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BUSINESS-RELATED BANKRUPTCIES UNDER THE BANKRUPTCY (SCOTLAND) ACT 1985 (AS AMENDED)- PHASE 1: SCOPING STUDY
6 Main Study - Feasibility
6.1 Introduction
6.1.1 A range of methodologies has been proposed for use in a main study into business-related bankruptcies, which together would provide a comprehensive research package, able fully to meet the objectives of the study. However, many of these methodologies do present practical difficulties, which may reduce their utility, or indeed the feasibility of using them, or make the cost of doing so prohibitive.
6.2 Collection of retrospective data
6.2.1 The Register of Insolvencies is computerised, and analysis of the data held in it is therefore expected to be a relatively straightforward task. However, the data held on this Register is incomplete: not all bankruptcies involving a business are identified as such on the Register (in a sample tested during the scoping study the Register omitted to refer to the business involvement in around 20% of cases). Nor does the Register include the detail required to establish the root cause of the bankruptcy, or even the nature of the debts. Analysis of the Register can therefore only provide an inaccurate, and partial, picture of business-related bankruptcy in Scotland. If the limitations of this data are accepted, however, its analysis can be seen to provide some useful background information about business-related bankruptcies in Scotland. It would give a rough estimate of the proportions of bankruptcies involving a business, and allow analysis of how these compare with purely consumer bankruptcies on a number of criteria. Given the relatively straightforward analysis task, and the current complete lack of baseline data, this should be well worth undertaking.
6.2.2 Inclusion of information contained in the bankruptcy files held at the Office of the Accountant in Bankruptcy would be a significantly more time-consuming task. With around 3,000 new files each year, it is estimated that a researcher would have to work full-time for at least one month in order to extract the details required to establish firmly if there was business involvement in each of one year's bankruptcies. Since not all files include a Supplementary Questionnaire (18% of files lacked one in 1999), and since the Supplementary Questionnaire is the main source of the data required for the study, additional work would be required in these cases, perhaps involving telephoning the trustee/agent working on the case to request the required details.
6.2.3 Analysis of the information extracted in this way would enable a much more accurate assessment of the number of bankruptcies involving a business than could be obtained from the Register of Insolvencies alone. However, extracting additional information, such as the causes given for insolvency in the Supplementary Questionnaire and the nature of the debts (the breakdown between business and consumer debts), would increase the time required to extract data from each file. In both of these cases the data available would undoubtedly be found to be inconclusive in many, if not the majority, of cases. Furthermore, the bankruptcy files do not include any details to enable analysis of the root cause of the bankruptcy, and nor do they include any details about whether the trustee continued trading a business to sell it as a going concern, or what happened to the debtor's house.
6.2.4 Overall, therefore, the utility of spending extended periods of research time extracting data from the bankruptcy files, should be carefully weighed up. In addition, prior to undertaking this research, it would be necessary to establish whether this would be acceptable under data protection legislation. No problem is anticipated, since use of data for research purposes is generally included in the registration under the Data Protection Act, however, this would have to be positively established before the research could be undertaken.
6.2.5 The most appropriate method of recording any additional data obtained from the bankruptcy files would be to take a copy of the Register of Insolvencies, and add the new information to this copy. This would minimise the use of staff time at the Office of the Accountant in Bankruptcy, while maximising the use to which the additional data could be put, in terms of analysis and output.
6.2.6 Collection of retrospective data from other sources would involve a range of additional problems and issues. One option would be to request access to the bankruptcy files of individual insolvency practitioners - but even if the insolvency practitioners were willing to provide such access, it is doubtful that data protection legislation would allow it.
6.3 Collection of current data
6.3.1 Inclusion of some additional questions in the existing Supplementary Questionnaire should be a relatively straightforward task, which should not add significantly to the complexity or time taken to complete it. Firstly, these questions could clearly establish whether a business had been involved in each individual bankruptcy. Further questions could then be used to gain the insolvency practitioner's view of: the nature of the debt, the root cause of the debt, the extent of the debtor's own responsibility for the bankruptcy, the outcome for the business and the viability of the business had sequestration not occurred. A draft set of questions has already been produced as part of the scoping study, and a number of insolvency practitioners have been asked to trial their use and comment on the feasibility of their inclusion in the questionnaire. The practicality of the questionnaire's approach has therefore been tested.
6.3.2 Once the additional questions had been finalised in the planning for a main study, it would be important to ensure that all insolvency practitioners are aware of the updated Questionnaire, and that they make use of it, rather than of an older version. It is currently a practical difficulty that practitioners do not always use the latest version of the Questionnaire, and as noted above, questionnaires are not included in a significant number of cases. Guidance notes would need to be produced, to provide assistance in answering the additional questions and to encourage the use of the correct version of the questionnaire. During a main study, the information collected in this way would be extracted from the Supplementary Questionnaires by the research team, recorded and analysed by them. Since no Supplementary Questionnaire is currently completed in approximately 20% of bankruptcies, the data provided from this source would not be comprehensive, and it would be necessary to follow-up the missing cases by personal contact with trustees.
6.3.3 To undertake additional research with recently bankrupt people, including investigation of their business books, would be a significantly more time-consuming and difficult task, and would require the resolution of a number of issues.
