Thursday, Aug 17, 2006

Why bankruptcies are set to rise even further

MoneyWeek: Why bankruptcies are set to rise even further

It's a week or so old, but here's MoneyWeek commenting on the BBC's debt diary woman...

Posted by mary @ 09:17 AM (489 views)
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3 Comments

1. indiablue19 said...

The Moneyweek article does clear up some questions I've had on BBC's bankruptcy soap opera. For one, the woman's husband finally surfaces: as the owner of the restaurant for which their home was mortgaged. Finally this is making some sense. She had an investment in BTL, they both had an investment in a home, and all was forfeited on His belly-up restaurant. Neither of them can support a baby. One question that certainly springs to mind is why he didn't incorporate as a limited partnership, or similar. Seems like any decent advice came too late. Also sounds like the BBC was entirely disingenuous is portraying this woman like a lonely waif who outspent her income. She is the wife of a failed restaurant owner who absorbed all her capital.

Thursday, August 17, 2006 11:36AM Report Comment
 

2. Retiredbanker said...

indiablue19

Limited partnerships are formed if you have financial backers for your venture who do not wish to be involved in running it. In fact limited partners who become actively involved in the management of the partnership run the risk of losing their limited personal liability.

I assume by your use of the word "incorporate", that you mean this couple should have traded as directors of a limited company, and this does have certain merits.

However no financial institution would be naive enough to lend to a limited company without first obtaining supporting security; usually the personal guarantees of the directors backed by mortgages over their properties. So this couple would still be liable to the same extent.

For the banks' to do otherwise would be a fraudsters' charter.

Thursday, August 17, 2006 04:26PM Report Comment
 

3. indiablue19 said...

Retired Banker,

I'm actually referring to the LLP structure initiated in April 2001, as a boon to solicitors, accountants, architects, and others with professional qualifications that formerly prevented them forming a limited company and not losing personal assets over business failures and suits. This has since seemed to be a choice for many who both work in a company and manage it, and as an alternative both to traditional partnership and sole proprietorships [self employment]. There are advantages such as limited requirements for audit, and etc., based upon the annual income of the company; with audit exemption I believe up to 5million or so. There may be some variation between England and Scotland on the statutes, I don't know about that. Financial liability if the company folds is strictly limited much as it would be for shareholders. This is not from any experience I've had an arms-length arrangement, as directors and designated members most often work within the company -- as would a solicitor, architect, etc.

I am surprised if bankers, or anyone, would advise young couples starting in a restaurant business with nothing but their own best wishes that they should "bet the farm," especially if only 30% of such enterprises succeed. Seems cruel and irrational.

Thursday, August 17, 2006 08:52PM Report Comment
 

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