Bankruptcy

It is a procedure that should always be considered as a last resort and we would urge all individuals, sole traders and Partners experiencing financial difficulties to engage our free business review in order that all alternatives can be considered.

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• Without leave of court you may not act as a company director or take part in the promotion, formation or management of a limited company.

• You may not obtain credit in excess of £500 without first advising the lender of your bankruptcy and obtaining his permission. Please note that this relates to trade credit as well as personal credit.

• You may not trade in any business other than in your own name unless you inform those parties you will be dealing with of your bankruptcy.

• You may not practice or act as a chartered accountant, solicitor or Justice of the Peace, nor become a member of parliament or your local authority.

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A creditor owed in excess of £750. With the exception of the Government departments, H M Customs & Excise and Inland Revenue, before a creditor may petition for bankruptcy he must have first of all obtained judgement in respect of his debt and show that it has not been settled or alternatively, evidence that a statutory demand served on the Debtor has not been settled or secured within a 21 day period.

In circumstances where the debtor is already subject to an IVA, the Supervisor may present a petition following failure of the Debtor to comply with his obligations under the IVA.

The Debtor’s Petition

The Debtor attends his local bankruptcy court remembering to take the £510 court fee and completes statutory form 6.27 with the following information: -

Name, address and occupation.
Names, addresses and nature of businesses carried on by the Debtor.
Any name other than as indicated in a) above by which the Debtor is known.
A statement whether the business identified in b) was his own or a Partnership.
Details of any other bankruptcy, IVA or Deeds of Arrangement or composition with his creditors within the last 5 years.
An admission of insolvency.
A request for a bankruptcy order to be made.
If an IVA is currently in force, a statement to that effect.

To support the Debtor’s petition for bankruptcy Form 6.28 must be completed. This is a statement detailing the Debtor’s assets and liabilities as evidence of his insolvency.

The Creditors Petition

A creditor at his own cost (this can be between £1000 and £2000 and who is owed in excess of £750) may, following obtaining judgement or having issued a statutory demand that remains unsatisfied, unsecured and not subject to dispute after a 21 day period, present a petition for the bankruptcy of the individual.

The petition is personally served on the Debtor, his solicitor or a person instructed by the Debtor.

As soon as the petition has been presented, restrictions apply which affect the capacity of the Debtor to deal with his assets.

If the debt continues to remain outstanding at the date of the hearing, a bankruptcy order is made by the court.

Post Bankruptcy Order

Once the bankruptcy order has been made by the court, control of the Debtor’s estate passes to the Government department known as the Official Receiver’s office ("OR"). It is the responsibility of the OR’s office to take control of the Debtor’s assets and therefore the Debtor is called in for immediate interview to explain his current circumstances and provide information regarding all his assets and liabilities.

Where the Debtor has assets, the OR will instruct agents to secure them. It is also likely that the OR will call a meeting of creditors with a view to appointing an independent Insolvency Practitioner ("IP") to act as Trustee and to administer the bankruptcy. It is the role of the Trustee to realise the assets of the Debtor for payment if possible of a dividend to creditors. Alternatively, creditors which account for 25% of the entire creditor base in the bankruptcy may require a meeting to be called by the OR in order that an IP can be appointed. Assuming an IP is appointed it will be the IP’s responsibility to administer the bankruptcy.

In the event that there are insufficient assets with which to seek the appointment of an IP, the role of Trustee will remain with the OR whose responsibility will be to deal with the affairs of bankruptcy.

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Discharge from bankruptcy proceedings usualy occurs after 1 year. However this period can be either decreased or extended by the Official Receiver according to the circumstances of the individual.

Creditors
Provides opportunity for the Trustee to investigate the affairs of the Debtor and if applicable bring actions in respect of potential voidable transactions such as transactions at an undervalue and preferences.

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Creditors
Low expectation of dividend being paid. If assets were available it is likely the Debtor would have sought agreement of an Individual Voluntary Arrangement.

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