtor."

The facts of the case are relatively straightforward; "On September 8, 1949, a debtor committed an act of bankruptcy by failing to comply with a bankruptcy notice. On November 11, 1949, a petition was presented. On December 14, 1949, a receiving order was made, and on January 5, 1950, the debtor was adjudicated a bankrupt. All these matters took place in the High Court."

How was Kingston involved? It is significant in so far as on October 10, 1949, judgment had been entered at Kingston-on-Thames County Court for the Ministry of National Insurance against the debtor for arrears. The total sum due £61 13s. 3d. The judgment continues, "On November 4, 1949, the registrar of the county court (who was also the high bailiff and so the officer in charge of executions) seized the debtor's household furniture under warrant of execution dated October 17, 1949. On November 15, 1949, he sold it for £101 15s. 0d., out of which he paid the judgment debt to the judgment creditor. By virtue of section 170 of the County Courts Act, 1934, he retained £10, the amount of the fines. There was throughout no knowledge of the earlier act of bankruptcy or of the proceedings commenced in respect of it. The Official Receiver having become the trustee in bankruptcy of the bankrupt, he asked the Minister to repay the sum of £61 13s. 3d., and this was done. He also asked the registrar to repay the sum of £10, but this was refused."

Danckwerts J.'s first instance decision ([1951] Ch. 952) was affirmed by the Court of Appeal which was made up of Lord Evershed M.R. (pictured), Jenkins and Morris L.JJ. Jenkins, LJ noted:
"The question is whether the execution effected in the circumstances mentioned was a valid execution as against the Official Receiver or was invalid, so that its proceeds should be considered as part of the estate of the bankrupt. The question turns primarily on the true construction of section 40 of the Bankruptcy Act, 1914. There is no doubt as to the completion of the execution in this case, and there is no doubt that the execution was completed before the date of the receiving order, and before notice of the presentation of any bankruptcy petition by or against the debtor, or of the commission of any available act of bankruptcy by the debtor. Prima facie, therefore, the circumstances in which this execution was levied and completed were such as to comply with the provisions of section 40 (1)."
The Jenkins , LJ then spent some time dealing with Hunter's arguments for the trustee in bankruptcy. He noted:
"The learned judge delivered a considered judgment, in which he discussed the question involved in this case very fully and carefully, and he came to the conclusion that there was nothing in the arguments addressed to him on the part of the Official Receiver to justify a departure from what he considered to be the plain meaning of section 40 (1). Accordingly, he dismissed the Official Receiver's application. I have come to the same conclusion, after giving the best attention I can to the careful argument of Mr. Muir Hunter to the contrary. I might well content myself with saying that I adopt the learned judge's reasoning and conclusions, but, out of respect for Mr. Muir Hunter's argument, I will endeavour to state briefly my reasons for not accepting it.

Mr. Muir Hunter's argument is on these lines: He says that the fundamental principle of the bankruptcy law, as demonstrated by sections 37 and 38 of the Act, is that the commencement of a bankruptcy relates back to the date of the act of bankruptcy on which the petition is founded, and the vesting provisions of the Act operate accordingly."
See [1952] Ch. 138 for the full discussions.

Picture Credit: http://archives.balliol.ox.ac.uk/images/Portraits/047.jpg

Wednesday, 17 February 2010

The essence of the Wrekin ruby mystery has been solved and 8k has been realised for the creditors

There have been many great and deep mysteries in the world of insolvency, but none as puzzling and peculiar as that of the Wrekin ruby. The Baker Street irregulars, aka Ernst & Young, have long since got to the bottom of this three pipe problem. Now the essence of the mystery has also been solved, i.e. what is the ruby actually worth? The BBC are reporting that the gem has been sold for £8,000. This is somewhat short of the original £11,000,000 valuation, but at least the creditors will get something!

