As part of the Government’s desire to make Britain the best place to do business, the Department of Trade and Industry published a White Paper at the end of July, proposing changes to allow ‘honest’ bankrupts to be discharged after one year instead of the current three-year period. In cases where the official receiver concludes the affairs of the bankrupt do not require any further investigation, the bankrupt may receive an even earlier discharge.
The reforms, to be taken forward in the Enterprise Bill, are designed to streamline the bankruptcy process, reduce the stigma attached to it and encourage the bankrupt to try again. The reforms also aim to protect the public from the minority of business people who set up deliberately to defraud people and go bankrupt as a result.
In summary, the proposals are:
•The majority of bankrupts, the honest ones, will get an automatic discharge and be released from bankruptcy restrictions after one year instead of three.
•The bankruptcy court will have the power to make a Bankruptcy Restriction Order (BRO) for the small minority of dishonest bankrupts for between two and 15 years.
•The stigma of bankruptcy will be reduced by removing many of the disqualifications, prohibitions and restrictions.
•Greater competition and choice will be introduced in the provision of professional services to debtors and creditors by enabling official receivers to act as the nominee and supervisor in post-bankruptcy individual voluntary arrangements.
There are approximately 21,000 bankruptcies each year, but currently only 3% have any legal action taken against them because of the high evidential requirements of current criminal sanctions. The White Paper outlines that a public register of BROs will be maintained and it is believed that 10% of cases will result in a BRO. Breaches of the BRO terms will be a criminal offence punishable by a fine and/or imprisonment. Being branded a ‘dishonest’ bankrupt and the subject of a BRO could potentially exclude a person from the mortgage market for 15 years.
The new civil BRO regime, with its lower standard of proof of misdemeanours, should afford the public and businesses greater protection.
The main criteria currently applied by mortgage lenders when considering lending to bankrupts is the amount of time they have been discharged. Some lenders insist they have been discharged for five or six years. These new proposals will reduce the amount of time a discharged bankrupt has to wait.
The Government is clearly hoping that the new proposals will enable ‘honest’ bankrupts to bounce back and have another go. Only time will tell whether lenders are prepared to lend to ‘honest’ bankrupts as soon as they are discharged.