Personal Insolvency

Question 1

What are the Two Types of Insolvency for Individuals?

Answer 1

• Individual Voluntary Arrangement (“IVA”)
• Bankruptcy.

Question 2

What is an Individual Voluntary Arrangement?

Answer 2

Company Voluntary Arranagement for Individuals.

Question 3

What is the Procedure for an Individual Voluntary Arrangement?

Answer 3

Proposal Drafting:

• The Debtor drafts the Proposal and a Statement of Affairs, assisted in drafting by the Nominee.

Nominee’s Report to Court:

• The Nominee considers whether the Proposal has a resasonable propsect of approval and implementation.
• Within 28 days, the Nominee must report to the Court on whether Creditors and Shareholder Meetings sould be convened.

Creditor Meeting:

• Creditors are given at least 14 days’ Notice to vote on the Proposal.
• It must be approved by at least 75% in value of Voting Creditors, excluding Secured Creditors; and
• Cannot be opposed by more than 50% of Unconnected Creditors by Value (Independent from the Firm).

Reporting and Implementation:

• The Nominee reports the outcome to the Court, after which, the Nominee becomes the Supervisor and oversees the Arrangement.
• If the Arrangement’s Terms are Breached, the Supervisor may Petition the Debtor’s Bankruptcy.

Question 4

Regarding Individual Voluntary Arranagement, does the Debtor enjoy an Interim Moratorium?

Answer 4

• The Debtor may apply for an Interim Order, which would grant a 14-Day Moratorium.
• The Court may extend the duration.

Question 5

What is the Effect of an Individual Voluntary Arrangement?

Answer 5

Degree of Bindingnes:

• It binds the Debtor and all Unsecured Creditors, but not Secured and Preferential Creditors without consent.

Foregiveness on Completion:

• If successfully implemented, the Debtor Writes Off its outstanding Debts to Bound Creditors.

Question 6

What is Bankruptcy?

Answer 6

Liquidation for Individuals.

Question 7

What are the Two Types of Bankruptcy Petition?

Answer 7

• Creditors’ Petition.
• Debtor’s Petition.

Question 8

What are the Elements of a Creditors’ Bankruptcy Petition?

Answer 8

Grounds:

• The Debtor appears unable to, or has no reasonable prospect of, paying its Debts.

Debt Threshold:

• The Debt must be for an Unsecured Liquidated Sum exceeding £5,000.

Debtor’s Status:

• The Debtor must be domiciled in England & Wales, or have been present within the last 3 Years.

Question 9

What are the Elements of a Debtor’s Bankruptcy Petition?

Answer 9

Grounds:

• The Debtor is unable to pay its Debts.

Necessary Documentation:

• The Petition must include a Statement of Affairs detailing the Debtor’s Assets and Liabilities.

Question 10

Regarding Bankruptcy, what constitutes Evidence of an Inability to Pay Debts?

Answer 10

• Failure to Satisfy a Court Judgment.
• Failure to Repay or Secure a Debt exceeding £750 within 21 Days of Statutory Demand.

Question 11

What is the Effect of a Bankruptcy Order?

Answer 11

Appointment of the Trustee in Bankruptcy:

• The Court Appoints an Official Receiver, who acts as the initial Trustee in Bankruptcy.
• At their Discretion, Creditors by Majority can nominate a Licensed Insolvency Practitioner as Trustee instead.

Restrictions on the Bankrupt:

• The Bankrupt cannot act as a Director or manage a Firm, and is barred from certain professions.
• The Bankrupt must Disclose when obtaining Credit over £500.

Estate Vesting:

• The Bankrupt’s Estate automatically transfers to the Trustee upon the Bankruptcy Order, giving it control over all Estate Assets, present and future.
• The Bankrupt retains only what is reasonably necessary for domestic life.

Question 12

What are the Powers of the Trustee in Bankruptcy?

Answer 12

• Power to Disclaim Onerous Property.
• Power to Pay Debts and Settle Claims.
• Power to Sell or Deal with Estate Assets.
• Power to Carry on the Bankrupt’s Business.
• Power to Challenge and Void certain Transactions.

Question 13

What is the Order of Priority of Payment in Bankruptcy?

Answer 13

1 —Secured Creditors.

