Commercially speaking, we live in troubled times. Reports of property prices falling, negative equities rising, high street spending freezes, inflation up, oil prices up, company failures up…………………and the list goes on.
In the current climate, every business newspaper or magazine has some sort of report on the credit crunch together with a commentary on its effects. It is therefore sometimes difficult to separate fact from speculation and opinion. But being correctly informed is crucial, and this article is designed to dispel some of the myths surrounding the mysterious world of formal insolvency.
Myth number 1 : “If I’m declared bankrupt I’ll lose everything”
Whilst the bankruptcy regime is a difficult and serious procedure to be involved in, insolvency legislation has moved a long way since the debtors’ prisons of centuries ago!
If a bankruptcy order is made against you, it is your duty under the law to make a full account of your assets and liabilities to the Official Receiver. However by virtue of section 283 Insolvency Act 1986 essential “tools of the trade” and basic household essentials are excluded from the bankruptcy estate. In certain circumstances a motor vehicle can be regarded as an essential tool.
The Official Receiver would not permit the continued use of a Ferrari as the car you used for business, or the valuable antique furniture in your dining room! However the purpose of a bankruptcy order is legal redress for your creditors – not to deprive you of the ability to make a living. It is possible to continue to be self-employed after bankruptcy, although it is illegal to obtain or apply for credit without telling your proposed supplier or lender that you are an un-discharged bankrupt.
Often the real concern in a bankruptcy situation is what will happen to the family home. The Insolvency Act contains a raft of legislation to deal with the bankrupt’s home which involves giving certain rights to the bankrupt and their families. There are legitimate ways in which the home can remain in the ownership of the family and in the vast majority of the bankruptcy cases that we deal with, an amicable settlement can be reached.
Myth number 2 : “It’s illegal to start up another company if my existing company goes bust”
In this scenario, popular myth often clouds the facts of the actual legislation.
It is entirely legal for directors or shareholders of “bust” companies to set up new businesses and also purchase the assets (including customer lists) of their former company – provided full market value is paid. Directors however must be aware of the legalities of re-using the “old” company’s name and the potential pitfalls of taking on their old workforces.
Creditors often express disbelief at these rules, but the Government has stated that it wants to encourage entrepreneurial spirit amongst the business community and in recent years has amended certain aspects of legislation to achieve this.
Insolvency legislation however continues to provide protection for creditors against “serial insolvent” directors.
Myth number 3 : “If I bury my head in the sand my money problems will disappear”
In many cases, the only option for a business is to cease trading and close down. Sadly, for many individuals, this is one step too far and they fail to face up to the inevitable decision that they need to make.
It is worth noting that certain aspects of the insolvency legislation are designed to add further financial injury for those who choose to struggle on. In particular, directors of limited companies that continue to trade and increase the level of their debt can be held personally liable for those increases.
In conclusion therefore, anyone finding themselves under the pressure of mounting debt should take steps to ensure that they are professionally advised of the options available to them under insolvency law. |
