Legislation designed to modernise the UK's bankruptcy code and encourage new business startups is supporting 'dishonest bankrupts', experts warn.
Under the Enterprise Act, which recently celebrated its first anniversary, the government reduced the bankruptcy period from three years to one and replaced old restrictions with a series of new Bankruptcy Restriction Orders (BROs).
In theory, the more lax BROs are intended to encourage the enterprise-minded to start up by giving a new beginning to failed entrepreneurs who lost their businesses through no fault of their own.
The new rules are also designed to prohibit dishonest bankrupts from obtaining credit, trading under a different name or holding company directorships for a period of two to 15 years, but experts argue that too many prior restrictions and criminal penalties have been abolished under the new legislation which has given greater leniency to fraudsters.
The problem is that the Enterprise Act cannot be backdated, said Gary Player, partner at corporate law firm Thomas Eggar. Dishonest bankrupts can thus avoid a BRO for unseemly activity carried out before the passage of the legislation in April 2004.
He estimated this could apply to approximately 4,500 people. At a time when personal bankruptcies are at an all-time high and climbing, Player said the numbers compare unfavourably with the number of BROs.
Recent bankruptcy figures from the Department of Trade & Industry (DTI) show that only 12 BROs were made in the year before 1 April 2004, but personal bankruptcies totalled 10,091 in the first quarter of this year.
There was also a 19% drop in the number of directors disqualified for misconduct, which, when considered with the DTI figures suggest the government's Enterprise Act is "misfiring", Player said.