Picture Credit: http://needspark.files.wordpress.com/2009/09/ruby.jpg

Tuesday, 16 February 2010

New Canadian Research Document - Accessing Insolvent Consumer Debtors, Challenges and Strategies for Empirical Research

Professor Janis Sarra and Ms Danielle Sara, of the University of British Columbia (pictured), have published a new research document under the auspices of the Office of the Superintendent of Bankruptcy Canada. The document is entitled: "Accessing Insolvent Consumer Debtors, Challenges and Strategies for Empirical Research". Here is the abstract:
"Insolvency law policy is best informed by a comprehensive understanding of the policy objectives of particular measures and the practical outcomes of particular choices. Yet there continues to be a lack of empirical research in Canada in respect of consumer insolvency, its underlying causes and its outcomes. Debtors' or bankrupts' experience with the insolvency system is almost impossible to gauge with the data now collected. Research funding for legal, economic and sociological scholars in the insolvency area continues to be very limited. This paper examines current challenges and strategies for empirical research on consumer insolvency in Canada. It explores options for researchers to access insolvent debtors who have utilized the procedures under theBankruptcy and Insolvency Act (BIA), including how data could be more meaningfully collected and analyzed. The paper also explores the serious lacuna in information on debtors who have not accessed the insolvency system, but who may be experiencing severe financial distress. Scholars have observed that such individuals may not be able to afford bankruptcy or that they are deferring filing for longer periods before seeking the relief offered by insolvency law. Deferral of filing may unnecessarily exacerbate debtors' financial distress. Absent accurate information, it is difficult to understand how the system could be made more accessible for consumer debtors.

A working hypothesis of the project was that there is not yet adequate empirical research on consumer insolvency in Canada such that our policy decision making is fully grounded in experience and informed decisions. Good empirical data assist with sound and informed policy-making. Insolvency professionals, community members and government policy-makers want some assurance that their policy choices are advancing the overall goals of the bankruptcy and insolvency system. In addition to good design that tests assumptions and underlying policy goals, better data collection design may also have the effect of beginning to empower those debtors who have accessed the system in terms of allowing them to communicate their experiences more directly withpolicy-makers. The study offers an assessment of effective research methodology for accessing insolvent individuals, which may enhance future research in the area of consumer insolvency. It makes a number of recommendations for enhancing data collection and analysis while respecting the privacy and dignity of consumer debtors.

Part II sets out the methodology of the study. Part III examines the scholarly literature in Canada, the United States, Europe and Australia, making a number of observations in respect of methodologies utilized in previous studies and how they can inform Canadian empirical study of consumer insolvency. The study also examined the literature more generally on surveying vulnerable populations to assess whether there are helpful policy or system design observations that can be applied to the consumer insolvency context. The literature was used to formulate questions for the survey; and requisite ethics and governmental approvals were sought and received. Part IV analyzes survey and interview responses from 33 legal, medical, business and sociology scholars, and from 43 insolvency professionals, in terms of their observations in respect of enhancing data collection. Part V examines current ethics considerations in research under the Canadian university system. Part VI concludes with several immediate recommendations for potential future research initiatives. It is hoped that this paper is the beginning of a dialogue in Canada in respect of creating a broad-based accurate system of data collection and analysis with a view to enhancing consumer insolvency law.

Overall, the study found that there have been no broad-based longitudinal empirical studies of consumer insolvency in Canada. While Canada for many years generally lacked empirical research, in recent years some efforts have been undertaken to develop projects, still somewhat limited in their scope. The Office of the Superintendent of Bankruptcy (OSB) has aided considerably in this change, as has the Canadian Insolvency Foundation, but underfunding for research continues to be a serious problem. There is growing recognition that the methodology must be aligned with and responsive to the research questions and working hypotheses; and must be described so that others assessing the data can understand their strengths and limitations.

In contrast to Canada, there is a rich body of literature in the United States (U.S.). In particular, there has been important scholarship generated through collaboration in the Consumer Bankruptcy Project, a broad-based multidisciplinary longitudinal research program initiated in 1981 by scholars Teresa Sullivan, Elizabeth Warren and Jay Westbrook. Each study has increased the number and type of discipline of participating scholars. The Consumer Bankruptcy Project, to date, consists of four empirical studies of the economics and demographics of consumer bankruptcy debtors, undertaken from 1981 to 2007 for individual debtors filing under the U.S. Bankruptcy Code. Each new study has built on previous information, creating a longitudinal set of data that allow scholars to track developments in a meaningful way. However, each study also added to both the methodology and the scope and type of data collected as scholars have acquired more experience in collecting data, identifying key data points, and reflecting financial and legal changes. This study also examines empirical research by Angela Littwin and others who offer strategies for reaching low-income debtors that have not accessed the formal insolvency system. U.S. scholars have been innovative and comprehensive in their methodologies, offering important insights into research design and execution and the substantive law.

