Warnings over bankruptcy plan

Government plans drawn up to create a more forgiving environment for bankrupts may deprive creditors of funds they would have been repaid.

R3, the professional business recovery body, also warned that the proposals could increase the number of bankruptcies.

The plans, which were announced on Friday by Stephen Byers, the Trade and Industry Secretary, would allow bankrupts judged to have acted responsibly to be discharged from their debts after only six months.

Under the current rules, these "unfortunates" are subject to Individual Voluntary Arrangements (IVAs), which apply for at least three years.

Roger Oldfield, vice-president of R3 and a partner at KPMG, the accountants, said: "IVAs account for around 20 per cent of personal insolvencies and have produced far more for creditors than bankruptcies.

"One must question whether a six-month bankruptcy is a sufficient deterrent to those who cannot or will not manage their money effectively," he added.

The criticisms follow another damning verdict delivered on Friday by John Alexander, head of corporate recovery and insolvency at Pannell Kerr Forster, the accountancy firm.

He concluded that the plans would prejudice not only bankrupts, but also creditors, who could be deprived of pertinent information about individuals before advancing them funds.