Insolvency experts say the preferential treatment of Crown creditors, including the Inland Revenue and Customs & Excise, needs to be removed if reforms to bankruptcy law are to be truly effective.
The comments came as reforms were published in a DTI white paper on Tuesday proposing new bankruptcy laws, more funding for start-ups and new plans for education, but leaving Crown creditors with their preferential creditor status.
Commenting on the bankruptcy proposals, Neil Cooper, president of insolvency experts’ body INSOL International, said to encourage a rescue culture, the government must address ‘things that stop the rescue culture from working such as Crown preferential treatment’.
‘Since the preferential creditors sometimes absorb all the assets,’ he said, ‘Crown preferential treatment can stop deals from being done with creditors. If the crown didn’t have preferential status then the Revenue might be more diligent in pursuing people who owe it money.’
Cooper said the increased punishment of rogue directors helped the rescue culture, but saw drawbacks in disqualifying others for one year instead of them remaining undischarged bankrupts for three years.
Being restricted from directing a company, according to Cooper ‘is a serious drawback for some people’. He believes it will make bankrupts more reluctant to negotiate with creditors. ‘Right now people are prepared to pay to avoid bankruptcy for three years, (as people can easily find something else to do for a year).’
A better way of encouraging business, he said, would be to reduce red tape, which cripples small businesses, and to educate people in handling credit.
INSOL International’s website is at www.insolvency.co.uk/ipbodies/insol.htm.
BANKRUPTCY LAWS SET TO CHANGE
The government’s white paper on enterprise, skills and innovation contains proposals to reform the UK’s bankruptcy laws by cutting to one year the restrictions imposed on bankrupt ‘honest’ entrepreneurs, and increasing the time negligent directors are restrained to 15 years.
Previously, any director involved in bankruptcy was restricted from leading a company for three years.
The white paper was published on Tuesday, and aims to increase the rate of growth in the UK.
The white paper can be found at www.dti.gov.uk/opportunityforall.
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