PracticeConsultingBankruptcy reforms are ‘cosmetic’, says R3

Bankruptcy reforms are 'cosmetic', says R3

R3 the association of business recovery professionals, has said the Enterprise Bill, likely to be mentioned in the Queen's speech today, sets up bankruptcy reforms that are 'cosmetic and short-sighted'.

The insolvency profession’s trade body added the reforms could damage small businesses and creditors. The proposed measures ‘will turn one of the most flexible systems in the world into something much more rigid’.

In the field of personal insolvency, the Bill reduces the bankruptcy period for ‘honest’ bankrupts from three years to 12 months. R3 said this will have a detrimental effect on returns to creditors. It could have the adverse effect of making bankruptcy more appealing to directors than individual voluntary arrangements, which can last between three and five years, and on average return 40% more money to creditors.

Although the government believes a shorter bankruptcy period will remove the stigma of bankruptcy, according to R3, the real stigma is a bad credit record.

The Bill is also expected to increase the maximum penalties to ‘dishonest directors’ to up to 15 years.

Links

R3’s website

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