Blunder lets bankrupt offenders go free

UP TO 4,500 fraudulent bankrupts will escape punishment because of a loophole in new rules introduced in the Enterprise Act, which celebrates its first anniversary today.

The blunder means they will be free to obtain credit or set up a business without restriction, despite dishonest dealings in the past.

The Enterprise Act, introduced on 1 April 2004, scrapped criminal penalties for fraudulent bankrupts, replacing them with Bankruptcy Restriction Orders.

These bar people from obtaining credit without disclosing their status, trading under a different name or holding a company directorship for between two and 15 years.

But those who committed offences before 1 April 2004 cannot be issued with a BRO because the new legislation is not backdated. Neither can they be prosecuted under the old criminal law. Effectively, they are slipping though the net.

Mark Sands, senior manager of personal insolvency at KPMG, said: 'This was an unintended consequence of the new legislation and potentially means thousands have got off scot free in the last year.

'It is bound to mean that some will set up businesses after one or two years, when they should have been kept off the streets for up to 15 years.'

Only 12 BROs have been issued in the past year, a tiny fraction of the thousands expected on an annual basis. A further 80 cases are waiting to be heard in court.

An Insolvency Service spokeswoman admitted some people would fall into this transitional period but denied that the numbers would be significant. 'If someone wants to set up a business and has been discharged from bankruptcy, they are perfectly entitled to do that,' she said.

The Department of Trade and Industry estimates that between 7% and 12% of bankrupts are 'dishonest', having committed offences such as hiding assets by selling their house to their partner or incurring debts they had no intention of repaying.

Most bankrupts are honest people who have fallen into difficulty through financial mismanagement or bad luck. KPMG estimates that 42,000 of this latter group will be discharged today, up to two years early, under the new rules which lift restrictions after a maximum of 12 months rather than three years as previously.