Bankruptcy Flashcards
Who does Bankruptcy apply to?
Private Individuals, a Ltd company can be liquidated after becoming insolvent.
List the 3 ways somebody can be made Bankrupt?
- By declaring themselves Bankrupt
- By a creditor petitioning for Bankruptcy
- After an IVA has been broken
What 3 things must a Creditor prove to make somebody Bankrupt?
- The Debtor cannot afford to repay debts
- The Debtor has failed to comply with a statutory demand within 3 weeks
- The Debtor owes at least £5,000
If the Court approves the Bankruptcy order, what happens next?
They pass the order to an OR (Official Receiver) within 2 weeks of the judgement.
What meeting does the OR have to decide whether to call and what % of creditors can enforce a meeting?
Whether to call a Creditors Meeting, if at least 10% of creditors BY VALUE demand a meeting it has to be arranged.
What position will be created in the Creditors meeting?
A Trustee in Bankruptcy
Who is usually the Trustee in Bankruptcy and what do they do?
Usually the OR. They arrange to sell the Debtors property and distribute proceeds amongst the Creditors
What happens if no Creditors meeting is called?
The OR will continue as the Trustee
What Anagram do you use for remembering the order of priority for payment?
S.E.P.C.U.I.D
Go on - explain SEPCUID lol
- Secured Creditors with fixed charges
- Expenses incurred by the Trustee and OR
- Priority Creditors (staff pension cont’s and wages etc)
- Creditors with floating charges (Debentures)
- Unsecured creditors and other debts
- Interest incurred on debts since the Bankruptcy order
- Debts to Spouse/Civil Partner of Bankruptee
What 2 types of item cannot be taken by the Trustee?
Occupational and Household items
What happens to a house if owned jointly?
The bankrupt individual’s beneficial interest is transferred to the Trustee, who then notifies the Land registry so that the Trustee is notified of any future transactions.
When can the sale of a house be prevented? (There are 2 reasons)
If the individual’s beneficial interest is less than £2,000 or the interest can be sold to a partner/spouse.
When can the sale of a house be delayed for up to 12 months?
If the individual needs to find somewhere for a Partner or Children to live.
In what period of time must the family home be dealt with?
Within 3 years of the bankruptcy order
Initially how far back after the Bankruptcy petition can a TIB go when attacking previous transactions made by the individual? Can they go back further and why?
- In the two years before the presentation of the bankruptcy petition
- Between 2 and 5 years before the presentation of the BO if the TIB can prove the individual was insolvent or became so as a result of the transfer
What two types of previous transactions does the TIB go after?
- Individual has made a gift
2. Individual has transferred an asset at less than market value
What can a court do if the TIB can prove deliberate asset deprivation?
Can make an order to restore the original position, i.e if the individual had not entered the transaction
What is a B.R.O?
A Bankruptcy Restriction order
When would a B.R.O be ordered?
If an OR considers that the individual has been dishonest during the first 12 months of bankruptcy
How long can a B.R.O last?
Anything from 2 to 15 years
List 6 things an individual cannot do whilst in a B.R.O
Borrow more than £500 without declaring they are bankrupt
Acting as a Company Director
Creating a company without the courts permission
Manage a business without telling individuals connected with the business that the individual is bankrupt
Work as an Insolvency Practitioner
Act as a member of parliament/school governor/trustee etc
What about if a Bankrupt individual is already a Trustee?
They can continue but not if a Pension or charity Trustee
What would be the treatment of a Life policy held in Trust and why?
The T.I.B cannot touch it because it does not belong to the individual, it belongs to the Trust
What if a Life policy is assigned to a non statutory Trust and was set up within last 2 years? What about if it is over 2 years old?
The T.I.B can apply to include it within the previous transactions rules if it was assigned to a Trust rather than written in a Trust but if over 2 years they must prove the individual was insolvent or became insolvent.
What two types of beneficiary/class would lead a Court to considering insolvency regarding the previous creation of a non Statutory Trust?
If the beneficiary of the Trust is a business partner or relative
What could a T.I.B try to claim back from a statutory Trust and what would they have to prove?
They could try to claim back return of premiums but only if they can prove the purpose of the Trust was to defraud creditors
What piece of legislation refers to a Statutory Trust?
Married Women’s Act 1882
All types of registered pensions are excluded from Bankruptcy. Unregistered schemes are not, what is an example of an unregistered scheme?
EFRBS
In what exceptional circumstances can a TIB attack a pension?
When there has been excessive and unusually high contributions, seen to be depriving creditors of money
How far back can a TIB attack pension contributions?
up to 5 years
The TIB can apply for an IPO what is this and how does it relate to pension payments? If they can take any action how long for?
an income payment order. The Trustee can redirect pension payments to themselves for up to 3 years after bankruptcy order.
If a TIB does redirect pension contributions, what must they ensure?
That the individuals family are left with a reasonable income to live on after any deductions.
What two types of pension benefits cannot be touched by an IPO?
State pension and GMP benefits
What is a DRO?
a debt relief order
What circumstances apply to a DRO?
When a debtor has no more than £50 per month if disposable income, does not own their own home, has debts below £20,000, is not part of an existing insolvency order and is domiciled in England and Wales
How long does a DRO last and what happens during it and afterwards?
12 months, creditors cannot demand repayment of the debt unless court approved. Afterwards, if circumstances still the same, the Debtor will be freed of all debts within the DRO
Explain how an IVA is set up and who must be appointed?
Applied for through the courts. An authorised insolvency practicioner must be appointed.
What is an interim order when under an IVA?
A temporary relief that creditors cannot proceed with a bankruptcy petition whilst the IVA is being arranged.
What must happen at a creditors meeting for an IVA to be approved?
At least 75% of the creditors by value must agree to the IVA. If they do the IVA legally binds all creditors to the agreement.
How can an IVA fail as a result of the creditors meeting?
If creditors are not kept fully informed of the meeting
Are the costs associated with an IVA more or less than bankruptcy?
Usually less
How long does an IVA last?
5 years
What are the associated advantages of an IVA compared to bankruptcy?
Might be able to keep family home, conditions are less restrictive than a bankruptcy order and costs lower.
What must an Insolvency practicioner do during the term of the IVA?
Ensure that all repayments agreed are made
