Between the devil and the deep blue sea: Insolvents face a hard choice. Neasa MacErlean looks at the alternative to personal bankruptcy

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The Independent Online
PERSONAL insolvency will come under the spotlight early next month when two high-profile figures from the business world arrive at the day of reckoning with their creditors.

On Tuesday, Kevin Maxwell's creditors will try to make him Britain's biggest bankrupt, with debts of over pounds 400m. Nine days later, George Walker, former chairman of Brent Walker, will attempt to avoid bankruptcy by establishing an individual voluntary arrangement (IVA) with his creditors.

If events unfold as they are expected to, Mr Walker will end up with far more control over his personal affairs than Mr Maxwell.

Under an IVA, the debtor negotiates with his creditors to pay them what he can over a period of between three and five years. He can end up keeping his house (an asset a bankrupt often loses), maintaining a credit status, and retaining control of any other assets that can help him to generate income again.

By contrast, undischarged bankrupts have difficulty in achieving even the most basic financial arrangements. Finding rented accommodation is considerably harder because they may have to disclose their bankruptcy to a potential landlord. They cannot be a director of a company, apply for credit of more than pounds 250, or be an MP or elected member of a local authority.

So, anyone who can convince 75 per cent of creditors (by value) that he or she will be able to make reasonable and regular payments would always choose the IVA route.

For all its relative attractiveness, however, an IVA is a complex and even controversial animal. John McQueen, the chief executive of the Bankruptcy Association, described himself as a long-time proponent of the IVA, but said: 'The whole IVA system is running into disrepute - although if it is done properly it's a splendid system.'

His main quarrel is with the licensed insolvency practitioners who have to be appointed, under the governing legislation, to administer IVAs. Many of them, he says, have created 'shabby arrangements' that are bound to fail, and many of them - charging fees of up to pounds 5,000 - are unaffordable.

A bankrupt would only have to bear the court costs of around pounds 150. That is the cost of the form-filling: it is rare to have a full trial on bankruptcy.

For their part, the insolvency practitioners recognise that IVAs are often difficult to negotiate and difficult to administer. The required agreement of 75 per cent of creditors means the insolvency practitioner's first task is to negotiate with creditors. This often means negotiating with the Inland Revenue, Customs & Excise, banks, building societies, the utilities and organisations that give. But the views of these bodies will not always be predictable.

Steve Hill, of Cork Gully, said: 'The Inland Revenue sometimes tends to take a moral rather than a commercial view.' In his own experience as an insolvency practitioner, he has found that the Revenue will take a much tougher line on people they think should know better - like accountants or solicitors.

The Inland Revenue denied taking a moralistic approach, and said that each case was treated on its commercial and practical merits. The banks and building societies adopt a similar tone. One body that strikes a far move positive note is Customs & Excise. 'IVAs are looked on favourably,' a spokeswoman said. 'We have quite a good success rate with them, in excess of 40 per cent.' That compared very favourably with the recovery rate from bankrupts.

Many insolvency practitioners believe that an IVA can be far tougher, in some ways, on the individual concerned than a bankruptcy. Each month, or each quarter, he or she will have to meet repayment targets, and will therefore have to be motivated, disciplined and efficient.

Since the IVA system was only introduced in 1987, it is still relatively untried. Only a few hundred people have yet completed the three to five-year process. But the number going into IVAs is rising steeply. In 1990 there were 2,000; in 1991 3,000. And 1992 is on course for a total figure of 5,000.

(Photograph omitted)

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