8. Personal Insolvency Flashcards
What 2 types of business can individual bankruptcy occur in?
(1) Sole trader
(2) Partnership
What does bankruptcy mean?
Individual CANNOT pay debts as they fall due
What are the 3 ways an individual can be shown to be bankrupt (i.e. cannot pay debts as they fall due)?
KEY - £5k (+ 3 weeks)
(1) Statutory demand for a liquidated and unsecured sum of at least £5k + remains unsatisfied after 3 weeks / no application to ‘set aside’
(2) Statutory demand for a liquidated and unsecured FUTRUE sum of at least £5k + no reasonable prospect of paying after 3 weeks / no application to ‘set aside’
(3) Attempts to enforce a ‘judgment debt’ of at least £5k and NOT satisfied
On bankruptcy, what happens to the debtor’s assets?
Pass to a ‘trustee in bankruptcy’ (official receiver)
Who can bring a bankruptcy action?
BOTH creditor & debtor
A bankruptcy action can be brought by both a Creditor and a Debtor. How does each one bring this action?
(1) Creditor - petition to court
(2) Debtor - online application
For a creditor to bring a bankruptcy to court, what 3 conditions of the ‘sum’ owed must be met?
(a) Unsecured
(b) Liquidated
(c) Sum of min £5k
Following either a successful application by a Creditor or Debtor what will the court issue as the next stage of the bankruptcy proceedings?
Bankruptcy Order
(a) What is the effect of a ‘Bankruptcy Order’ on the Debtor’s property / assets?
(b) What are the 2 exceptions to the rule in (a)?
(a) Property vests in the trustee (Official Receiver)
(b)
(1) Reasonable domestic need (e.g. clothes)
(2) Tools of trade
In order to sell the ‘home’ of the debtor in Bankruptcy:
(1) Will a court order be needed?
(2) What main 3 factors will the court consider when deciding whether to grant a sale order?
(1) YES IF another person has a legal /equitable interest?
(2)
(a) Interests of creditors
(b) Conduct and needs of current / former spouse
(c) Needs of children
After how many years is it likely that a sale order for the ‘home’ of debtor will be issued by the court and why?
1 year
Why? - after 1 year, creditors’ interests outweigh others unless ‘exceptional’ circumstances
What is the overreaching aim of the Official Receiver in bankruptcy?
Maximise the amount available in the Debtor’s estate to pay as many creditor’s as possible
An Official Receiver should investigate the Debtor’s ‘past transactions’. What are
(1) Disclaiming onerous property
(2) Transactions at an undervalue
(3) Preference transactions
(4) Transactions defrauding creditors
An Official Receiver will often disclaim ‘onerous property’ belonging to the Debtor. What is the most common example of this?
Lease
If an Official Receiver disclaims ‘onerous property’ belonging to the debtor (e.g. a lease), what can a person who suffers as a result of this (e.g. landlord) claim as?
Unsecured creditor
What is a ‘transaction at an undervalue’ in bankruptcy?
A gift, or sale of a property where the consideration received is significantly less than the value of the property.
In a ‘‘transaction at an undervalue’, what are the 4 groups who are ‘Associates’?
(1) Relative
(2) Spouse + Relative
(3) Business partner / Employees
(4) Company where the Debtor has ONE THIRD of voting rights
In ‘transaction at an undervalue’ in BANKRUPCY, from how long can transactions be set aside for?
5 years before the DATE OF PRESENTATION OF PETITION
For ‘transaction at an undervalue’ with a ‘Non-Associate’ insolvency at the time / due to the transaction
(a) In what years before the date of presentation of the petition is it presumed?
(b) in what years must it be proven
0 - 2 y - insolvency presumed
3 - 5 y - insolvency needs to be proven
In a ‘transaction at an undervalue’ with an ‘Associate’ is insolvency at time / due to transaction, need to be proven?
No - it is presumed
What are the 2 elements that make up a ‘Preference Transaction’ in bankruptcy?
(1) Arrangement puts the CREDITOR in a better position than they would otherwise have been on bankruptcy
(2) Debtor intended this
How long does the Official Receiver have to challenge a ‘Preference Transaction’ in bankruptcy for:
(a) Associate
(b) Non-Associate
(a) 2 years
(b) 6 months
from DATE OF PRESENTATION OF PETITION
In setting aside a ‘Preference Transaction’ in bankruptcy, is insolvency at time / due to the transaction presumed or needs to be proven for:
(a) Associate
(b) Non-Associate
(a) Presumed
(b) Proven
What are the 2 elements of a ‘Transactions defrauding creditors’ in bankruptcy?
(1) Transaction at an undervalue
(2) Intention to put assets beyond the reach of the creditors
