PracticeConsultingGet out of jail – free

Get out of jail - free

The new bankruptcy consultation document recommends that a government department be given the power to decide who is honest and who isn't - a dubious strategy.

It suggests that ‘honest and responsible’ bankrupts receive a discharge after six months, while the charlatans receive fifteen-year sentences. Feasible? No – it’s virtually impossible for the official receiver or any subsequently appointed trustee in bankruptcy to adequately assess a bankrupt’s affairs in six months. Additionally, the ability of a trustee to claim assets received while the bankrupt is undischarged will be greatly eroded – a blow to the profession and creditors.

This provision will also have a devastating effect on Individual Voluntary Arrangements. Will any clever debtor tie himself to an arrangement that lasts for three to five years when he could wiggle out in six months? Will creditors agree to a six-month IVA with a spectacularly-reduced dividend? Of course not.

The document also suggests that bankrupts should receive pre-priority benefit of the equity in their property – an outrageous scheme that may discourage bank lending to businesses below a certain size. Additionally, it suggests that discrimination against bankrupts should be made illegal. Will queries about previous bankruptcies on loan application forms and other documentation be outlawed?

We must remember that the sole objective of the bankruptcy process is to pay the debt owed to creditors, which this government seems happy to ignore.I’m not against changes to the bankruptcy laws. In theory, different levels of bankruptcy for different levels of bankrupt makes sense, but this must be measurable in terms of number of creditors, level of indebtedness, previous failures and so on, – and it must promote consistency. I believe that the minimum discharge period should be 18 months and rise as appropriate, which will prevent the courts from being swamped.

While New Labour develops sound-bite policies for changing the business culture, I believe that the government should concentrate on legal and tax reforms that support entrepreneurial business – not open the floodgates to fraudsters by making it easier for serial bankrupts to perpetrate the cycle of successful deceit.

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