In the United Kingdom (U.K.), the greatest interest in empirical analysis has followed on the heels of 2004 insolvency law reforms in which bankruptcy discharge was made more available to consumer debtors. In early 2009, John Tribe published one of the first empirical studies in the U.K. Tribe conducted a pilot questionnaire-based study involving bankruptcy courts in England and Wales. His current work involves an expanded survey of more bankrupts in an expanded sample of bankruptcy courts, capturing consumer bankruptcy, individual voluntary arrangements and debt management agreements, and wider issues relating to debtor advice and education for debtors. Part three of the research will involve an investigation of bank lending practices to consumer debtors. Adrian Walters has also recently examined individual voluntary arrangements; hence,U.K. scholars are currently at the forefront of various research initiatives that will elicit more comprehensive and insightful information, allowing for the first comprehensive empirical work on consumer insolvency in that jurisdiction.

Once one moves beyond the U.S., U.K. and Canada, there is little empirical scholarship in either English or French. In part, this lack of research may be due to the recent nature of consumer debt forgiveness programs in Europe and other countries. Canvassing Australian insolvency literature did not reveal any recent empirical studies in Australia. The most significant research undertaken to date was conducted by Professor Martin Ryan, from the social work discipline, who examined the post-bankruptcyexperiences of consumer debtors, and the perceptions and experiences of a sample of undischarged consumer voluntary bankrupts through a comparative literature search and interviews. Ralston, Mason and Kumar undertook a macroeconomic analysis of consumer bankruptcy in Australia in 2001 using a multivariate regression model.

Previous studies and the surveys of scholars, trustees and credit counsellors reveal that there continues to be a disconnection between debt that consumer debtors are incurring, lending decisions in respect of that debt and public policies aimed at promoting a fresh start. In Canada, there is little research measuring change in the demographic profile of debtors and larger economic trends. There is little that tracks how changes to insolvency and other social policy and the availability of resources through social safety nets have affected consumer indebtedness.

Funding should be made available for two types of research. First, there is a need forbroad-based gathering of detailed information on a longitudinal basis that allows researchers to develop hypotheses and test the data. Second, there is a need for more focused research where there is a working hypothesis and research questions and methodology formulated to measure its validity. This study makes several recommendations regarding future research, including both quantitative and qualitative empirical research.

Canada's policy decisions would be considerably enhanced through the use ofbroad-based multidisciplinary longitudinal studies commencing immediately and tracking the effects of recent and proposed insolvency law reform. A good start has been made through the OSB's E-Filing and data collection initiative, but to date that initiative is limited in what information it collects, how it can be analyzed and how it informs public policy. Canada can benefit from the extensive experience of U.S. and other scholars, including the considerable thought that has gone into the design of the research methodology, survey techniques and substantive questions asked. An important feature of such studies is direct contact with consumer debtors, as described in the next recommendation. Such studies would allow for collaboration among economic, legal, administrative and political science scholars, offering greater insights and better future research design.

Extensive questionnaires and interviews are a critically important feature of research generated by the Consumer Bankruptcy Project in the U.S. and the PIP project in theU.K., matching the information gathered in that process with the data in court or administrative files. While the complexity of each debtor's history is unique, the interviews across a large cohort have enabled patterns to be established. One real strength of the Consumer Bankruptcy Project as it has evolved is not only the ability to compare global data over an increasingly extended time period but also the ability to use interviews conducted with consumer bankrupts one year and three years after filing for bankruptcy as a measure of outcomes of the bankruptcy process. Consumer debtors have had some important insights into the process, their longer term ability to become or remain solvent, and broader social and economic challenges that they face.

Canada would benefit tremendously from a project that systematically accesses consumer debtors immediately after, then one year and three or five years after, the process in order to better assess how utilizing various procedures under the BIA assists in financial rehabilitation over the short to medium term.

All of the U.S. empirical studies offer compensation to survey respondents. Interviews with scholars reveal that this economic incentive is not only a means of encouraging participation in the detailed interviews but also a means of recognizing the value of debtors' time and providing a degree of respect in that they are compensated for their insights and observations. Such compensation needs to be factored into Canadian funding for such studies as does the highly labour-intensive nature of training interviewers and conducting such research.

