The subject has caused intense rivalry between the Department of Trade and Industry (DTI) and the Treasury, whose joint working party on bankruptcy is expected to publish a discussion document this week.
New Labour sees insolvency law reform as a painless, costless way to do something big and win the small business vote. Mr Byers sees it as his big chance to make his mark.
Reaction from those who will have to make any changes work - insolvency practitioners, lawyers, bankers - has been less than positive. They warned that Mr Byers's reforms would increase the number of people going bust by 20 per cent. They were also particularly incensed by the suggestion that "responsible" bankrupts should be allowed to keep up to pounds 20,000 of assets to aid recovery.
Tony Supperstone, head of BDO Stoy Hayward's London Corporate Recovery group, said: "The plans are a perversion of the original intention of the insolvency laws, which is to enable creditors to recover funds. Our calculations show that up to 240,000 businesses could lose."
There are five broad questions for any change in insolvency laws:
n Should bankruptcy become easier on unlucky businessmen and harder on "culpable" ones? The argument is that entrepreneurs will be more willing to pursue new business projects if they don't face losing their houses and their reputations.
In the UK, bankrupts must wait three years before being discharged. There is also the social stigma and legal penalties - lawyers call them "disabilities". You cannot be an MP, a lawyer or accountant and you cannot borrow more than pounds 50 without saying you're a bankrupt.
In the US, you can be made bankrupt today and become a director and borrow money tomorrow. You can go bankrupt only once every seven years - so, perversely, you become a good credit risk. Mr Byers' suggestions include a twist on the American "Homestead Provision". In the States, you can't take someone's house after they go bankrupt. Mr Byers wants bankrupts to be able to keep pounds 20,000 to "start again".
The irony of the UK's determination to ease its rules is that the US is tightening its bankruptcy rules - to make them more like the UK's.
n Should investigating accountants be appointed receivers, or should somebody "independent" be chosen? At present, British banks can ask troubled business customers to accept the "advice" of an investigating accountant, who decides whether the bank should pull the plug. If he does, the bank appoints him as the receiver, often to the outrage of the said business.
n Should the Company Voluntary Arrangement (CVA) be modified to give businesses a 28-day moratorium from creditors, during which they can make a rescue plan? A Bill on CVA reform is on the launch pad and almost certain to be implemented.
n Should the Government introduce some equivalent of the American idea of "debtor in possession", like their Chapter 11 procedure? In the US, businessmen (the debtors) put together a rescue plan supervised by the court. In the UK, when a bank enforces its debenture, the bust businessmen are supervised by an insolvency practitioner (the receiver).
The working party's suggested solution is to introduce a procedure that would be monitored by an insolvency practitioner, but not day to day. It would be similar to the existing administration procedure, but cheaper and simpler to run.
n Should British banks lose a uniquely British thing - the floating charge? Banks take a debenture or floating charge over all business assets, including stock and debtors, and when they call in the debt they stand at the top of the queue for payouts, just below the tax officials. One proposal is to abolish the banks' preferential status and change to the American system of making loans secured on assets or stock.
As a quid pro quo, the Government should be forced to give up preferential rights. The first things to be paid when a business fails are PAYE (levied by the Treasury) and VAT (by the Customs & Excise).
The Treasury is up in arms to protect the Revenue's preferential status, the DTI is determined to remove it, and the banks are hopping mad that their beloved debentures may be on the way out.
There is anger, too, among insolvency professionals who feel they have been "fingered" by New Labour as a barrier to an American risk-taking entrepreneurial economy. They feel if New Labour wants to foster an entrepreneurial culture they should concentrate on venture capitalists and the City, not the receivers.Reuse content