- 08
- Jun
The government and even some debt management organisations are raising the alarm that the insolvency legislature needs to be updated. The current regulations are too lax, allowing consumers the opportunity to build up high levels of debt and then claim bankruptcy when the debt burden becomes unbearable.
London’s status as a global financial centre will be in jeopardy unless the UK reforms its insolvency regime before the debt mountain causes the next economic downturn, according the European High Yield Association.
The EHYA represents institutional lenders. They wrote the government arguing that the UK Insolvency Act (1986) is not up to the task of handling the complex restructurings that are expected to characterise the next downturn.
The UK remains a favoured venue in Europe for restructurings, but the lobby group says legislation has failed to keep up with market developments.
The banks and debt management companies worry that the current relaxed attitude toward bankruptcy will become an economic nightmare as more consumers opt to apply for bankruptcy and start over instead of taking responsibility for their current debts owed on secured and unsecured loans.
The record numbers of insolvencies in the last three months is expected to grow. Analysts predict that 2007 will see 150,000 and maybe a possible 200,000 bankruptcies and IVAs.
Some economic groups believe that tomorrow’s proposed interest rate hike, and another proposed interest rate hike as early as August, will drive many more people into insolvency. The BoE hopes that the increased interest rates will lower the inflation rate and bring the current debt problem under control.