A great deal can be adopted from survey and interview methodologies from the U.S.Consumer Bankruptcy Project. Creating space within the survey or interview for debtors to tell the stories of their insolvency in their own words can provide a deeper picture, but can also identify literacy and language issues. It is important to offer debtors definitions and synonyms to assist them in providing complete responses and to allow respondents to ask questions about ambiguities in the questions or to clarify responses in terms of understanding what debtors are trying to communicate about their experience. Both closed and open-ended questions should be used. The high response rate in the Consumer Bankruptcy Project has been due to the multi-faceted strategy of data collection. Tests of inter-coder reliability and coding error procedures can assist with a high degree of data quality.

Utilizing computer-based survey and interview technologies should also be considered. The OSB could assist in developing a methodology and the technology that could be used by scholars in a number of disciplines to gather data on insolvent or financially distressed debtors.

Critically connected with the need for longitudinal data is the need to understand how the nature of indebtedness is changing. The most recent Consumer Bankruptcy Project in the U.S. documented how consumer debtors that filed under U.S. bankruptcy proceedings are deeper in debt than previously, with much higher debt-to-income ratios and greater short-term high-interest-rate debt. As noted above, scholars speculate that credit card and other short-term high-interest lenders encourage debtors to delay filing, to pay interest charges for a longer period of time and to increase their indebtedness before they file. Earlier studies in Canada, the U.S. and the U.K. found that while credit enforcement measures by creditors before bankruptcy filing were relatively rare, the sale of debts to debt-collection agencies, harassment by such agencies, and phone calls to friends and relatives were a consideration in the timing of filing. Payday loans and other alternative financing systems may be contributing to the deepening of insolvency, but they may also be offering an important means of financing very poor debtors.

We need considerably more understanding of the extent of this phenomenon in Canada. It is particularly timely that research is being undertaken in this area in order to formulate policy responses to the practice of high-interest short-term debt and the lack of alternative affordable community-based financing for the lowest income debtors.

Scholars, practitioners and government need to work together to find ways to access debtors that are experiencing financial strain and have not yet accessed the formal proposal or bankruptcy system. This problem is large and systemic. It involves not only credit education and providing free credit advice but also larger social and political issues in respect of social safety nets that protect debtors from income shocks and other disruptions to their income stream. U.S. data suggest that debtors are struggling longer, with more debt, than previously, and deferring filing under insolvency legislation can deepen their indebtedness and make it difficult to make a fresh start.

Research is needed into the degree to which debtors are struggling in this way and what public policies need to be adopted to address the problems. What considerations do lenders use to make lending decisions and does this affect the availability of credit where the debtor has no realistic way of paying off the debt? What factors encouraged or enabled debtors to accrue debt that was beyond their capacity to meet their obligations? There appears to be a distinction between loans for mortgages, leaving aside the sub-prime issue, which occurred primarily in the U.S., and other secured lending, where there is due diligence by the lender to ascertain if there are assets to cover the value of the loan, and unsecured debt, such as credit card debt.

There should be more systematic consideration of how credit counsellors or trustees could be used to identify debtors that have not yet accessed the insolvency system, keeping in mind the problem that debtors do not yet have the benefit of the stay protection before they file. The suggestion by credit counsellors that on intake perhaps a client could be offered the opportunity to visit a website where confidentiality is assured and complete some key questions as openly and honestly as possible should be explored.

The OSB could also consider broader proactive measures, such as working with the community and other government agencies to set up free debt advice clinics, exploring what has been most effective in the U.K. or elsewhere. Aside from insolvency issues, it would seem that support at a much earlier stage of financial distress could be helpful. These strategies would have to be multi-faceted and developed with the participation of consumer debtors, insolvency and credit professionals, scholars, legal clinics and other stakeholders in the community.

Research on prevention of over-indebtedness is urgently required; for example, on interest rate ceilings, guidelines in respect of mortgage lending, broad-based educational strategies, development of financing alternatives that are affordable and accessible, more general social safety nets and long-term economic sustainability strategies. Some preventive measures are likely to be highly contested, such as controls on granting credit. Absent solid data and research into comparative strategies, Canada will be unable to devise meaningful and practical strategies to address consumer insolvency.

