Insolvency 2 Flashcards
s267(2) what must be satisfied to determine whether an individual is insolvent
a) the debt is payable immediately and the debtor does not have sufficient funds to do this, even though the debtor may be able to at some point in the future
b) the debt is payable at some specified point in the future and the debtor has no reasonable prospect of being able to pay
how can a creditor force a debtor to become bankrupt
creditor must prove debtor is insolvent
3 ways in which a creditor may prove a debtor is insolvent
a) statutory demand (formal, written) on debtor for liquidated debt of £5,000 or more and wait 3 weeks to see whether the debtor pays demanded sum or applies to court to set aside statutory demand
b) serve statutory demand in respect of a liability to pay £5,000 or more on a future date, wait 3 weeks to see whether debtor shows reasonable prospect of being able to pay sums when due or applies to court for statutory demand
c) obtain court judgment for debt of £5,000 or more and attempt execution of judgment debt (enforcement officials)
Insolvent debtor’s options
a) apply online for bankruptcy to show courts they are doing their best to sort out things for themselves
b) talk to creditors, to see if they will wait for payment/compromise
c) enter formal arrangement with creditors (individual voluntary arrangement) to pay creditors less or for creditors to wait longer
d) DRO
e) apply under debt respite scheme for breathing space from creditor action for up to 60 days
what is bankruptcy?
A judicial process during which all assets of bankrupt are passed to a third party (trustee in bankruptcy) who pays as many debts as possible in statutory order. Bankrupt usually discharged, free from all debts and can start afresh
Exclusions to bankrupcy
student loans
When are bankrupts automatically discharged s279, IA
after one year
how is the bankruptcy process commenced?
by presentation to the court of a petition / debtor making online application
How can a creditor petition for bankrupcy
- prove bankrupt is insolvent
- arrange for petition to be served personally on debtor
can creditors owed less than £5,000 present a petition on their own?
they are not able to, but may join together provided the total amount owed to all petitioners is not less than £5,000
why is a creditors petition not to be taken lightly
creditors must pay a substantial deposit to cover the costs of the trustee in bankruptcy
process for debtor to apply for bankruptcy
- debtor applies online to an adjudicator
- debtor pays deposit
- adjudicator makes bankruptcy order against debtor within 28 days from the application unless further info required
what happens if an adjudicator requires further info prior to granting a bankruptcy order
adjudicator has 42 days from the date of application to make an order.
What is the role of the official receiver
takes control of the debtors property. they
a) ask debtor for a statement of affairs and investigate, if necessary
b) take steps to protect property
c) possible dispose of perishable goods/those depreciating
what happens the moment a bankruptcy order is made s306, IA
OR acts as the trustee in bankruptcy
Trustee in bankruptcy’s duty s328
To collect and if necessary, sell bankrupt’s assets so that they may be distributed to the creditors
what assets can the bankrupt keep?
a) tools of any trade
b) clothing and furniture, unless it is of high value, in which case the trustee has power to sell the asset and replace it with something cheaper s308
is bankrupt entitled to retain salary?
yes, but the trustee may apply for income payments order if salary exceeds sufficient funds to meet reasonable needs of bankrupt + family s310
how long can payment orders last for
up to 3 years, even where bankrupt has been discharged of bankruptcy
when must a payment order be obtained
prior to the discharge of bankruptcy
what are the special rules for the matrimonial home
a) the house may be in joint names
b) the spouse may have an equitable interest arising from a trust
c) the spouse may have a right of occupation under FLA and related legislation
d) minor children may live with the bankrupt giving rise to right of occupation
what is needed for a trustee to sell the matrimonial home
court order q
what happens after 3 years regarding the matrimonial home
revests in the bankrupt s283 aa unless the trustee has
a) realised the interest (sold house)
b) applied for sale or possession of the house
c) applied for a charging order over the house
d) entered an agreement with the bankrupt regarding bankrupts interest in the house
restriction on credit for the bankrupt
bankrupt cannot obtain credit of more than a prescribed amount (£500 currently) without disclosing bankruptcy
automatic business restrictions as soon as the bankruptcy order is made
bankrupt cannot
a) act as a director or (directly/indirectly) be involved in the management, promotion or formation of aco unless the court grants permission to act in such a capacity (CDDA, s11) breach of which is a criminal offence
b) trade under a different name from which the bankruptcy order was made, without disclosing to all those who trade with that person under the new name that they are an undischarged bankrupt s360(1)(b) IA
c) continue in partnership unless agreement provides otherwise. Bankrupts share to be realised.
