Debt Remission (Individuals) (Jersey) Law 201-
Report
Introductory
1 On 23rd January 2013 the Council of Ministers presented a Consultation Paper[1] to the States entitled “Bankruptcy (Désastre) (Jersey) Law 1990 – ‘Social Désastre’”. The introduction to that Paper recited that: “A new form of relief for debtors who find themselves in a never-ending cycle of debt is being proposed. The new Law would give the Viscount discretionary power, on the recommendation of an authorised intermediary, to freeze all debts that have been specified in a document … to be called a Viscount’s remission order….”
2 This initiative of the Council of Ministers followed an analysis by the Legislation Advisory Panel of the Report of the Jersey Law Commission of March 2011(Topic report No. 1/2011/TR) entitled “Social Désastre”. The Law Commission’s Report had raised the possibility of introducing a new form of bankruptcy to confer a wider discretion to make orders for bankruptcy, a discretion that would enable the court to consider “not only the economic but also the social implications of the case”. The existing legislation governing applications for désastre generally provides that the debtor must have realisable assets; and the purpose of the proceedings is to ensure fairness as between creditors in realising those assets. Their purpose is not to give respite to individual debtors who have fallen on hard times through no fault of their own. The position of such debtors with negligible assets is therefore uncertain, although the Royal Court has occasionally permitted declarations of désastre in such cases.[2] The Court has however stated that such declarations should be granted only exceptionally. Even when they are, they are made in the context of full-blown Royal Court proceedings which can be challenging, if not intimidating, for an impecunious debtor. It is against this background that a draft Law was proposed in the 2013 Consultation Paper that would provide a measure of respite to individual debtors who had fallen on hard times through no fault of their own.
3 Respondents to the Consultation Paper were overwhelmingly supportive of the proposal although the view was expressed by some respondents that there should be a safeguard in the Law against abuse by debtors simply trying to exploit the availability of a remission order to run up debts, deliberately or recklessly, and then evade payment.
4 This draft Law is intended to implement the proposal contained in the Consultation Paper, having taken those responses into account.[3]
Eligibility
5 Relief is to be available to a debtor[4] who cannot pay his or her debts and who meets a test of good faith (see paragraph 10 below). The applicant debtor –
- must be over 18
- must have been ordinarily resident in Jersey for the last 5 years
- must not have been granted a debt remission order in the previous 5 years
- must not already be bankrupt.
6 The amount owed must be less than £20,000.
7 The assets of the debtor must not exceed £5,000 (but this excludes a motor vehicle worth no more than £2,000).
8 After the deduction of tax, social security contributions and normal household expenses, the applicant’s monthly disposable income has to be less than £100.
9 Each of the above figures – £20,000, £5,000, £2,000 and £100 – will be able to be altered by Order of the Chief Minister.
10 The test of good faith is expressed[5] as follows: “A debtor shall not be eligible for a debt remission order unless the debtor acts in good faith.”
11 It will be for the Viscount to assess the application in this respect, but certain conduct on the part of the debtor will be taken to indicate an absence of good faith.[6] Such conduct may consist of the following (in summary form):
- within last 2 years –
- failing to keep/produce records of loss of property,
- transacting at an undervalue;
- within last 12 months, giving someone a preference;
- incurring debt knowing won’t be able to pay (or doing so recklessly);
- not accounting for loss/insufficiency of property;
- gambling/rash/hazardous speculation/unreasonable extravagance;
- careless neglect of business affairs;
- fraud;
- non-cooperation with intermediary/Viscount.
12 The reference above to transacting at an undervalue refers to giving property (of any sort) away, or selling it for significantly less than it is worth. The reference to giving someone a preference refers to doing something which puts a particular creditor in a better position than he or she would have been in otherwise.
Qualifying/excluded debts
13 Not every debt owed by the debtor will be caught by a debt remission order.
14 A “qualifying debt” must be for a liquidated sum payable either immediately or at some certain future time. The Chief Minister will also make an Order prescribing which categories of debt rank as an “excluded debt” – and which will remain payable whether or not a debt remission order is made by the Viscount. Whilst the draft Law does not set out the various categories of excluded debt, the 2013 Consultation Paper contemplated that such excluded debts would in general terms be[7] –
(a) any fine/compensation order;
(b) payments ordered in family proceedings/maintenance etc.;
(c) sums payable to –
(i) Health Insurance/Social Security Funds,
(ii) Comptroller of Taxes;
(d) payments resulting from confiscation orders;
(e) damages ordered in civil proceedings (for negligence, breach of statutory, contractual etc. duty);
(f) any debt incurred as a result of fraud.
Application through authorized intermediary (JCAB)
15 As mentioned in paragraph 2 above, the present bankruptcy (désastre) process involves the full panoply of Royal Court procedures, judges, legal profession etc. and amounts to a formidable hurdle for an impecunious debtor. Under the draft Law, the debtor’s first point of contact, for the purpose of making an application for a debt remission order, will be with an approved intermediary. Such an intermediary will be prescribed by Order of the Chief Minister, but the intention is that the Jersey Citizens’ Advice Bureau Limited (JCAB) will be the prescribed intermediary. Hence JCAB will be the debtor’s first point of contact for the purpose of making an application to the Viscount.
