Entrepreneurs may be able to avoid bankruptcy by anticipating difficulties - if they keep a close eye on the financial situation of their business.
There is no single UK law on bankruptcy. Rules and procedures differ slightly between national regions. The term 'bankruptcy', which is used in England and Wales, is sometimes known as ‘sequestration’ in Scotland .
The Insolvency Service helps with the administration and investigation of bankrupt businesses and partnerships in England and Wales, and establishes the reasons for insolvency.
Scotland's Accountant in Bankruptcy (AIB) service administers personal bankruptcy proceedings and registers corporate insolvencies.
The Insolvency Service Northern Irelan d, in the Department of Enterprise, Trade and Investment (DETI) performs similar functions.
Entrepreneurs having experienced bankruptcy should not lose confidence in their ability to embark on a new business.
In the UK, bankruptcy is one way of dealing with debts you cannot pay. The bankruptcy proceedings free you from overwhelming debts so you can make a fresh start, subject to some restrictions; and make sure your assets are shared out fairly among creditors. However, there are disadvantages too relating to debt liabilities, potential impacts on employment and professional practice etc. Business Link provides an online interactive tool on alternatives to bankruptcy.
Anyone can go bankrupt, including individual members of a partnership. There are different insolvency procedures for dealing with companies and with partnerships.
The Insolvency Service provides guidance on all relevant procedures:
Bankruptcy orders are usually made by presenting a completed bankruptcy petition at the High Court in London or at a UK county court close to where an individual or member of a partnership lives or trades.
The Bankruptcy Court deals with:
- All bankruptcy petitions which may be presented in the London insolvency district;
- Applications to set aside statutory demands;
- Post-bankruptcy applications, the purpose of which is to obtain information about or achieve realisation of the bankrupt's assets;
- Public examinations and applications for the suspension of the bankrupt's discharge period;
- Applications for permission to act as director where the applicant is an undischarged bankrupt;
- Some applications in connection with bankruptcy appeals.
While the Companies Court deals with, for instance:
- Company winding up petitions;
- Post-winding up applications, the purpose of which is to obtain information about or achieve realisation of company assets;
- Petitions for the approval of the reduction in the capital or share premium account of companies;
- A wide range of final applications relating to companies, such as applications to restore to the register, or to register charges out of time.
Compulsory liquidation is when the court orders a company to be wound up (a winding-up order) on the petition of an appropriate person. If there is more than one director, all the directors must jointly present the winding-up petition - a single director cannot present a winding up petition.
Personal Debt Management Plans / Programmes (DMPs) consolidate unsecured debts into a single monthly repayment. The Scottish Government runs the Debt Arrangement Scheme (DAS), and there are also a number of independent debt management programmes and plans available to businesses.