Bankruptcy

Bankruptcy is a very serious step to take and not a decision to be taken without exploring all other options. Please see our information about an IVA as a potential alternative or speak to one of our experienced advisors.

ROUTES INTO BANKRUPTCY

Debtors petition (S264 (1) B

Grounds:
Inability to pay debts

Proof:
Statement of affairs (S272)

Options for court:
Make order

Dismiss petition:
Appoint an IP to enquire and report

OBLIGATIONS FOR AN UNDISCHARGED BANKRUPT

1. Deliver up books and records

2. Give all assistance / co-operate with the official receiver / trustee

3. Attend creditors meetings as required

4. Produce a statement of affairs

5. Inform trustee of any windfalls or after acquired property within 21 days. Trustee has 42 days from becoming aware to claim for the estate

6. Inform the trustee of any increases in income

7. Deliver up possession of the estate

8. Comply with court direction

9. Attend private or public examination

DISABILITES FOR AN UNDISCHARGED BANKRUPT

1. Sole trader must disclose the name in which he was made bankrupt

2. Can’t be an MP, JP or IP

3. Professionals can’t practise (solicitor, Accountant)

4. Can’t be a director or involved in the management or formation of a company (CDDA 86)

5. Partnerships will dissolve (partnership act 1890)

BANKRUPTCY OFFENCES (8)

Non-disclosure of assets (S353)

Concealing property (S354)

Concealing books & records (S355)

False statements (S356)

Fraudulent disposal of property (S357)

Absconding (S358)

Fraudulent dealing with property obtained on credit (S359)

Obtaining credit – more than £500 without disclosing an un-discharged bankrupt (S360)

Prosecuted by Secretary of State, penalty is imprisonment, fine or both.

BANKRUPTCY RESTRICTION ORDER GROUNDS:

Failure to keep proper accounts of business in the 2 years pre-petition, accounting for loss of property regarding any business carried on by bankrupt (S361)

Gambling, rash hazardous speculation, or unreasonable extravagance, materially contributing to bankruptcy or between petition and order (S362)

Failure to supply goods and services
Pre-order trading where knew or ought to have known unable to pay debts
Incurring a debt pre-order knowing that no reasonable expectation of repayment
Neglect of business affairs materially contributing to the bankruptcy
Un-discharged bankrupt in previous 6 years
Antecedent transactions
Failure to co-operate with the OR of the trustee
Failure to produce records

SUPENSION OF DISCHARGE

For a specific length of time, normally until the bankrupt fulfils his obligations.

 THE ESTATE

All ‘property’ belonging to or vesting in the bankrupt AT COMMENCMENT (Date of bankruptcy order) (S283 (11)

 ‘property’ S436 “includes money, goods, things in action, land & everything described as property”

 Subject to existing property rights (Mountney V Treharne 2002)

 EXCLUSIONS FROM THE ESTATE

 Tools, books or vehicles necessary for use personally by bankrupt in employment, business or vocation (S283)

Household affect (but not vehicles) for basic domestic need

Approved pensions (petition presented before 29/05/00 would not have excluded pensions

Titles of honour

Assets held on trust for another

Damages for pain and suffering

Employment claims

Personal correspondence of a bankrupt

Non assignable tenancies

 WHAT CAN BE CLAWED BACK

Tools/vehicles of trade that exceed reasonable replacement value (bankrupt with receive cheaper equivalent or cash)

Household effects exceeding reasonable replacement value

Pensions:

1. Unapproved schemes

2. If pension is paying out, claim as part of IPO/IPA

3. Excessive pension contributions

4. Pension lump sum is used to buy something, that can be clawed back as after acquired property

 Titles, if purchased as opposed to inherited

Trusts, if the bankrupt has recently set up a trust, then can claw back (transaction at an undervalue)

Personal injury claims, (income element)

Employment claims (income element)

Income, contributions exceeding Reasonable domestic income (including pension income) S310/310 A

1. Income payment agreement

2. Income payment order (maximum of 3 years from date Arrangement is made)

Landlords distraint in excess of 6 months’ rent accrued (pre commencement)

 ANTICEDENT TRANSACTIONS

TRANSATION
 SECTION
 TIME
 MUST PROVE

 Preference
 S340
Non associate (6 months)

Associate (2 years from petition)
Desire to prefer

Presumed if associate (were insolvent)

Transaction at an undervalue
 S339
 5 years pre-petition
Gift or sale, less than market value. 0-2 years pre-petition not have to prove insolvency, 2-5 years insolvent or the act made them insolvent

Excessive pension contributions
S342 (a)
No time limit
Contribution was excessive
Extortionate credit transactions 
S343
3 years from date of order
Transaction was extortionate 
Transactions defrauding creditors
S423
No Limit
Intention to defraud
Post petition, disposition
(any dispositions of property between petition & petition appointment is void unless sanctioned by court order)
 S284
Between petition & appointment of trustee

Disposition of property was not sanctioned by court

POWERS OF A TRUSTEE IN BANKRUPTCY
POWERS VIA COURT

Trustee can apply for an order enforcing the bankrupt to comply with his obligations (S363) (obligations)

1. (S333) to co-operate

2. (S312) deliver up books and records

Apply for warrant for arrest of bankrupt (S364)

Warrant for seizure of property / documents (S365)

1. From bankrupt

2. From 3rd parties

3. Liens unenforceable against trustee in bankruptcy (S349)

Private examination (S366)

Obtain documents from HMRC (S369)

Re-direction of bankrupt’s mail (S371)

Suspension of discharge (S279)

NOTE:!!! Before taking legal action, the trustee must consider SCAN

1. Sanction of creditors committee

2. Cost Consequences

3. Advice from a solicitor

4. Negotiate first

POWERS VIA THE INSOLVENCY SERVICE (or / Secretary of State)

Public examination (VIA OR) S290

Bankruptcy offence (VIA Secretary of State) S353 – S360

Bankruptcy restriction orders (VIA OR / Secretary of State) Schedule 4A