Perhaps it’s just me, but it seems to take less and less for someone to become a celebrity these days. On top of the people who were traditionally famous – footballers, movie stars and TV actors – we now have a reality TV culture that seems, chiefly, to have produced only more “celebrities” - a massive number of people who seem to be famous just for being famous.
Consequently, there is a much larger pool of “famous” people who fall into bankruptcy and a greater media appetite for what happens to them. I have a good deal of experience in dealing with high-profile bankruptcies including those of Jonathan Aitken, Neil Hamilton, Bruce Grobbelaar, Adam Faith and, more recently, Kerry Katona. Needless to say, it is interesting work.
Bankruptcy in England has a long history and originally the word came from two words, “bancus ruptus” which means “to break the tradesman’s counter”. Initially, only tradesmen could be made bankrupt and a bankrupt stayed in bankruptcy until the debts were paid in full. Over the centuries, our bankruptcy law has evolved by way of statutory reform and case law and has been adopted by a large number of other countries worldwide, so many more of us can now face the gathering of financial storm clouds on the horizon.
The main purpose of a bankruptcy order is to draw a curtain over an individual’s financial past and look to their financial future. A bankrupt’s assets, as at the date of the Bankruptcy Order, are realised and shared out on a pro-rata basis among the bankrupt’s creditors. Any transactions that may have taken place in the bankrupt’s financial past to try and avoid paying creditors can be overturned and hidden assets can be recovered. It may surprise you that the minimum amount a creditor can make you bankrupt for is still only £750.
These basic rules apply to all bankrupts, celebrity or not, and once made bankrupt, an individual is able to retain enough of their income to enable their reasonable living and the personal items required for their basic domestic living.
There has been much debate through the courts as to what constitutes reasonable income and it is very much something that a trustee considers on a case by case basis. Any excess income must be paid to the bankruptcy estate for the benefit of creditors. As a rough guide, reasonable expenditure would include mortgage or rental payments, cost of food and clothing, fuel, insurances, utility bills, etc. Entertaining allowances, expensive holidays and fast cars would not be considered reasonable.
As far as items required for an individual’s basic domestic needs are concerned, this extends to normal household furniture, a reasonably priced vehicle worth approximately £2,000-£3,000 and tools of the trade. A trustee has the power to claim “items of excess value”, such as antiques, expensive vehicles and jewellery. The only obligation on the trustee is to provide a “reasonable replacement” if it is considered the item is needed for basic living. The best example of this is an antique dining table which can be claimed by the trustee and a cheaper replacement provided.
These two basics of bankruptcy are where dealing with celebrity cases diverts from “the norm” and can lead to greater recoveries for creditors. They do perhaps produce the widest gap between a “celebrity” and their trustee as to what each considers to be reasonable income and basic living. This is what I call “the reality gap” and many bankrupts find this change in lifestyle the hardest aspect of bankruptcy to deal with.
Quite apart from this mismatch in perspective, you also have the other dynamic to deal with in a celebrity bankrupt which is the value of everyday objects. An item, for instance a book owned by an ordinary bankrupt, may have little value but owned by a celebrity bankrupt may have a considerable value. As trustee, your primary duty is to maximise realisations for creditors and therefore celebrity bankrupts may find that their personal possessions will have to be sold to repay their creditors. They may feel that this treats them more harshly than perhaps other bankrupts but there is an argument that those who have enjoyed the benefits of the celebrity status should be prepared for their creditors to also make use of this status to maximise the repayment of the debt. The sale of various celebrity bankrupts’ “memorabilia” has raised a great deal of money for creditors in the past and indeed we often hear of some celebrities selling off quantities of personal items of their own accord for perhaps charitable or other reasons. There is no reason why a trustee, who “stands in the shoes of the bankrupt” should not do the same.
As regards reasonable living expenses, I have had many a heated discussion as to what I consider “reasonable” and what the bankrupt does. I usually suggest that the bankrupt go away and, over the course of a week, write down everything they spend. I then hope that once this exercise has been conducted, a little more perspective is gained and a compromise can be reached. If it cannot, then regretfully a trustee has to revert to the court. If you do ever choose to perform this exercise, it is really surprising and sometimes shocking as to what your actual weekly expenditure is.
There are other aspects of dealing with celebrity bankruptcies that you have to be able to handle. There is of course more press interest in these types of cases which needs to be sensitively handled. There is the very real problem of the celebrity bankrupt generating an income post bankruptcy, or if this is not possible then perhaps some retraining is needed. There are also those celebrity bankrupts or their supporters who fairly publicly object to the actions of their trustee so you quickly learn to develop a fairly thick skin!
Louise Brittain is a bankruptcy expert at accountants Baker Tilly
