As I said in a previous blog post here, everyone is entitled to make a living and being bankrupt does NOT preclude you from being self-employed and running your own business in most cases.
Perhaps we should take a look first at the statutory aspects of trading that must be adhered to if you wish to continue trading a business that was trading prior to bankruptcy or start up a new business.
1. You must not obtain credit of more than £500 without disclosing to the credit provider that you are an undischarged bankrupt. This applies whether you are trading in business or not but if you are running your own business you must bear in mind that you are unlikely to be granted a bank overdraft or any other bank borrowing facilities- even below the £500 threshold.
This statutory provision applies also to trade credit for stock or goods etc and hence you need to think very carefully whether you operate the type of business that can continue without the availability of credit. This may well be a hindrance to some business owners.
2. You must not trade in another name to that under which you were made bankrupt without disclosing the name under which you were made bankrupt. This applies not only to your own personal name but also to any trading style you used prior to bankruptcy. The rationale behind this statutory provision is that the credit provider is only able to make a proper credit risk assessment by knowing about your bankruptcy.
So long as you can satisfy both of those statutory provisions, you are free to trade as a sole trader or in a partnership business.
You will need to bear a number of other points in mind though.
Book-keeping and accounting records whilst bankrupt
Should you decide to continue to trade after the Bankruptcy Order has been made, you may well fall under extra scrutiny from the Official Receiver. You must ensure you keep your books and accounting records up to date. The Official Receiver will want to examine your income to assess your ability to make Income Payments and your accounting records will help the Official Receiver ascertain what your personal income is.
Just as importantly, your books and records will help you monitor your business’s financial peformance to ensure you are trading profitably.
Adequate provision for payment of tax during bankruptcy
This is especially important if HM Revenue and Customs are a creditor within your bankruptcy. If you were to find yourself unable to pay any tax or VAT due during your bankruptcy this will almost certainly result in consideration of a possible Bankruptcy Restrictions Order (BRO) being made against you. I will be talking about BRO’s in a future article.
In addition to any consequences for your bankruptcy, HM Revenue and Customs take a very dim view indeed of anyone running into problems paying their VAT and tax a second time around. I’ve even had a case where a debtor was made bankrupt by HMRC 3 times and on the third bankruptcy a fairly lengthy Bankruptcy Restrictions Order was made.
Just one final word which has already been covered in another article, you are unable to be a director or be seen to be acting as a director (shadow director) of a limited company whilst bankrupt.
If you have any questions about carrying on in business whilst bankrupt please contact me and I will be happy to help.