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BUSINESS-RELATED BANKRUPTCIES UNDER THE BANKRUPTCY (SCOTLAND) ACT 1985 (AS AMENDED)- PHASE 1: SCOPING STUDY
7 Recommendations for a Main Study
7.1 Introduction
7.1.1 The scoping study into business-related bankruptcy has clearly established that a need exists for further research. This study has gone a considerable way towards identifying the important issues affecting business-related bankruptcies, but in doing so has raised many more questions than have been answered. Specifically, the study has shown that the Scottish Executive were correct in identifying business-related bankruptcy as being an area of concern, and in identifying the need for the collection of accurate, objective data about the incidence of business-related bankruptcy and its causes. However, the findings of the scoping study would suggest that rather than bankruptcy law itself being the major point at issue, it must be seen as only one element in a complex web of cultural attitudes, public policy and legislation, which together have a negative impact on individuals and on enterprise.
7.1.2 The scoping study has failed to find any clear evidence that bankruptcy law itself is responsible for deterring potential entrepreneurs from starting up in business, though it may be acting to dissuade or prevent people from going back into business following sequestration. However, it does seem clear that a real issue exists around the provision of support to business people who are running into difficulties. Consequently, many business people do not receive the information and advice that might have enabled them to turn their business around, overcome their debt problems, and avoid sequestration.
7.1.3 While the experience of sequestration may serve to deter people from setting up another business, there is little doubt that the experience of failing in business, and building up intractable debt problems is also a very significant deterrent to further enterprise in many cases. The impact of providing effective business support would therefore go beyond avoiding bankruptcy itself, and would include reducing or preventing the negative impact of business failure itself.
7.1.4 A further thread in this negative web is that of the impact of cultural attitudes, and related legislation. These place restrictions on the opportunities available to bankrupt people, make it difficult for them to obtain credit, assume they are unfit to take public office or positions of responsibility, and reinforce the impression that bankrupt people are dishonest. A considerable stigma attaches to bankruptcy which, combined with a critical attitude towards failure and a risk-averse culture, assures the negative impact of bankruptcy far more surely than bankruptcy legislation itself.
7.2 Options
7.2.1 Against this background, a study of business-related bankruptcy is clearly needed, firstly to provide the baseline statistics required, secondly to provide a better understanding of its causes, and thirdly to establish how the negative impact of business-related bankruptcy could best be ameliorated, or bankruptcy itself avoided. The scoping study has identified a range methodologies for use in a main study, but it is clear that a number of practical difficulties reduce the feasibility of using some of these, and that the costs of others will be high.
7.2.2 Table 6 provides a summary of the feasibility issues. Also included are comments on the usefulness of each methodology, and an estimation of their importance to the study.
Table 6. Summary of feasibility issues
Component | Feasibility issues | Comments |
Literature review | No significant issues | Useful - for background and comparative information |
Analysis of Register of Insolvencies | Incomplete data, limited detail | Essential - for baseline data |
Analysis of bankruptcy files at office of the AiB | Very time-consuming, data likely to be inconclusive in some cases | Desirable - but the research time and costs may outweigh the benefit |
Additions to supplementary questionnaire | Possible resistance from trustees towards completing all the relevant questions Possible difficulty in trustees being able to answer all the relevant questions No supplementary questionnaire completed in some cases | Essential - for obtaining accurate statistical data on the number of business-related bankruptcies |
In-depth investigation of individual bankruptcies | Possible difficulty in: - finding researchers with the right combination of skills to do the research
- finding debtors willing to take part
- defining criteria for classifying cases
- obtaining sufficient in-depth, objective information, e.g. in the absence of business books
| Essential - for obtaining the data required to identify causes of business bankruptcy, the outcome of the bankruptcy for the business, and the viability of the business at the time of sequestration Essential - for the development of an objective statistical monitoring system for future use |
Questionnaire survey of debtors | Possible difficulty in: - making contact with selected sample
- obtaining an adequate response rate
| Useful - for obtaining statistical data on the experiences and views of debtors |
Questionnaire survey of creditors/ businesses | Will require an appropriately stratified sample | Useful - for obtaining statistical data on the experiences and views of creditors and businesses in general |
Questionnaire survey of insolvency practitioners | Possible inability or unwillingness to provide detailed information | Useful - for obtaining statistical data on the experiences and views of insolvency practitioners |
Interviews | Possible difficulty in finding debtors willing to participate | Useful - for obtaining in-depth data on key players' experiences and views |
Case studies | Possible difficulty in finding debtors willing to participate, and in obtaining the co-operation of creditors, trustees, etc. | Useful - for obtaining data to reconcile the different perspectives of different key players |
Evaluation of sources of advice and support | None identified | Essential for identifying how steps can be taken to develop diversion strategies from bankruptcy |
Action research | Requirement for the project to be very professionally organised, staffed and publicised. | Essential - to establish clearly the benefits of providing appropriate support to businesses in difficulty |
7.3 Recommendations
7.3.1 As a result of the scoping study, we would recommend the following way forward.
7.3.2 Firstly, that a statistical analysis of the Register of Insolvencies be undertaken.
7.3.3 Secondly, that statistical data collection on business-related bankruptcies be conducted, through additions to the Supplementary Questionnaire. Once insolvency practitioners had responded to the piloted version of the additional questions, these would need to be amended, and then discussions entered into with the office of the Accountant in Bankruptcy in order that they can be included in the published version of the Supplementary Questionnaire. The amended version would then be issued to all insolvency practitioners, along with a letter of introduction, and guidelines.
7.3.4 Thirdly, that additional research with recently bankrupt people be piloted, including investigation of their business books. Initially, insolvency practitioners, and others, should be approached with a view to forming a working party for the production of criteria for undertaking this investigating and data collection. In addition, insolvency practitioners should be approached to assess their interest in taking part in this research, with the pilot involving use both of insolvency practitioners themselves, and of suitably qualified researchers. Following an evaluation of the pilot, including the advantages and disadvantages of using insolvency practitioners and researchers respectively, the quality of the information being obtained, and its practical utility, it will be possible to form a view on whether all business-related bankruptcies, or only a sample, should be investigated fully. In addition to other aspects of research with the recently bankrupt people, it is recommended that some of these bankruptcies be used as the basis of case studies, involving interviews with their creditors, trustees, and other relevant professionals, as well as the debtor.
7.3.5 Fourthly, that a systematic review of services to businesses in difficulty be undertaken, including evaluation of how relevant they are to the needs of businesses.
7.3.6 Finally, that discussion of the possibilities for developing one or more action research project for providing support to businesses in difficulty be commenced, these discussions to take place with policy makers, the enterprise network, business-related organisations and potential funders.
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