PracticeConsultingBankruptcy reform ‘will not remove stigma’

Bankruptcy reform 'will not remove stigma'

Changes to the bankruptcy laws, designed to encourage enterprise by limiting penalties for 'honest' bankrupts, could have negative effects, insolvency experts have warned.

Roger Oldfield, president of R3, the Association of Business Recovery Professionals, said the changes, a main feature of which is a reduction in the minimum bankrupcty period from three years to one year, could ‘inadvertently damage rescue prospects for Britain’s smallest businesses.’

‘R3’s concern is that a one-year bankruptcy process will do nothing to remove stigma unless credit reference agencies and financial service providers are forced to expunge bankruptcy records from their database.’

This view was echoed by Steve Treharne, corporate recovery partner at KPMG who said: ‘Those who have been bankrupt are going to struggle to obtain the funding and support that they need to start again, and this is the fundamental problem the government’s reforms fail to address.’

Oldfield also said: ‘One year bankruptcies could also make the low-stigma individual voluntary arrangement a lot less attractive to debtors. As a result, creditors of self-employed people will get much less and businesses that might otherwise return to profit will die.’

Treharne also said the government would have problems with the separation of honest and dishonest bankrupts. ‘There are going to be significant practical problems in determining whether an individual who has been made bankrupt has been honest or not and it may take some time to determine.’

Insolvency partner Fred Satow of PKF also saw disgruntled bankrupts challenging decisions: ‘The distinction between responsible and irresponsible creditors seems to be subjective and liable to attack in the courts from disgruntled creditors.’

According to Satow, PKF was disappointed to see the government still required bankrupts to bank at the Bank of England. He said: ‘It creates a tax on creditors by offering the customers who have to use its services uncompetitive and high interest rates.’

Links

Johnson unveils insolvency shake-up

Department of Trade and Industry website

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