Insolvency plans could lead to fraud

Concerns are growing that debtors will commit financial fraud to qualify for
new IVAs, which put less of a debt burden upon individuals than the current
regime, insolvency industry experts have warned.

With the introduction of simple individual voluntary arrangements (SIVA) next
spring, which will make it easier for individuals with debts under £25,000 to
enter into a voluntary arrangement, experts have warned that some debtors will
commit fraud to qualify for the more relaxed SIVA rules. ‘These types of fraud
have increased among those trying to go bankrupt,’ claimed a senior industry
source. ‘We expect this to happen with SIVAs.’

Smith & Williamson restructuring and recovery director Tony Murphy agreed
that the SIVA regime opened the potential for fraud and warned that the current
system for dealing with bankruptcies was ‘deluged’.

‘There’s more ineffective legislation ahead, and the current law is bad.
Bankruptcy used to be for the dissolute or failed entrepreneur; now it’s for
secretaries earning £15,000.’

The increasing number of debtors entering into IVAs has proved controversial.
Many industry professionals believe IVA factories are churning too many debtors
through the process, which leaves them with significant debt to repay when many
should be made bankrupt instead.

Greg Mullarkey, chief executive of debt business W3, disagreed that
insolvency laws are broken, but said that while the SIVA regime is a positive
move it would have teething problems when introduced.

Others have suggested that as many as one-tenth of bankruptcies would become
SIVAs, with bankruptcy figures currently at 15,000 a quarter. ‘More bankruptcies
compared with IVAs depend on the lenders,’ said Mullarkey.

Related reading