Smaller businessmen bear brunt of bankruptcy

MORE THAN four out of five people who go bankrupt are self-employed, against only three out of five a couple of years ago, according to the insolvency practitioners who supervise bankruptcies, writes John Willcock.

People are increasingly avoiding bankruptcy by opting for the less onerous individual voluntary arrangement, a survey by the Society of Practitioners of Insolvency finds.

IVAs were only introduced in 1986 but already make up 15 per cent of all personal insolvencies. Unlike bankruptcies, under IVAs people may continue to be directors of companies, may raise credit over pounds 250 without disclosing their insolvent status, and may remain in business.

The SPI survey was drawn from 1,217 personal insolvencies dealt with by its membership from 1 January to 30 June 1993. It found that small businessmen have borne the brunt of bankruptcy, but suggested this may have been exaggerated because SPI members are more likely to deal with businesses than individuals.

The number of unemployed people made bankrupt has fallen 75 per cent since the last survey in mid-1992.

In domestic insolvencies, consumer credit is now much less of a factor. In the first survey in 1991 it was the primary cause of insolvency in 80 per cent of cases, falling to 54 per cent in the present survey.

The SPI supports the move towards IVAs. Average paybacks to creditors are often double those from bankruptcy, with IVAs recovering on average 11.2 per cent of debt compared to 6.9 per cent from bankruptcies. Both procedures have to be supervised by a licensed insolvency practitioner, or if there are no assets involved the Official Receiver, an executive agency.