Lavish lifestyle can lead to extended Bankruptcy restrictions

24 Jul 2006 12:45 PM

People considering bankruptcy are today being reminded that living a lavish lifestyle before declaring yourself insolvent can have serious repercussions.

Borrowing to finance gambling, spending large sums of money on travel, taking deposits from customers without carrying out work or going well above overdraft limits and then declaring bankruptcy can result in people being subject to bankruptcy restrictions for a minimum of two extra years.

Those declared bankrupt for the first time are, in normal circumstances, subject to restrictions for one year. However, courts have the power to impose the restrictions for up to 15 years if reckless behaviour has occurred in the period leading to their bankruptcy.

In over 1200 cases, reckless behaviour while insolvent means restrictions for these people remain in place for a period up to 15 years, which is five times longer than under the previous legislation for a first time bankruptcy.

Examples of reckless behaviour, which have left people subject to restrictions, include:

* Incurring credit they have no prospect of being able to repay; * Paying for exotic holidays and home improvements, or living extravagantly while not paying their creditors;
* Gambling and continuing to gamble; thus increasing their debts * Making payments or gifts to family members or associates at a time when they should have been paying creditors.

Online access to a database with the details of those subject to Bankruptcy Restrictions Orders (BROs) and bankrupts subject to Bankruptcy Restrictions Undertakings (BRUs) in England and Wales can be found on the Insolvency Service website.

Visitors to the site are able to search the database using a bankrupt person's surname, or Government Office Region. Each option provides the user with the length and type of restrictions or undertakings to which bankrupts are subject.

People with a BRO or BRU are subject to restrictions similar to those in bankruptcy for a period of between two and fifteen years. Under the restrictions it is an offence to obtain credit of more than £500 without disclosing their status. Those who breach their restrictions can be subject to further proceedings.

Notes for Editors

1. Examples of BROs and BRUs from each Government Office Region are attached in Annexe A. Each example in Annexe A can be found in the Bankruptcy Restriction Search database on the Insolvency Service website.

2. The Insolvency Service administers the insolvency regime investigating all compulsory liquidations and individual insolvencies (bankruptcies) through the Official Receiver, to establish why they became insolvent.

3. The Insolvency Service carries out confidential enquiries on behalf of the Secretary of State for Trade and Industry, through the Companies Investigation Branch. The Service also authorises and regulates the insolvency profession; deals with disqualification of directors in corporate failures; assesses and pays statutory entitlement to redundancy payments when an employer cannot or will not pay employees; provides banking and investment services for bankruptcy and liquidation estate funds; and advises ministers and other government departments on insolvency law and practice.

Further information about the work of The Insolvency Service is available from www.insolvency.gov.uk

Insolvency Service, 21 Bloomsbury Street, London, WC1B 3QW.

ANNEXE A

EXAMPLES OF BROs AND BRUs - BY GOVERNMENT OFFICE REGION

EAST

BRO 9 YRS - Paula Shaw, from Southend, was unemployed, living on state benefits and had liabilities exceeding her assets of more than £100,000 and a minimal income. Claiming to be the managing director of a non-existent company earning £5,000 a month and providing false payslips, she obtained a £287,000 loan secured on a property for which a monthly mortgage payment of more than £1,200 was required. She said she would cover the repayments by letting rooms in the property but was unable to attract tenants. The lender repossessed the property with a shortfall on its sale of nearly £79,000. This in turn increased the extent of the Ms Shaw's insolvency. The Bankruptcy Restrictions Order will limit her ability to obtain credit in the future.

EAST MIDLANDS

BRU 6 YRS - Maxine Moody, from Northampton, was declared bankrupt owing more than £80,000 after spending £19,000 on travel and living expenses during a failed attempt to re-locate to Spain. She also gave £6,000 to her sister when she should have been aware that she was failing to pay her debts and failed to account for £3,000 of withdrawals from her bank account over a 12-day period.

