BUSINESS-RELATED BANKRUPTCIES UNDER THE BANKRUPTCY (SCOTLAND) ACT 1985 (AS AMENDED)- PHASE 1: SCOPING STUDY
1 Introduction
1.1 Background
1.1.1 Amid concern about the relatively low business birth-rate in Scotland, as compared with the rest of the UK, in June 1998 the late Donald Dewar, then Scottish Secretary, announced a target of 100,000 new businesses (start-ups, less closures) to be set up in Scotland over the following ten years. At the same time new targets to reduce the number of business failures were also set, and a number of measures announced, including the formation of a new Business Growth Unit, and a review of business support schemes. However recent research has shown that these original targets were inappropriate and new measures have been introduced to address the business birth rate in Scotland.
1.1.2 Against this background, over recent years there has been an increasing awareness that one aspect of Scottish culture that may be discouraging entrepreneurial activity is the "stigma attached to business failure" 4. It has been suggested that the Scottish parliament should "applaud business success and be less critical of business failure" 5, and should encourage "entrepreneurs who have experienced genuine failure to get back into risk-taking" 6. In December 1999, the Entrepreneurial Exchange published a paper proposing that "rather than punish and discourage those who fail [in business] we must encourage them to try again". 7
1.1.3 A small proportion of business failures result in the personal bankruptcy of the entrepreneur, working as a sole trader or partnership, or having given personal guarantees on loans made to a limited company. The Entrepreneurial Exchange views existing bankruptcy law as effectively punishing those who fail in business, and therefore feels that it acts as a barrier to enterprise, and suggests that there should be significant reforms to the law. Meanwhile, in England and Wales, an awareness of the need to reduce the financial and social consequences of those business failures which leads to bankruptcy has also been developing. In March 2000, the Department of Trade and Industry's Insolvency Service published a consultation document suggesting possible reforms to the law. 8
1.1.4 In June 2000 the Scottish Executive Justice Department commissioned the first part of a study to look into business-related bankruptcies in Scotland.
1.2 Requirements
1.2.1 The first part of the study into business-related bankruptcies was a scoping study, primarily aimed at informing the design of a full study which is being considered for 2002/03. As such, it has been concerned with examining the information currently available about business-related bankruptcies in Scotland and clarifying a number of definitional issues. The study has also sought to identify issues that a main study should address, and to develop an appropriate set of research methodologies for examining the causes and impact of business-related bankruptcies in a main study.
1.3 Approach
1.3.1 The approach taken during the scoping study included 4 main elements.
1.3.2 Firstly, a literature search was undertaken to establish the range of literature available covering issues relating to insolvency in general, and business-related bankruptcy in particular, both in Scotland and in other jurisdictions.
1.3.3 Secondly, an analysis was undertaken of existing data sources that provide information about bankruptcies in Scotland, in order to evaluate the extent to which they enable the identification of business-related bankruptcies.
1.3.4 Thirdly, field research was undertaken, including over 20 telephone interviews and 43 in-depth face-to-face interviews, with a wide range of people affected by bankruptcy either personally, or in a professional capacity. Interviews were included with debtors themselves, entrepreneurs, creditors, insolvency practitioners, solicitors, court staff, a sheriff officer, money advisors, business advisors and representatives from business-related organisations and from equality organisations. The objectives of the interviews were to gather information about bankruptcy, including the causes, process and impact of bankruptcy, to explore the views and experiences of those interviewed, and to identify potentially relevant issues. The interviews were followed up by two workshops - one for those with personal experience of bankruptcy and one for those who have a professional involvement - with a view to feeding back the main findings of the scoping study research, validating these findings, and identifying any gaps.
1.3.5 Finally, the scoping study involved an assessment of potential research methodologies and approaches for use in a main study, including examination of their feasibility, and the potential risks and benefits. This also included analysis of the timescales required.
1.3.6 Findings from all four parts of the scoping study are summarised in the sections that follow.