6.3.4 Firstly, it would be critical to develop clear criteria to be applied in collecting the data, and undertaking the investigation, in order to ensure that the data gathered is both consistent and objective. These criteria would have to be developed by working closely with a small group of insolvency practitioners and accountants, considering such issues as how to define "excessive drawings", and how to identify "poor financial control". Having established the criteria to be employed, initially, a number of different strategies would need to be tried for the undertaking of the task itself. One such strategy would be to ask for volunteers, from amongst existing trustees and agents, to take on the additional work for an additional fee; another would be to employ suitably qualified researchers specifically for the task, having first taken a view of what qualifications would be required. An early assessment of the advantages and disadvantages of these different strategies should then be made, together with an assessment of the value of the additional information being obtained. The issues surrounding these approaches have been explored to some extent in the scoping study workshop, and at this stage the two approaches appear practicable.
6.3.5 A further difficulty with undertaking this investigation is likely to be that, in many cases, either no business books exist or the debtor may be unwilling for researchers to review them. In these cases, the investigation would have to rely entirely on face-to-face interview with the debtor, or in the absence of the debtor's co-operation, on information obtained from the trustee. In such cases it is unlikely that sufficiently complete and objective data will be obtainable. Another significant issue about use of this methodology is likely to be the cost involved. In order for this approach to become a feasible option, it is likely that the detailed investigation proposed could only be undertaken into a sample of bankruptcies. It is suggested that perhaps 10% of those bankruptcies in which there is business involvement should be investigated (around 100 to 150 bankruptcies in total), stratified by type of business, amount of debt, gender and ethnic origin of the debtor.
6.3.6 The feasibility of collecting additional data from insolvency practitioners, particularly about trust deeds, must also be questioned. Unless legislation requires trustees to provide information to the Accountant in Bankruptcy, it would appear extremely unlikely that a significant proportion of them will be willing to provide the information on a regular basis. Strategies for obtaining this information must be considered in more detail, but one approach would be to recruit the services of a sample of current insolvency practitioners, and to seek their assistance in contributing to the study for its duration, on a paid basis.
6.4 Questionnaire surveys
6.4.1 As part of a main study, it is proposed that questionnaire surveys should be undertaken with all those groups involved in bankruptcy in a personal, or a professional capacity. For many of these groups of key players, the use of questionnaire surveys would be unlikely to pose any significant methodological problems - accurate registers exist, statistically valid sampling should pose no problems, and carefully designed questionnaires should result in a high return rate.
6.4.2 However, significant problems are anticipated where some of the groups of key players are concerned. Firstly, research undertaken during the scoping study suggests that the use of a questionnaire survey of debtors may encounter a number of problems in obtaining an acceptable response rate:
- the response rate to letters sent out to debtors during the scoping study was very low (6%);
- although the Register of Insolvencies includes debtor's addresses, no telephone numbers are included, and addresses are not updated if the debtor moves house. Research with directory enquiries only resulted in 20% of debtors' telephone numbers being found;
- many debtors are unwilling to take part in research into their bankruptcy, feeling this is an area of their life which they would rather not discuss.
6.4.3 Strategies do exist for obtaining up-to-date contact details for debtors, including asking trustees for this information, and use of the electoral register. However, all such strategies are bound to be time-consuming, and are likely to have only limited success. In addition, strategies do exist for maximising the response rate from debtors once their contact details are obtained. These include making contact by letter, and possibly telephone, prior to sending out the questionnaire, and making follow-up telephone calls. Again, however, these strategies are likely to be time-consuming, and to enjoy only limited success.
6.4.4 Selecting an appropriate sample for questionnaire surveys of some other groups, notably of businesses - be they creditors, start-up businesses, successful mature businesses, or experiencing debt problems - does pose methodological problems. Available registers significantly under-estimate small businesses that are not registered for VAT or PAYE, while in addition, it may be difficult to ensure that businesses at the required stage, or with the required experience of debt, are accurately represented in the sample drawn. Businesses with experience of formal debt-recovery procedures may be drawn from court records, though this would require some additional work since court records frequently do not indicate whether the debtor is an individual or a business. 21
6.4.5 Undertaking a questionnaire survey of insolvency practitioners may also encounter some difficulties. If asked detailed information about the bankruptcies for which they have acted as trustee or agent, insolvency practitioners may be unable to provide answers without doing significant investigative work in their files, and may be unwilling to undertake such work.
6.5 Case studies
6.5.1 Use of the case study approach proposed for a main study relies on the full, and willing, co-operation of the debtor, and of other key players. There could be no question of undertaking this approach without the full approval of the selected debtors, and for this reason the approach is potentially problematic. It may prove difficult to find debtors willing to take part, and even then, it may prove difficult to get the co-operation of the creditors, trustee and other professional staff who have dealt with that particular bankruptcy.
6.6 Action research
6.6.1 As part of a main study it is proposed that one or more service for providing advice and support to businesses in difficulty be piloted, as an action research project. A whole range of feasibility issues must be addressed in assessing which of the suggested services would be most appropriate for piloting. One option would be for plans for the action research project to be developed following the emergence of the initial findings from a main study, particularly as regards the numbers of business-related bankruptcies, and causes of these bankruptcies.
6.6.2 In order to have a reasonable chance of success, any action research project would need to be very professionally organised, staffed and publicised. A major issue would be to ensure that businesses getting into difficulties are aware of the new service, and encouraged to use it. However, it would be even more important that the advice and support being given to those making use of the service was accurate, helpful, and appropriate to the needs of the businesses.
6.6.3 The costs of piloting any of the suggested action research projects would be considerable, but not out of proportion to the value of the research results. Effectively the action research would provide validated blueprints for practical services that could be offered to businesses and would reduce the incidence of business-related bankruptcy.
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