An enterprising way to make personal bankruptcy less painful

THERE are two sides to bankruptcy - the debtor and his creditors. If the politicians decide to put their thumbs on the scales of justice in favour of the former, they tip things against the latter. There is no way around this, so what we all need is some understanding of why, or indeed whether, there is a need for political intervention in the first place.

As KPMG's head of restructuring, Blair Nimmo, explains, much of the impetus for the coming change to the personal bankruptcy law originated with a visit some years ago by Peter Mandelson to the United States. "Mandelson decided that the culture and legislative climate in the US was much more entrepreneur-friendly than it was in the UK and that it was a regime that we needed to emulate if we wanted to stimulate business," Nimmo says.

As a result, we had the creation of the Enterprise Act which came in some three years ago. This was aimed at promoting the survival of more businesses when it was first mooted. However, Nimmo points out that the government was told at the time by insolvency experts that they already had all the tools they needed to save what was saveable, and that there was no need for legislation. "In fact, since the introduction of the Enterprise Act, we have seen no signs that it has made any kind of impact on the levels of business failures or any marked success, due to the act, in rescuing ailing businesses," he notes.

As a corollary to the Enterprise Act, it was felt that there was also a need for personal bankruptcy to be made less painful. Again, Nimmo questions the logic behind this. "The vast majority of personal bankrupts are consumers, not entrepreneurs. I have yet to hear of an entrepreneur reading the Insolvency Act before launching a business, so changing the legislation can't materially impact whether or not entrepreneurs launch businesses," he says. What we really need to change, Nimmo argues, is the culture and climate that looks on bankruptcy resulting from genuine business failure, where there is no hint of any impropriety, as a black mark for life. But this is a cultural, not a legislative thing, he argues.

"The only thing legislative change can mean in a business context is that you weaken the personal guarantees demanded by funders. And if you do this, the funders will walk away. That is not in the interests of budding entrepreneurs," he warns.