Business Law and Practice - Bankruptcy of Individuals

Question 1

Individual Voluntary Arrangement

Answer 1

Creditors bound by agreement

Debtor prepares statement of affairs and insolvency practitioner (debtor’s nominee) uses that to apply to court for interim order - prevents creditor taking any action against debtor

More than 50% of the indepedent creditors must agree to IVA; and

At least 75% in value of the creditors must agree to the IVA

An IVA binds all of the unsecured creditors notified of insolvency pratitioner’s meeting - does not bind preferential creditors or secured creditors unless they agree

Insolvency practitioner oversees implementation of the IVA and is now called a superviser

Question 2

Bankruptcy

Answer 2

Judicial process in which assets of bankrupt passed to a third party (trustee in bankruptcy) to pay off debts

Obtained in three ways:

1. Debtor applies online to an adjudicator
2. Unsecured creditor owed at least £5,000 or several unsecured creditors who together are owed at least £5,000
3. Supervisor of IVA can petition for bankruptcy if debtor has breached IVA

If order made an official receiver is appointed - will be trustee unless bankrupt chooses their own trustee

Assets needed for day to day living remain with bankrupt (although expensive assets can be replaced with cheaper assets), salary can also be kept (subject to trustee applying for an income payments order)

Interest in home will pass to trustee but there may be others who have an equitable or legal interests in home or a child under 18 living in home (trustee will need court order to sell the home) - after one year interests of the creditors are paramount and so will take precedence over any interest

In most situations bankruptcy will be automatically discharged after 1 year

If bankrupt is seen as culpable or dishonest there can be more sanctions:

• Bankruptcy lasts for 2-15 years
• Can be subject to restrictions that last after bankruptcy discharged

Question 3

Bankrupt is part of partnership

Answer 3

General partnership:

If partnership at will it will be discharged on bankruptcy and trustee will receive bankrupt’s share of profits if any money left

If the partnership is not at will the remaining partners will usually buy the insolvent partner’s interest from trustee in bankruptcy

LLP: bankrupt cannot be a member of an LLP, trustee will seek to realise bankrupt’s share (usually by selling interest to remaining partners) - if all partners are made bankrupt the official receiver can apply for partnership to be wound up

Question 4

Bankruptcy of sole proprietor or partner

Answer 4

Personally liable for debts

Question 5

Negotiating with creditors

Answer 5

Not a binding agreement so creditor may change their mind