#16634 - Bankruptcy, Iv As, Dr Os - Business Law and Practice

BANKRUPTCY

Section	Insolvency Act 1986
The Petition Bankruptcy is commenced by petition by a creditor presenting a petition to the court or by the grant of a bankruptcy order (to obtain full or part payment of the debt)
264	The debtor can apply online to an adjudicator to grant a bankruptcy order. OR The petition can be filed by one or more of the creditors, the supervisor of an IVA, or any creditor bound by an IVA. * An Individual Voluntary Agreement [IVA] is an agreement the debtor makes with their creditors to pay back debts over five years to avoid declaring bankruptcy.
278	Bankruptcy commences on the day the order is made.
The Effect of Bankruptcy
284	Restriction: any disposition of property from the date of petition to the date of order is void
285	Bankruptcy order prevents creditors being sued by other (unsecured creditors)
The Process
Creditors’ Petition			Debtor’s Application
Stage 1: Establish Prerequisites			Stage 1: Establish Prerequisites
267	Debt(s) for 5,000 or more.		263H	Debtor applies online to an adjudicator appointed by Secretary of State who makes bankruptcy order, if appropriate.
	Debt is liquidated (a definite cash sum) – can be aggregated debts due to more than one creditor.
	Debt is unsecured.			Debtor unable to pay debts.
265	Debtor domiciled or personally present in England or Wales.		263I	Debtor domiciled in England or Wales.
Stage 2: Prove ground that debtor unable to pay debt or has no reasonable prospect of paying			Stage 2: Prove ground that debtor unable to pay debts
268	Serve statutory demand and wait 21 days OR		263J	Debtor makes a statement of affairs which shows inability to pay debts (i.e. details of creditors, debts, liabilities and assets).
268	Obtain judgment and show that execution or other process for debt unsatisfied.		263J
Stage 3: Present petition			Stage 3
Stage 3: Present petition			263I	Adjudicator makes bankruptcy order, if considers appropriate.
Stage 4: Court hearing of petition			Stage 4: Court hearing of petition
			273	The court will discourage bankruptcy where possible. The court will ask an insolvency practitioner to consider if IVA is appropriate.
				Bankruptcy order made or petition dismissed.
Stage 5: If bankruptcy order made, Official Receiver becomes receiver and manager of bankrupt’s estate			Stage 5: If bankruptcy order made, Official Receiver becomes receiver and manager of bankrupt’s estate
	Holds office until appointment of trustee in bankruptcy.			Holds office until appointment of trustee in bankruptcy.
288	Bankrupt must prepare statement of affairs within 21 days.			Advertises the bankruptcy in the London Gazette.
284	Any dispositions of property by bankrupt since presentation of petition are void.		284	Any dispositions of property by bankrupt since presentation of petition are void.
	Bankrupt may be required to attend a public examination of his affairs.			Bankrupt may be required to attend a public examination of his affairs.
Trustee in Bankruptcy Duty to gather in the estate and to pay creditors in statutory order of entitlement.
291A	The Official Receiver will act as trustee in bankruptcy from the date of the bankruptcy order until the appointment of the trustee in bankruptcy.
306	The bankrupt’s estate vests in the trustee in bankruptcy on appointment.
283	Definition of bankrupt’s estate – excludes tools of trade, books, household items
308	Property is a reasonable replacement for other property if it is reasonably adequate for meeting the needs met by the other property.
293	The Official Receiver must decide whether to summon a general meeting of the bankrupt’s creditors to appoint a trustee of the bankrupt’s estate within 12 weeks of the order being made. If the OR decides not to summon a meeting, he must give notice of his decision to the court and all known/identified creditors, and he will become the trustee of the bankrupt’s estate.
294	If the OR has not yet summoned, or has decided not to summon, the general meeting, any creditor of the bankrupt may request the OR to summon such a meeting. It then becomes the duty of the official receiver to summon the requested meeting.
297	Special cases.
310	The court can make an income payments order. A set amount of the bankrupt’s income will be paid to the trustee in bankruptcy. The bankrupt will be allowed to keep such income as is deemed necessary for his/hers + family’s reasonable needs. * Although discharge takes place automatically after one year, income payments orders can remain in force for up to three years.
310A	The bankrupt and trustee in bankruptcy can agree an income amount to be paid to the trustee without a court order. This is a legally enforceable agreement.
Statutory Order of Entitlement
328	Priority	Creditor			Classification
	1	Holder of fixed charge over bankrupt’s premises created and registered on [earlier date]			Secured (ordinary for any deficit)
	2	Holder of fixed charge over bankrupt’s premises created and registered on [later date]			Secured (ordinary for any deficit)
	3	Costs of trustee in bankruptcy			Bankruptcy costs
	4	Wages of bankrupt’s employees due in 4 months prior to bankruptcy order			Preferential
	5	Trade creditors			Ordinary unsecured
		HM Customs & Excise for VAT due in 6 months prior to bankruptcy order
		Inland Revenue for PAYE income tax due in 12 months prior to bankruptcy order
		Bankrupt’s business partner(s)
	6	Spouse for money lent to bankrupt			Postponed

