Contractors' Questions: Does being bankrupt bar me from Security Clearance contracts?

Contractor’s Question: I took out a business loan last year to help me fund a new type of service and the loan came with personal guarantees.

Now, if I were to enter bankruptcy, and assuming bankruptcy lasts for 12 months, during the bankruptcy period would I be able to apply for Security Clearance contracts? Then, once the bankruptcy is finished -- so after 12 months I assume, are there any further restrictions, implications or requirements related to the bankruptcy when I apply for Security Clearance?

Expert’s Answer; Most bankruptcies last for 12 months, in the sense that after 12 months the individual is discharged from bankruptcy and freed from the restrictions that come with it. The 12-month period can be extended for non-compliance.

One of the main restrictions that comes with bankruptcy is being prohibited from being a director of a limited company, or being involved in running a limited company, during the 12 month period. It is a criminal offence to breach this rule.

Once the 12 month period has expired, and unless the period has been extended or the individual has been subjected to a bankruptcy restriction order, then this restriction is lifted.

As contractors often use limited companies as trading vehicles for Security Cleared and other contracts, it is important to be aware of this restriction. A further restriction is that a bankrupt may not incur credit of more than £500 without disclosing their status as a bankrupt. Again, this disappears once the 12 months discharge has occurred.

A separate point relates to the application process for the Security Clearance. The relevant authorities will look at an individual’s financial history and position as part of the application process due to concerns about susceptibility to bribery. It is of course important that full and accurate disclosure is given in all Security Clearance applications, even though this could have a negative impact on the application.

Please note, the above  answer should not be relied upon or construed as specific legal advice. Tailored and expert advice should always be sought from a suitably qualified lawyer or insolvency practitioner.

The expert was John Bell, licenced insolvency practitioner, chartered accountant and senior partner of Clarke Bell Limited, expert insolvency practitioners.