New start for honest bankrupts

Today, insolvency practitioners and finance directors wait with baited breath for the government to define honest and dishonest bankrupts, having set out its stall in the 2001 Enterprise Bill.

In our enterprise environment, honest bankrupts should be free to create new businesses, and finance directors will have little choice but to do business with them.Bankruptcy and corporate insolvency does not stop entrepreneurs setting up businesses again.

In fact, in instances of business failure, the existing management team often rescues the company.

Though unable to manage a limited company, bankrupt owner managers often rearrange their business affairs to ensure that they take a back seat in the running of the company.

In order to pay creditors, fresh earnings are required from the struggling firm, and the best way to generate those earnings is to get the new business up and running.This is a common business recovery scenario and prolongs the life of the company.

What we can expect to see as a result of the Enterprise Bill is a dramatic drop in individual voluntary arrangements.

After all, why enter into a personal arrangement to make voluntary contributions to creditors over three to five years, when the entrepreneur could be in and out of bankruptcy within six to twelve months with no obligation to repay creditors. The stigma for dishonest bankrupts, however, is much deserved and there must be sanction for those directors that knowingly rip off creditors.

In the commercial world then, perhaps the fairest way to help FDs is to establish a transparent register of make an informed choice on who they do business with.

  • Tony Supperstone is national head of business recovery services at BDO Stoy Hayward, and the London chair of R3.

Related reading