Company: Insolvency Sole Proprietors Flashcards
Who does insolvency for sole proprietors apply to and what are the options?
Sole traders and partners in general partnership
Options
1. negotiations with creditors
- not binding
- Individual Voluntary Agreement
- like negotiation but binding - Bankruptcy
- judicial process where assets are given to trustee
What is the issue with negotiation with creditors?
Will not be binding for lack of consideration
When is a Individual Voluntary Agreement suitable?
Only if debtor has enough money, or prospect of receiving some money, to enable them to make reasonable offer to creditors.
What are the advantages of an IVA to each party?
Debtor
- avoids restrictions of bankruptcy
- can continue to trade
Creditor
- may receive more than through bankruptcy
- keep potential customer
- quicker
What is the procedure (general for IVA)?
- take professional advice from insolvency practitioner
- Prepare Statement of Affairs
- Apply for interim order
- Call meeting of creditors to vote on it
- Implementation
What is an interim order in an IVA? Who to apply to?
Apply to bankruptcy court
Whilst order is in force:
- no bankruptcy petition without permission by court
- no other proceedings or executions can be commenced without permission
- lasts 14 days (can apply for extension)
How is an IVA approved?
Meeting with creditors
Agreement of at least 75% in value of unsecured creditors
Who is bound / not bound by an IVA?
Bound
- all ordinary unsecured creditors who had notice of meeting
- preferential creditors ONLY unless they agree
Not bound
- preferential creditors:
- employees for wages/holiday pay in last 4 months
- secured creditors
When can petition for bankruptcy be brought during IVA? And by whom?
By:
- supervisor (practitioner)
- creditor who is party to IVA
If debtor:
- provided false or misleading information; or
- tried to put money or assets out of reach;
- gave preference to creditor; or
- failed to comply with IVA
Who can apply for bankruptcy?
One of 3 ways:
- debtor can apply online
- heard by adjudicator
- granted if found they are unable to repay debts - Unsecured Creditor(s)
- jointly owed £5k+
- present petition to bankruptcy court - From IVA
- if breach conditions; or
- give false/misleading info
- preference to creditor
- hid assets
Who can be the official receiver? What is that?
Official receiver is the trustee in bankruptcy
Either
- civil servant
- creditor can seek to appoint own
How may a creditor show that debtor is insolvent?
Statutory Demand for Payment
- if not paid in 3 weeks; or
- debtor does not apply to set it aside in 3 weeks
Statutory Demand for Proof of Ability to Pay
- if debtor does not show reasonable prospect of being able to pay in 3 weeks (21 days); or
- does not apply to court to set aside demand (18 days)
Debtor owes judgement debt and Creditor Seeks to Execute
- and attempted fails
What is the bankruptcy implementation?
Official receiver appointed
Bankruptcy estate vests automatically
Sell assets and repay in strict order
What is exempt from Bankruptcy Estate?
Assets needed for day to day living
Tools of Trade
Any Salary debtor makes
- subjecting to income payment order
What is an income payment order in bankruptcy? How long does it last?
Can be applied for if:
- income of debtor exceeds amount needed for reasonable needs of debtor and their family
Can last max of 3 years