About 2,500 people fall into bankruptcy each year. A small percentage are clients of my insolvency practice, which gives me an insight into how people react as their businesses unwind. I have noticed one common mistake and an obvious solution.
Company directors who enter bankruptcy fall into two broad camps that I call the Dreamers and the Failures. The Dreamers are those whose businesses were never going to work, yet they gave personal guarantees. When these debts were due, the only solution was a trip to the Official Assignee's office - the department that supervises bankrupts.
They are not as interesting as the Failures, directors who had, at least for a time, successful firms.
Companies fail for a number of reasons, but one thing they all have in common is their directors were financially ruined. Wealthy bankrupts living in trust-owned Herne Bay retreats exist, but these are the minority. Most failing directors empty their family trusts of their last denarii to prop up their ailing empires, which causes me to wonder: why did they put their family house into a trust if they were going to raid it later?
Building a company changes priorities. At the time the family trust is established, the company is like an unborn child - it has no emotional appeal. Once the company arrives it changes the director's priorities and his identity becomes wrapped up in his creation (this is a predominantly male phenomenon; women do not seem so afflicted).
