This was one of the findings of its ninth personal insolvency survey which also shows that, for the first time, more debtors are petitioning for insolvency than creditors taking them to court.
The release of R3’s survey was followed by new government insolvency statistics, unveiled last Friday, showing a rise in bankruptcies between the fourth quarter of 2001 and the first quarter 2002, although there was a slight drop compared to the same quarter last year. R3’s survey also found bankruptcies resulting from businesses going to the wall are due to bad management, tax liabilities and a loss of market.
But the government could also be held to blame, according to R3 spokesman and personal bankruptcy expert Peter Sargent. ‘There are more and more people – encouraged by the government – who set up their own businesses but haven’t got a clue how to run them. They don’t have business acumen and get themselves into a mess,’ he said.
Sargent has seen many examples of bad management in his work as an insolvency practitioner, with many sole traders filing for bankruptcy due to a mixture of personal and individual problems. Although each bankruptcy is different, he said that many of the bankrupt businessmen he deals with are disorganised. The best way to tackle debt is to get organised, he contends.
Although many find the idea of being their own boss attractive, Sargent stressed there are perils for people going it alone.
He spoke of a case in which a business in east Lancashire ignored warnings from Customs and did not submit VAT forms. The business was wound up and the partners lost everything.
‘And that’s not atypical. In personal insolvencies, everything is at a risk, literally, including the kitchen sink,’ he added.
Sargent recommends sole traders take courses before starting a business and argues banks should not lend money to people until they see whether they have been on a training course. ‘You have to have a licence to drive a car so why shouldn’t you have to have some sort of trading licence? Sole traders should do the same thing.’
Domestic insolvency cases are the other main reason for bankruptcy, but they are mainly due to credit card debt rather than financial mismanagement.
Sargent said the main reason for this is that there is no limit to the amount of credit a person can incur and the ease with which credit can be obtained. ‘You get offers for credit everywhere you go. In the shop, there are store cards; through the post there are offers for credit cards. The government ought to do something about it. It’s too easily available.’
Sargent fears the amount of bankruptcies is likely to rise as consumers are encouraged to spend using credit cards.