Panorama Bankruptcy Expose Misses the Target

Monday evening’s bankruptcy expose by BBC Panorama, of former millionaires, now bankrupt and still apparently living the high life, was confused and misleading (Millionaire Bankrupts Exposed).

The investigation, which looked at a handful of bankrupts, attempted to show how they were still enjoying the benefits of luxury mansions and cars, whilst their creditors were being left out of pocket.

The investigation tried to apportion blame for these abuses on the UK state run Insolvency Service and the Accountant in Bankruptcy’s Office, and concluded with, Fiona Coulson of Moon Beaver Solicitors stating the only way to avoid such abuses was through increased use of private sector trustees.

However, where the programme fell short was it first focused purely on abuses that arose from formal bankruptcies, primarily provided for by the public sector, whilst ignoring the same abuses that occur in protected trust deeds and individual voluntary arrangements, which are wholly administered by the private sector.

The second shortcoming, was it presented the case of Alan Yeoman, a Derbyshire businessman, as an example of the abuse and fraud which occur in bankruptcy. However, Yeoman’s fraudulent attempts to hide assets was eventually uncovered by the Insolvency Service (IS), and Yeoman received a custodial sentence for an assortment of offences, which only became known as a result of their investigations.

It also presented the case of the ex-treasurer of the Scottish Conservative Party, Malcolm Scott, who after making himself bankrupt, attempted to hide his assets. Fortunately, this was uncovered by the Accountancy in Bankruptcy, and Scott was awarded a five-and-a-half-year Bankruptcy Restriction Order (BRO) by Edinburgh Sheriff Court.

However, in the case of Scott, the BBC have accused him of being in breach of his Bankruptcy Restriction Order, by being involved in the formation and management of companies. Conduct prohibited by his Order. These allegations were put to Dr Richard Dennis, the Accountant in Bankruptcy (AIB), during the programme.

Who is Responsible for Bankruptcy Restriction Orders?

This revealed another mistake made by the programmers, in assuming the AIB was responsible for monitoring and enforcing BROs.

The uncomfortable truth for Panorama, is it isn’t. In terms of Malcolm Scott, if he fails to abide by the terms of his BRO, then he may be committing an offence. Like other offences in Scotland, this is a matter for the Police and the Lord Advocate’s Office, not the Accountant in Bankruptcy.

The reality is, although the AIB can award BROs, and can apply to Court for them (when the order requested is for more than 5 years), the responsibility for enforcing them does not lie with them.

Equally, as Panorama highlighted, if Scott has been able to form a company, then responsibility for this lies with Company House which allowed him to do so, despite the Court ordered BRO, and not because of the actions of the Accountant in Bankruptcy (or lack of them).

Interestingly, since the programme has been broadcast, it has been revealed the number of BROs awarded by the AIB, fell by almost two-thirds in 2016/17, when compared with the previous year. The reason for this being the AIB are now using new powers, introduced in April 2015, to refuse non-cooperative debtors discharges, thereby allowing the AIB to retain scrutiny powers over debtors when they are non-compliant.

The programme also highlighted other bankrupts, with high levels of debt, who still appear to be driving around in high value cars, but failed to show in the programme where ownership of these cars lay. This is a common problem which arises in bankruptcy and a frustrating one for creditors, who often assume the debtors own the assets they have access to.

However, it is not unusual when things are good, for many people to share the benefits of their success with their family: so, homes do get put into the name of spouses; and children do acquire assets. These assets do not vest with a trustee in bankruptcy, once a debtor is made insolvent, and, therefore many bankrupts still have access to them during their insolvency, to the frustration of their creditors.

However, in some cases, it’s also true some debtors do dispose of assets in anticipation of their bankruptcy, either by sale or “gifting” them, or by moving them offshore. In the examples of this presented during the programme, it appears many of them were discovered, and appropriate action was taken against the debtor.

Bankruptcy Scrutiny is Robust, but also Proportionate

The final error the programme appeared to make was in suggesting that checks in bankruptcy were not robust enough. However, this is wrong. There are obviously routine checks performed in all bankruptcies, and then there are investigations which are performed when intelligence becomes available to suggest they are warranted.

Routinely, those applying for bankruptcy must provide 3 months bank statements, wage slips, proof of benefits, proof of employment and even proof of routine expenditure. In addition to this credit reports are run, and land searches are performed to find undisclosed assets.

If the aim of the programme was to suggest that a greater detection of abuse would be possible by the private sector, then this would also be wrong.

In Scotland, for example, most bankruptcies are already administered by private sector firms, who have service agreements with the Accountant in Bankruptcy. The cost of administering these cases are usually paid for from the public purse, but are now nowhere near what they used to be when between 1985 and 1993, they rose from £86,000 per annum to £26 million. This was at a time when only private sector insolvency practitioners could be trustees in bankruptcy.

Today the AIB’s costs are just over £12 million and most of these costs are recovered from cases themselves in the form of fees, minimising the impact on the tax payer.

The Panorama programme exposed, quite correctly, that there are some who do try and abuse the bankruptcy process: but rather than showing the system was failing, it showed a system, overall, that was working, as most of the abuses revealed had been detected.

However, if anything is required, it is probably greater awareness within the creditor industry and the public, that Trustees in Bankruptcy are heavily dependent on information being provided to them to stamp out abuses. That information, where it is available, therefore must be provided.

Equally, the limitations of Bankruptcy Restriction Orders must be appreciated. These are civil sanctions. If people want more severe sanctions to be used against the worst abuses, or for those who flagrantly ignore the restrictions of BROs to be punished, then the solutions lie not in the civil, but the criminal courts.

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