16 As the approved intermediary JCAB will be required[8] to assist the debtor in making an application and check that the application is properly completed. JCAB will inform an intending applicant of the relevant requirements and, in particular, the eligibility conditions for the making of a debt remission order; and alert the intending applicant to the fact that checks may have to be made in connection with the application. He/she will also be informed of the consequences of making the application including the potential criminal liability if false or misleading statements, information etc. are given.
17 JCAB will assess all the circumstances and formally submit the application to the Viscount, offering its written conclusions to the Viscount on the application to assist him/her in determining the same.
Determination by the Viscount
18 The Law is intended to enable the Viscount to make a decision on the application without delay. This is essential to the underlying purpose of the Law.
19 In order to be able to act quickly on an application –
- the Viscount will apply certain presumptions,[9] namely –
- that the debtor is eligible for a debt remission order if that appears to be the case from the information supplied by JCAB, and there is no reason to believe that the information is inaccurate or incomplete or that the debtor’s circumstances have changed;
- that the debts specified at the date of the application are qualifying debts, unless the Viscount has reason to believe otherwise;
- the Viscount will be at liberty to consider the application on the basis of the documents received and without oral arguments by parties; but equally the Viscount will be able to raise queries in connection with the application and stay consideration of it until answers to any such queries are received;
- the Viscount will not have to adhere to rules about the admissibility of evidence in proceedings before a court.
20 In determining an application, the Viscount will have regard to the conclusion of JCAB. The Viscount will refuse a debt remission order if the debtor is not eligible, or if queries raised with the debtor have still not been answered to the satisfaction of the Viscount. The Viscount will grant a debt remission order if satisfied that the debtor is eligible for the grant of the order.
21 The making of a debt remission order will bring into play an immediate moratorium,[10] meaning that any creditor to whom a qualifying debt is owed has no remedy in respect of that debt, and may not apply for a declaration of désastre in reliance on it, or otherwise commence any proceedings against the debtor for that debt, except with the permission of the Royal Court.
Notice to creditors/objection by creditor
22 When a debt remission order is granted, the Viscount will be required within 5 working days to give written notice to each creditor affected by the order. The notice informs the creditor of –
- the making of the debt remission order and its effect;
- the grounds on which he/she/it may object.
23 The creditor will be able to object[11] to –
- the making of the order per se; or
- the inclusion of the debt among qualifying debts included in the order; or
- the accuracy of the description of the debt specified in the order.
Any such objection will have to be made within 28 days after the creditor has been notified of the making of the order; and be supported by such information and documents as may be prescribed (by Order of the Chief Minister).
24 The Viscount will consider any objection made by a creditor;[12] and will be able to carry out investigations for this purpose, and require any person to give information or assistance. Having considered an objection and in the light of any such investigation(s), the Viscount will be able to amend or revoke the debt remission order; or refer the matter to the Royal Court.
25 On such a reference the Royal Court will be able to give any direction or make any order as it thinks fit (including quashing a decision of the Viscount or revoking or amending the debt remission order).
26 There will be a right of appeal at all events[13] to the Royal Court by any person aggrieved by a decision of the Viscount on the ground that –
(a) an applicant did/didn’t meet the eligibility criteria;[14]
(b) a debt remission order should not have been made;
(c) a debt should not have been included as a qualifying debt;
(d) the debt specified in the order was not accurate.
27 On an appeal the Royal Court will be able to make such order as it thinks fit, and confirm, reverse or vary the decision of the Viscount, or remit the matter with its opinion thereon to the Viscount.
The moratorium
28 Mention has already been made[15] of the moratorium brought into play by the making of a debt remission order. It continues[16] for a period of 1 year unless –
- the debt remission order is revoked, in which case the moratorium terminates, or
- it is extended (by the Viscount or the Royal Court).
Any extension of the moratorium cannot be for more than 3 months, although the extension may be renewed – but any extension must be notified to the debtor and any affected creditor.
29 The debtor who benefits from the moratorium will be under a strict duty to keep the Viscount informed of relevant events and to attend before the Viscount whenever reasonably required to do so.[17] In particular the debtor must notify the Viscount whenever the debtor becomes aware of any change in his or her circumstances, whether by reason of an increase in his or her income, assets etc. or by the acquisition/inheritance of any property. The debtor must not obtain credit during the moratorium period without informing the intending creditor of the debt remission order. Contravention of this requirement is an offence carrying a fine and/or imprisonment not exceeding 6 months.
30 As previously mentioned[18] a creditor affected by a debt remission order has no remedy in respect of that debt and may not commence proceedings for the debt concerned (except with the permission of the Royal Court). However, this does not prevent a secured creditor of a debtor enforcing his/her/its security during the moratorium period.[19]
Discharge from qualifying debts
31 On the expiry of the moratorium period the debtor becomes discharged from all the qualifying debts specified in the debt remission order.[20] This includes any interest, penalties and other sums which may have become payable in relation to those debts since the application was made.
