Comment - Weighing up problems of fraud.

If the government has its way bankrupts will be seen in a different light in this country in a few years’ time. Currently the vast majority of those several thousand a year who are declared bankrupt lose their personal wealth and are automatically disqualified from being a director of a limited company and suffer a number of other financial restrictions for up to three years.

Such shame could be a thing of the past if proposals from Stephen Byers and the Department of Trade & Industry pass into law. At the heart of the DTI’s proposals Bankruptcy – A Fresh Start – deadline for comment 30 June – is the idea that the present bankruptcy law makes no distinction between those ‘who fail for reasons beyond their control despite their best efforts to save their business and those who deliberately set out to mislead and deceive.’

After researching the reason for those declared bankrupt over a couple of months at the beginning of 1999, the government found only around two per cent of bankrupts could be fairly described as fraudsters.

While the DTI wants to get tough on the criminal – and the DTI is proposing upping significantly the disqualification period – it wants to see ‘the responsible risk taker’ back on his or her feet and contributing to the entrepreneurial society as quickly as possible. Byers claims one of the reasons why more people do not set up their own business is because they are worried about the consequences of failure. According to the government most businesses fail because of ‘bad luck or a lack of cash’, but these honest failures are tarred with the same brush as the minority whose company collapses because of fraudulent activity.

The DTI wants to change that and develop a more entrepreneurial culture in the UK. But there are dangers in going too far with such an ambition.

As we have seen with some dot.com start ups recently, it is possible to go through a great deal of money sometimes in pretty short order. While it is true that incompetence is not a criminal offence, it is a fine line between a risk that went wrong and recklessness.

While most of us would have sympathy with honest entrepreneurs who fail through no fault of their own, those looking to reform the law should recognise that every bankrupt – whether innocent or not – leaves behind a trail of unpaid creditors. When the bankrupt fails to pay off his or her bills in full, someone else somehow has to pick up the tab. The government needs to remember this in order to ensure that in forgiving the honest bankrupt we do not create a rogue’s charter.

– Peter Williams is a freelance writer and director of Kato Publishing.