There is a disconnection between research that has already taken place andpolicy-making. In undertaking this study, we were struck by some of the cogent recommendations for reform that were made over the past decade, but which did not enter public policy debates during this round of legislative reform. The OSB could play an important role in creating an ongoing public policy committee that would examine recommendations from each research study and, where appropriate, develop strategies to begin to adopt those recommendations. There could be representation from a broad set of interests in those policy discussions.

There should be policy guidelines promulgated by the OSB in respect of conducting research that directly accesses insolvent consumer debtors, building on university ethics guidelines, and respecting the privacy and dignity of consumer debtors while allowing accurate collection of data. There are ethical and practical issues in identifying debtors outside of formal proceedings, particularly as they may be left vulnerable to creditor action if they participate in studies. There is also the risk of causing more stress to debtors at a time when they are already experiencing distress and may not yet have found a remedy. There are also selection bias problems in terms of an inability to know whether or not a cohort of such debtors constitutes a representative sample. The OSBcould play an educative role with university ethics boards in Canada, highlighting the nature of consumer insolvency, the trustee-driven system and the ethical issues faced in accessing such debtors. It could also play a facilitative role in encouraging boards to defer to the ethics approval of other universities where there are multiple collaborators.

There is much to be learned from empirical research. It can draw on the insights of multiple participants in the system and better inform policy choices. Different kinds of research may meet different policy needs. Broad-based multidisciplinary longitudinal research allows for collection of detailed information on a longitudinal basis, which can be used by many scholars and policy-makers to develop hypotheses, test the data and make sound policy choices. More focused research, which develops a methodology based on clear research questions, can provide meaningful data on focused topics. Research questions should be clearly identified so that the methodology selected is appropriate, recognizing also its limitations. Both kinds of research are highly informative and very much needed in the consumer insolvency area. This paper offers a number of insights into how we can enhance our current research and policy processes through collaboration among the OSB, the insolvency and credit profession, and social science researchers. The result will be a better-informed policy-making process provided with the tools to assess both needed reforms and the effectiveness of past initiatives."

Picture Credit: http://www.iam.ubc.ca/ubctour/iam-ubc3.JPG

Monday, 15 February 2010

Some critical judicial comment - Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2010] EWCA Civ 79 (15 February 2010)

The following has absolutely nothing to do whatsoever with insolvency but it is such an interesting and hard hitting turn of phrase from Lord Justice Ward (pictured) that I feel compelled to bring it to your attention. In Oceanbulk Shipping & Trading SA v TMT Asia Ltd [2010] EWCA Civ 79 (15 February 2010) Lord Justice Ward has recently noted:
"There is little point in expanding upon these reasons for I am outnumbered, nay outgunned, by the commercial colossi seated either side of me. I prefer the instincts of the youthful Stanley Burnton J. before he became corrupted by the arid atmosphere of this Court. It goes to prove what every good old-fashioned county court judge knows: the higher you go, the less the essential oxygen of common sense is available to you. So I am unrepentant. With, of course, great respect to my Lords, I dissent. In my judgment Andrew Smith J. was absolutely correct for the reasons he gave. I would dismiss the appeal."
Lord Justice Carnwath is speaking to the students' Law Society at Kingston Law School tomorrow night. I am afraid to say that I do not have the courage to ask him if he agrees that the Court of Appeal lacks common sense on occasion! In a recent article in Counsel magazine Lord Justice Carnwath drew attention to a recent judgment by Lady Hale that does have some impact on academics. I might ask him about this instead! He noted:
"In OBG Ltd v Allan [2007] UKHL 21 (para 304), Baroness Hale explained her reasons for not adding to Lord Hoffmann’s leading judgment: “The least said by the rest of us who take the same view…the better. Indeed, there would be much to be said for our adopting the practice of other supreme courts in having a single majority opinion to which all have contributed and all can subscribe without further qualification or explanation. Th ere would be less grist to the advocates’ and academics’ mills..."
Save the multiple judgment otherwise there would be less material for this blog!!

Picture Credit: http://i.dailymail.co.uk/i/pix/2008/04/16/article-1015590-00F2692300000578-422_233x365.jpg
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