32 The discharge of the debtor will not release any other person from any liability e.g. as a partner, joint owner, etc. of the debtor; or as guarantor for the debtor.
Offences
33 Part 3 of the draft Law provides for offences relating to –
The maximum penalties in each of the above cases will be an unlimited fine and/or 7 years imprisonment.
34 Part 3 also provides for offences relating to –
The maximum penalties in each of the above cases will be an unlimited fine and/or 2 years imprisonment.
Debt Remission Register
35 The Viscount will be required[26] to establish and maintain a register to be known as the Debt Remission (Individuals) Register. The Register will be kept in such form as may be prescribed by Order of the Chief Minister; and the Viscount will enter on the Register such information as may be so prescribed.
36 The Viscount will make arrangements for public inspection of the Register and, subject to payment of an appropriate fee, the supply of certified or uncertified copies or extracts of entries in the Register.
‘Bankruptcy’
37 The draft Law will amend the Interpretation (Jersey) Law 1954 to include the grant of a debt remission order among the proceedings that amount to ‘a person becoming bankrupt’. The effect of this will be to extend certain disqualifications flowing from bankruptcy to persons in whose favour a debt remission order has been made e.g. membership of the States within 5 years of the conclusion of bankruptcy proceedings.
Conclusion
As was stated in the 2013 Consultation Paper,[27] “… the main impact of this change is the discretionary nature of the [debt] remission order and the quick resolution to an individual’s debt problems. It is designed for people without any reasonable prospect of repaying their debts. It does not mean debts are not taken seriously, and it will allow creditors to voice any concerns they may have during the … process.”
It is hoped that the draft Law now lodged strikes a proper balance between –
- on the one hand, affording a ‘breathing space’ to hard pressed debtors who are in severe financial straits not of their own making (and for whom désastre is not an appropriate remedy), and
- on the other hand, affording a fair measure of protection for creditors against potential abuse of the right to release from certain debts for which the Law provides.
Financial and manpower resources
The provision of this additional procedure will create new work for the Viscount. While it is intended that all new work will be absorbed within existing resources, it is likely to be the case that if take-up of the debt remission order is significant, some additional resource may be required
Human Rights
The notes on the human rights aspects of the draft Law in the Appendix have been prepared by the Law Officers’ Department and are included for the information of States Members. They are not, and should not be taken as, legal advice.
APPENDIX
Human Rights Note on the draft Debt Remission (Individuals) (Jersey) Law 201-
- This Note has been prepared in respect of the draft Debt Remission (Individuals) (Jersey) Law 201- (“the draft Law”) by the Law Officers’ Department. It summarises the principal human rights issues arising from the contents of the draft Law and explains why, in the Law Officers’ opinion, the draft Law is compatible with the European Convention on Human Rights (“ECHR”).
Article 1, Protocol 1 ECHR
- Article 1, Protocol 1 of the ECHR (“A1P1”), provides that:
“Every natural or legal person is entitled to the peaceful enjoyment of his possessions. No one shall be deprived of his possessions except in the public interest and subject to the conditions provided for by law and by the general principles of international law. . . .”
- The draft Law engages A1P1 inasmuch as depriving a creditor of the right to enforce recovery of a debt may (subject to the analysis in paragraph 9 below) amount to a deprivation of his or her possessions: a creditor is entitled to the effective recovery of money lawfully due to him or her.
- However, A1P1 is a qualified right and permits deprivation “in the public interest and subject to the conditions provided for by law and by the general principles of international law.”
- The provisions in the draft Law that impose a moratorium on the enforcement of debts involve an order of the Viscount (a Debt Remission Order – “DRO”) against which the creditor has rights of appeal, ultimately, to the Royal Court. The moratorium following a DRO, or following an unsuccessful appeal to the Royal Court by a creditor, ends ordinarily with the cancellation of the debt concerned.
- The draft Law sets out clearly defined criteria for the eligibility of a debtor for a DRO, including the maximum amounts of ‘qualifying’ debts (including a requirement of good faith on the part of the debtor), provision for notice to the affected creditors who have a right to object to the DRO, initially to the Viscount, or on appeal to the Royal Court.
- Simply stated the object the scheme is to afford a ‘breathing space’ to debtors who are in severe financial straits and whose difficulties have not been brought upon their own heads by wrongdoing or profligacy.
- Debt remission is a normal feature of modern personal insolvency laws. It is a way of freeing or discharging debtors from all or part of their debts when they become unsustainable and cannot be paid. If debt has become unsustainable, cancellation causes the creditor only limited loss because there is only so much (if anything at all) that a creditor can obtain in payment from an impecunious debtor: the creditor’s claim already has a below-par value in the event of an ordinary bankruptcy.
- This economic fact of life was recognised by the European Court of Human Rights in 2005[28] which held that debts in a sequestration cannot be considered as assets in the normal sense since their market value can be zero and therefore A1P1 is not breached.
- On the reasoning above the scheme of the draft Law is in the public interest and subject to the conditions provided for by law and by the general principles of international law and is therefore compatible with A1P1.
- No other provisions of the ECHR are engaged by the draft Law.
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