Bankruptcy Flashcards
What is Bankruptcy?
Formal insolvency proceedings on an individual level governed by the Insolvency Act. Either the individual voluntarily applies to an adjudicator for a bankruptcy order or a creditor files a petition with the court for a bankruptcy order (BO).
Creditor’s Petition
Conditions:
-Debt for a liquidated sum of at least 5,000
-Unable to pay the debt and no reasonable prospect of paying it
-Debt is unsecured
-No statutory application outstanding to set aside a statutory demand for the debt
The court will make a BO only if:
-Debt remains unpaid
-No reasonable prospect of paying it when it falls due
Individual Application
Conditions:
-Debtor unable to pay their debts
-No bankruptcy petition by a creditor is pending
-No BO was made for the same debts
A trustee in bankruptcy is appointed - official receiver.
Statutory order of Bankruptcy
Payment of debts and expenses:
-Secured debts
-Expenses and costs by the trustee in bankruptcy
-Preferential debts
-Unsecured debts
-Interest on preferential and unsecured debts
-Debts to spouse/CP
-Interest on debts to spouse/CP
-Any other debts
-Suplus - returned to the bankrupt
Effect on Bankruptcy Order
-Automatic end of partnership
-Bankrupt cannot be a trustee of a charity or a director
-Bankruptcy is registered in the Insolvency Register
-Creditors are bound to accept what they are given as part of BO and cannot recover more via enforcement action
On the anniversary of the BO the bankrupt will be discharged from liability to pay his debts.
Pre-Bankruptcy Transactions that can be set aside by Trustee in Bankruptcy or OR
-Undervalue transactions
-Transactions defrauding creditors
-Preference transactions
Undervalue transactions (bankruptcy)
-Transferred asset at an undervalue
-within 5 years prior to the bankruptcy petition or application AND the individual was bankrupt or became a bankrupt as a result of this transaction (presumed if sent to an associate)
OR within 2 years prior to bankruptcy petition or application irrespective of insolvency
Transactions defrauding creditors
-Transaction at an undervalue
-With the purpose to defraud creditors or put assets out of reach if a certain claim is raised
NO REQUIREMENT FOR INSOLVENCY
Preference transactions
SAME AS for COMPANIES
-Grant a preference to a creditor that puts him in a better position
-With the intention to grant it (presumed if done to an associate)
-6 months before bankruptcy petition or application or 2 years before bankruptcy petition or application if to an associate
- The individual was insolvent at the time or became insolvent as a result of the transaction
Associate / associated person - Definition
-Spouse
-Civil partner
-Relatives and their SP/CP
-Any person in partnership
Alternatives to Bankruptcy
-Informal negotiations with creditors
-Restructure debts on better terms to allow the individual to repay debts
-Individual Voluntary Arrangement
Individual Voluntary Arrangement
Statutory arrangement between unsecured creditors and debtor, a flexible scheme of arrangement. The sole trader or partnership can continue working to generate income to repay the creditors.
Process: proposal is drafted by the debtor, a nominee is appointed. The proposal must be approved by unsecured creditors who are owed at least 75% of the debts in value; of them at least 50% should not be associates of the debtor. The nominee becomes an IVA supervisor and supervises the debtor’s compliance. IVA lasts for 3-5 years. At the end if there is some outstanding debt not paid by the debtor, it is usually written off.
No automatic statutory moratorium - debtor can make an interim order for a moratorium to have a break from creditors pursuing them to satisfy debts.
If approved, IVA binds all unsecured creditors. It doesn’t bind secured creditors unless they approve to be bound by it.
A debt relief order is entered into the Individual Insolvency Register and lasts 1 year.
