Revenue 'should take less' in bankruptcies

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The Independent Online
UK LIQUIDATORS are urging the Government to scrap the "preferential creditor" status given to the Inland Revenue and the VAT authorities when individuals are made bankrupt, because this boosts the number of people going bust.

The Society of Practitioners of Insolvency (SPI) publishes a survey this morning on the UK's 24,000 individual bankruptcies in 1997. The survey shows that up to 30,000 jobs are year are put at risk by small businessmen who become personally insolvent.

According to the SPI, "bankruptcy is contagious" and this is where the Revenue and Customs and Excise add to the problem of insolvency.

The survey shows that 37 per cent of all bankruptcies led directly to other individuals going bust. Nearly half of these were either suppliers or customers of small businesses.

In bankruptcies the Revenue and the VAT-man come top of the list for repayment. While ordinary creditors to bankrupts get, on average, around 10p in the pound back, the Revenue and Customs get 36p in the pound, because of this preferential status, enshrined in law.

This forces both authorities to be more aggressive than they need be in dealing with people in financial difficulties, according to the SPI.

Murdoch McKillop, President of the SPI, said yesterday that the Government should cut back their preferential status, so that they would be less likely to oppose alternatives to formal bankruptcy, such as cheaper and less onerous voluntary repayment deals with creditors.

Mr McKillop said: "The Government needs to strike a balance. It should cut back the length of time that the Revenue and Customs have preferential status, perhaps to the last quarter of the year before the person goes bankrupt."