Bankruptcy Without Tears
Contractors who have got themselves into financial trouble will be pleased to hear that from April 1st the Government is going to make it less painful to become bankrupt.
They have put this new legislation in place in order to create a greater entrepreneurial spirit. In the USA there is less of a stigma about being bankrupt than there is here. In fact it is often said that most of their entrepreneurs have been bankrupted several times before the big one comes along.
It is now to be recognised by the Government here that entrepreneurs are risk-takers, and as such, have a greater chance of failure as well as success. They now want to make sure that the nation‘s entrepreneurs are not handicapped and hand-cuffed during many of their innovative years by the constraints that bankruptcy often puts on people.
There fore they are going to make several changes to the law from April 1st.
1) Quicker Discharge
Those made bankrupt will, in future, be able to be discharged from bankruptcy after just 12 months. At the moment the term is three years.
2) Denial of Credit
Previously bankrupts were denied credit of more than £250 pounds for several years. Now that restriction will be only for the 12 month bankruptcy period as well.
3) Ban on Company Directorships
The ban on a bankrupt becoming a company director will now be lifted after just 12 months also.
These measures are a good idea, and will help foster a greater entrepreneurial spirit amongst small businessmen and women, amongst them being IT contractors.
Although we‘ve heaped scorn on the Government in the past over IR35, Section 660, and the shockingly abused Work Permits system, they deserve some praise here for this measure.
Raising Entrepreneurship Levels
There is a much lower level of entrepreneurship in the UK than there is in many of our rival countries. In fact, just across the Irish Sea Ireland has a much greater level of entrepreneurship than the UK has. In fact Irish entrepreneurship stands at close to US levels.
All right, so some creditors may miss out by entrepreneurs becoming bankrupt, but as the greatest amongst these are the Government themselves through the Inland Revenue and Customs and Excise, and the banks then there is not too much lost here.
The Government departments know that thee is no money to be got out of most of those made bankrupt anyway, and the banks can look after themselves.
Both are in a position to benefit from a greater level of entrepreneurship in the UK.
Voluntary Individual Arrangements
The Government, however, is worried that there will be a massive amount of bankruptcies just about to happen after the law is put in place.
They had thought that bankruptcies would go up a little bit, but they are now being advised that there could be a multiple of the current number of bankruptcies taking place after the new laws are in place.
They are, therefore, looking at the other tool in their armoury and that is Individual Voluntary Arrangements (IVA).
This is where someone who cannot pay their debts gets all their creditors together and offers them a certain amount. This is often only about 10p to 15p in the pound.
Usually the creditors will go for this as they know that the contractor has no other funds and they can‘t get money out of a stone. They also know that if the contractor becomes bankrupt that they will get nothing.
It means that the contractor will have no further restrictions put upon them and they can start afresh, perhaps with a brand new contract and no debts.
Most of the usual creditors like the Inland Revenue, Customs and Excise, and perhaps even the banks will go for this.
I‘m surprised that more contractors don‘t take this route.
The Government wants to make this option more attractive so that a lot of people will prefer this route rather than becoming bankrupt, so there could be the double bonus of this option being made much easier too.
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