2 — Bankruptcy’s Expenses.

3 —Preferential Creditors.

4 —Unsecured Creditors.

5 —Statutory Interest on Debts from Commencement.

6 —Debts to Spouse.

7 —Any Surplus to the Bankrupt.

Question 14

What are the Duties and Obligations of the Bankrupt?

Answer 14

• Disclosure: The Bankrupt must provide the Trustee with full details of the Estate’s affairs.
• Cooperate with the Trustee: The Bankrupt must comply with all of the Trustee’s requests.
• Assist in Asset Realization: The Bankrupt must help the Trustee manage and sell Estate Assets.

Question 15

For the Bankrupt, what are the Consequences of Non-Compliance with its Duties and Obligations?

Answer 15

• Unlimited Fines and Imprisonment of up to 2 Years.
• Suspension of Automatic Discharge from Bankruptcy, following an Application by the Trustee.

Question 16

What are the Three Types of Discharge from Bankruptcy?

Answer 16

• Automatic.
• Early.
• Suspended.

Question 17

What is the Effect of Discharge?

Answer 17

The Debtor is free from Bankruptcy Restrictions and is released from most Debts.

Question 18

When does Automatic Discharge occur?

Answer 18

After 1 Year.

Question 19

When does Early Discharge occur?

Answer 19

When the Trustee reports that no further investigation is necessary.

Question 20

What is a Bankruptcy Restriction Order?

Answer 20

An Order imposing Restrictions similar to those ordinarily under Bankruptcy, namely:

• The Bankrupt cannot act as a Director or manage a Firm, and is barred from certain professions.
• The Bankrupt must Disclose when obtaining Credit over £500.

Question 21

What is the Procedure for Obtaining a Bankruptcy Restriction Order?

Answer 21

Application and Grounds:

• The Trustee or Secretary of State Files an Application on the Grounds of Misconduct by the Bankrupt.

Duration:

• 2-15 Years.

Penalties for Breach:

• Unlimited Fines.
• Imprisonment of up to 2 Years.

Question 22

What is a Bankruptcy Restriction Undertaking?

Answer 22

Voluntary Undertaking:

• The Bankrupt voluntarily agrees to suffer restrictions similar to those ordinarily under Bankruptcy.

Duration:

• 2-15 Years.

Penalties for Breach:

• Unlimited Fines.
• Imprisonment of up to 2 Years.

Question 23

What are the Three Types of Transaction Voidable in Personal Insolvency?

Answer 23

• §340: Transactions at an Undervalue.
• §341: Preferential Transactions.
• §423: Transactions Defrauing Creditors.

Question 24

When may a Transaction be Deemed at an Undervalue?

Answer 24

The Relevant Time:

• The 5 Years preceeding the Petition.

The Insolvency Requirement:

• The Bankrupt was Insolvent at the time; but
• Only if the it occurred at least 2 Years before the Petition.

Associated Transactions and Presumed Insolvency:

• If the Transaction was with an Associated Person, a Rebuttable Presumption of Insolvency arises.

Insolvency here is judged by the Cashflow or Balance Sheet Tests.

Question 25

When may a Transaction be Deemed Preferential?

Answer 25

The Relevant Time:

• The 6 Months preceeding the Petition for Non-Associated Transactions.
• The 2 Years preceeding the Petition for Associated Transactions.

Insolvency and Intention to Prefer:

• The Debtor was influenced by the desire to Prefer the Creditor; and
• The Bankrupt was Insolvent at the time, or the Transaction sent the Bankrupt into Insolvency.

Associated Transactions and Presumed Intention:

• If the Transaction was with an Associated Person, a Rebuttable Presumption of Intention to Prefer arises.

Insolvency here is judged by the Cashflow or Balance Sheet Tests.

Question 26

When may a Transaction be Deemed to Defraud Creditors?

Answer 26

It is a Transaction at an Undervalue with an Intent:

• To Defraud Creditors; or
• Put Assets beyond Creditors’ reach.

Question 27

What is an Associated Person?

Answer 27

A Relative, Business Partner, or Corporation controlled by the Debtor.

Question 28

What are the Remedies for Voidable Transactions?

Answer 28

Rescission, or any Order the Court sees fit.