Boris Becker’s two-and-a-half year custodial sentence after being found guilty earlier this month of four charges related to his 2017 bankruptcy is a shocking wake up call to all Bankrupts – whether they are High Net Worth Individuals or not when they find they have run out of road in their dealings with their Trustee in Bankruptcy.
It might have been even worse for Becker: acquitted on 8 April of a further 20 counts of breaching the Insolvency Act, the remaining charges each carried maximum sentences of seven years in jail. They related to removal of property, concealing debt and two of failing to disclose estate.
An obvious important lesson is that claiming to have been too “trusting and reliant” on advisers was not a compelling defence for Becker and is unlikely to be credible for others. While that argument might occasionally have traction in a more straightforward tax case, once a bankruptcy order is made there are very clear rules for disclosure of assets and the operation of relevant bank accounts. The onus is on the bankrupt to cooperate with trustees in observing these rules.
Bankruptcy in the UK appears to be perceived differently in the UK from in other major economies such as the US. While it is a temporary status that may be viewed as ultimately constructive, providing an opportunity to ‘reset’, perhaps for reasons of culture and society in Britain the element of embarrassment and even shame can dominate the process for an individual, particularly one with a high profile. This may, in turn, lead to desperate behaviour in attempting to circumvent the post-bankruptcy framework, so risking criminal activity and consequences.
Courts in the UK are, however, generally reasonable in assisting those facing bankruptcy actions to find time to pay and to work with advisers on finding workable solutions for debtor and creditor, whether the latter is a bank, a company, another individual, or HMRC. Judges are, by and large, loath to grant bankruptcy orders unless they are satisfied that means and time to pay have been exhausted. Adjournments may extend such proceedings for several months and into years.
Independent Trustees in Bankruptcy, Insolvency Practitioners appointed by the Secretary of State or by a vote of the Creditors after a bankruptcy order, are legally bound to take appropriate action to seek out and recover a bankrupt’s assets for the benefit of their creditors. This work needs a high level of co-operation from the Bankrupt and Trustees will wherever possible try to work constructively with the Bankrupt. In return, a Trustee will aim to be largely reasonable in allowing acceptable and legal flexibility for a bankrupt individual to maintain a strong foothold from which to recover. Unsurprisingly, this constructive approach will not extend to maintaining “expensive lifestyle commitments” such as those in the Becker case – which will only serve to increase trustees’ (or the Official Receiver’s) scrutiny of assets and cash flows after multi-million pound bankruptcies.
Shares in private companies, interests in property, loans from non-traditional sources, boats and even cars, art and jewellery, will be viewed extremely dimly if concealed from trustees. For their own good, newly bankrupt individuals should assume that hidden assets will be found and any concealment duly punished. Advisers to bankrupts should obviously resist being complicit. Becker’s prison sentence shows that there is a clear limit to the courts’ patience and is a dramatic shot across the bows of any individual thinking of making the same mistakes.
Written by Jo Milner, Partner at Buchler Phillips, the UK’s leading independent corporate recovery, restructuring and turnaround firm.