personal disabilities of a bankrupt person
bankrupt cannot
- obtain credit of a prescribed amount without informing the lender they are an undischarged bankrupt s360(1)(a)
practice as a solicitor without the leave of the SRA
what are culpable bankrupts
those who have caused their own bankruptcy by dishonesty, negligence, or recklessness
bankruptcy order duration for culpable bankrupts
2-15 years
what happens if a bankrupt is deemed culapble
bankruptcy restriction order imposed upon them
restrictions automatically applicable to an individual subject to a BRO sch 4A
act as a receiver or manager of co property on behalf of a debenture holder
obtain credit above prescribed limit without disclosing they are subject to a DRO
trade in a name other than that under which that person was made bankrupt
act as an insolvency practitioner
act as a co director
act as an MP
act as a member of LA
trustees duty in relation to onerous property
can disclaim s315
what does a disclaimer of onerous property do
ends all the bankrupt’s rights and liabilities in respect of the property in question, discharges trustees from personal responsibility
what can a third party require trustee to do in relation to onerous properties
entitled to serve written notice on trustee requiring them to disclaim the property within 28 days, failing which trustee loses the power to do so s316
what is an undervalue
a gift or
a transaction where the bankrupt received consideration significantly lower in value than that which they provided s339(3)
HOw far back can the trustee investigate for transactions at un undervalue
up to 5 years before presentation of bankruptcy petition s341
does the bankrupt have to have been insolvent at the time of the undervalue
no- unless the transaction was more than 2 years before the petition s341(2)
what is a preference
an arrangement is a preference if it places a creditor, surety or guarantor in a better position than they would have been in otherwise on bankruptcy and the debtor intended to do this s340
when is a preference presumed s435
where it is in favour of an associate
How far back can a trustee go to set aside any preference made
transaction made within the 6 months prior to the bankruptcy petition s341(1) or within 2 years if the preference is in respect of an associate s435
does the bankrupt have to have been insolvent at the time of giving a preference
yes s341(2)
what is a transaction at an undervalue deliberately for the purpose of defrauding creditors
where a transaction has been made deliberately at an undervalue to make debtors property unavailable to creditors
what can a trustee do if they find out a transaction had been made at an undervalue to defraud creditors?
may make an application to set it aside s424
time limits for setting aside a transaction to defraud creditors
no time limit
what is essential to proving a transaction was made at an undervalue to defraud creditors
intention = the purpose was to put assets beyond the reach of creditors
what is an extortionate credit transaction? what can a trustee do in relation to them
grossly exorbitant credit terms s343 that contravene fair dealing
trustees can apply to set extortionate credit transactions aside
what is the statutory order in which trustees must distribute assets
s328
- costs of bankruptcy (professional charges of the trustee)
- preferential debts
- ordinary unsecured creditors
- postponed creditors(spouse)
what are preferential debts sch 6
accrued holiday pay owed to employees
wages of employees due in the last 4 months before the bankruptcy order
what does it mean to rank and abate equally?
each creditor shares the money available
what does discharge mean
bankruptcy comes to an end- bankrupt is released from most debts s281
what happens to remaining assets after discharge
any property vested in the trustee remains so and is not returned to debtor
alternatives to bankruptcy
- individual voluntary arrangement
-negotiation with creditors - DRO
- new breathing space regime
when does an IVA arise
-debtor takes advice and instigates it themselves by finding an insolvency practitioner who assists them in drawing up proposals and supervising implementation
- debtors trustee applys for iva
IVA procedure
- debtor prepares statement of affairs
- debtor applies for an interim order s253, stopping other proceedings taken against the debtor
- nominee prepares court report advising on whether proposal is realistic/worth calling a creditor meeting
- creditor meeting is passed if majority approves the proposal (75%)
- nominee implements proposals
DRO conditions
debtor must not
- have total unsecured liabilities exceeding 30,000
- have total gross assets exceeding 2,000 or own a car worth 2,000 or more
- have disposable income exceeding £75/month after deduction of normal household expenses
- have been subject to DRO in preceding 6 years
- be subject to another formal insolvency procedure
effect of a DRO
debtor protected from enforcement action from most creditors
free of debt at the end of DRO period
expected to make financial arrangements to pay creditors if their financial situation improves
what does a breathing space do
gives debtors time to consider if other debt solutions are appropriate without creditor pressure
what are the 2 types of moratorium
breathing space
mental health crisis breathing space
how long does a normal breathing space last
60 days
how long does a mental health crisis breathing space last
as long as treatment continues + 30 days
what happens once a breathing space is effective
creditor must stop all action relating to that debt and apply protections set out in the regulations
legal proceedings & enforcement action must be put on hold
moratorium qualification
-be an individual living in england or wales
-owe a qualifying debt
- not have a debt relief order/an individual voluntary arrangement/be an undischarged bankrupt
- not have had a breathing space in prev 12 months
what happens when a breath space is issued
insolvency service maintaints a register that debt advice providers use
sends out notification to creditors
maintains a register of persons whose debts are in a breathing space, date ended or cancelled within the last 15 months
what must a creditor do once notified of a breathing space
identify all debts owed
stop all interest and charges for the duration of the breathing space
stop any enforcement or recovery action to recover the debt
stop contacting debtor to request payment
can creditors challenge a moratorium
they have 20 days to challenge if they consider a debtor to have sufficient funds to repay debts as they fall due- requires evidence