LONDON

BRO 8 YRS - At the time Uskuri Saffet, of Enfield, had a surplus of assets over his liabilities of £10,926, he made cash withdrawals amounting to at least £53,000 funded by loans totalling £55,000. He said he lost the £55,000 in gambling. As a result of the gambling losses he became insolvent. He spent on average £5,000 per week on gambling. Mr Saffet stated that he had obtained loans in an attempt to recoup gambling losses, but was unsuccessful as he incurred further losses gambling instead. He said that he declared himself bankrupt because he could not cope with his debts. His income had dropped and he had no prospect of increasing it. As a result, the loans totalling £55,000 were lost in gambling to the detriment of the lenders who remained unpaid.

NORTH EAST

BRO 8 YRS - In the four months before he was declared bankrupt, Steven Morrison, from Gateshead, blew his share of a property sale - more than £25,000 - through gambling. The spell saw him go from a position of solvency to a deficiency of more than £19,000. Mr Morrison was aware of a debt of £21,700, which he owed to the Inland Revenue in respect of his self-employed status as a plumber.

NORTH WEST

BRU 8 YRS - Philip Hoare, from Southport, increased his borrowing from £36,000 to £57,000 as he was resigning from his job as a police officer and having decided in principle to file for bankruptcy, thereby materially contributing to and increasing the extent of his insolvency to the detriment of his creditors. He claimed to have spent the money variously on prostitutes, gambling, alcohol and his social life. At a time when he had resigned from the police, he repaid £3,000 to his parents from money borrowed from the bank. The effect of this was to pay money to his parents in priority over other creditors. It took place when the Mr Hoare was aware that he was insolvent.

SOUTH EAST

BRO 8 YRS - To the detriment of her creditors Leigh Cooke, from Southampton, deliberately failed to disclose and deliver-up £3200.00 in cash - the only realisable asset in her estate - to the Court and the Official Receiver. On one day, at 9.35 a.m., she withdrew £450 in cash from a bank account. At 9.37 a.m. she withdrew a further £3200 in cash from the same account. She then proceeded to the Court where she swore her Statement of Affairs and presented her own petition for bankruptcy before the Court, being made bankrupt some 58 minutes after withdrawing the cash. At no time did she disclose the existence of the cash or the bank account to the Court. She also failed to disclose the cash and the bank account to the Official Receiver until after he had made extensive enquiries. The Official Receiver has been able to recover only some £100 of the original cash.

SOUTH WEST

BRO 7 YRS - Andrew Player, a curtain fitter from Ferndown, took more than £7,000 in deposits from customers when he knew he was could not pay existing debts. He then failed to supply the goods and services for which he had been paid but continued to trade. As a result his debts rose by £53,000. He knew there were two County Court Judgments totalling £3,900 outstanding and that he owed at least £77,000 to creditors and had no realisable assets. Within four months his business debts had increased to over £130,000. At one stage he had obtained a major contract to fit furnishings worth £70,000 and received £46,000 in two deposits, but the building involved was still awaiting completion and he did not carry out the work or obtain full payment. Four months later he obtained bank overdraft facilities of £20,000 while an existing bank overdraft of over £14,000 remained outstanding. He then moved to new premises and the new overdraft facility quickly reached the limit of £20,000 on initial expenses and advertising. Turnover had soon diminished by up to £5,000 and he sought financial advice, although continuing to take customer deposits which were absorbed into the general business bank account, and liabilities for the previous premises remained unpaid.

WEST MIDLANDS

BRO 5 years - Charles Tranter, of Oldbury, Brimingham, took on debts of almost £40,000 to fund his luxury lifestyle despite being aware he had no hope of paying it back. Mr Tranter took out a £10,000 loan and ran up more than £29,000 debt on credit cards while he was earning £560 per month, leaving repayments of £805 per month, which were impossible to meet. The funds were used to pay for gambling, holidays, leisure activities and day-to-day living. When there was no prospect of the money being repayed.

YORKSHIRE & HUMBERSIDE

BRO 7 YRS - Stehpen Betley, from York, took more than £21,000 in deposits from customers, paid £7,000 to his wife and transferred £39,000 from his loft conversion business to his personal bank account which he spent on an extravagant lifestyle. As a result, there were insufficient funds in his business bank account to repay the deposits or to finance the work. He continued to take deposits when he knew or ought to have known that there was no reasonable prospect of the works being carried out or completed.