RECOVERY OF ASSETS

284	Any dispositions of property after the date of petition, without the consent of the court or subsequent ratification by the court, are void.
315	The trustee in bankruptcy can disclaim onerous property, such as: Any unprofitable contract (e.g. a lease) Unsaleable property Property that may give rise to a liability to pay money or perform any other onerous act
339	Transactions at an undervalue
	339(3)(a)	The individual makes a gift to a person, enters into a transaction with a person on terms that provide for him to receive no consideration, or
	339(3)(b)	The individual enters into a transaction with a person in consideration of marriage, or
	339(3)(c)	The individual enters into a transaction with a person for a consideration significantly less than the value of the consideration provided by that person
	341	The transaction at an undervalue takes place in the period of 5 years ending on the day of the presentation of the bankruptcy petition.
340	Preferences
	340(3)	An individual gives a preference to a person if— that person is one of the individual’s creditors or a surety or guarantor for any of his debts or other liabilities, and the individual does anything or suffers anything to be done which puts that person into a position which, in the event of the individual’s bankruptcy, will be better than the position he would have been in if that thing had not been done.
	340(4)	The bankrupt must have been influenced by a desire to improve the position of the creditor – if the creditor is an associate, this is presumed.
	341(1)(b)	If the preference is given to an associate of the bankrupt, the relevant time is the period of 2 years ending on the day of the presentation of the bankruptcy petition, or
	341(1)(c)	In any other case, the relevant time is the period of 6 months ending on the day of the presentation of the bankruptcy petition.
341(2)	The above relevant times for transactions at an undervalue (5 years) and preferences (2 years/6 months) are relevant only if the individual— was insolvent at that time, or became insolvent as a result of the transaction or preference. * For transactions at an undervalue, these requirements are presumed to be satisfied if the transaction was with an associate of the individual.
423	Transactions defrauding creditors can be set aside. Any transaction which has the effect of defrauding creditors has no relevant time requirement and no requirement that the bankrupt be insolvent at the time of transaction
Effect of setting aside a transaction under ss.339/340/423 is that status quo prior to transaction is restored.
Family home Often the most valuable asset in the estate available to be realised for the benefit of creditors. The law tries to balance the rights of creditors and the family, so certain criteria is considered: interests of creditors conduct of the spouse/civil partner or former spouse/civil partner, so far as contributing to bankruptcy the needs and financial resources of the spouse or former spouse the needs of any children all the circumstances of the case, other than the needs of the bankrupt
335A	The Court has the power to make any order it thinks just and reasonable. The trustee in bankruptcy will apply under this section for an order for sale under s.14 Trusts of Land and Appointment of Trustees Act 1996.
335A	After one year: The court shall assume that the interests of the creditors outweigh all other interests unless there are exceptional circumstances. On sale, the joint owner receives their share of the equity.		283A	After three years: The property ceases to be comprised in the bankrupt’s estate and vests in the bankrupt (without conveyance, assignment or transfer).

EFFECT OF BANKRUPCTY ON INDIVIDUAL

Loss of Property The bankrupt’s estate automatically vests in the trustee in bankruptcy, so the bankrupt loses ownership of all property. This includes property owned at the time of the bankruptcy order and any property subsequently obtained before the discharge of the bankruptcy order.
Personal Restrictions
An...

Loss of Property

The bankrupt’s estate automatically vests in the trustee in bankruptcy, so the bankrupt loses ownership of all property. This includes property owned at the time of the bankruptcy order and any property subsequently obtained before the discharge of the bankruptcy order.

Personal Restrictions

An...

#16634 - Bankruptcy, Iv As, Dr Os - Business Law and Practice

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