DTI defends lifting bankruptcy ban on MPs

And she made it clear in the Commons that similar restrictions on local councillors, school governors, regional flood defence committees and a host of other public office holders would either be removed under provisions in the Enterprise Bill or under orders set out in other legislation.

Johnson said magistrates would be dealt with under new discretionary procedures operated by lord chancellor Irvine and only reckless personal bankrupts – against whom a court agrees bankruptcy restriction orders – will continue to be barred.

Johnson denied the government’s aim was to remove the stigma attached to bankruptcy and claimed ministers continue to believe in personal responsibility and that ‘if bankrupts can pay they should pay’.

But she said most financial difficulties resulted from the break up of personal relationships, ill health or unemployment.

She faced protests from Tory and Liberal MPs who warned the easing of bankruptcy rules, with some cases lasting less than a year, would lead to a massive increase in bankruptcies, forcing banks and credit institutions to be more restrictive towards unsecured lending.

The minister said earlier that insolvency rules were being amended to allow liquidators to recover costs for actions such as recovering money from directors for wrongful trading – a point raised on behalf of PricewaterhouseCoopers – and promised new regulations would allow administrators or liquidators access to funds to pursue recalcitrant debtors.

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