Personal insolvency

Question 1

What are the two formal insolvency procedures for insolvent individuals?

Answer 1

Bankruptcy and IVAs (individual voluntary arrangements).

Question 2

What is an IVA?

Answer 2

An alternative to bankruptcy and allows individuals to make proposals for repayment and reach a binding agreement with their creditors.

Question 3

What approval is required for an IVA?

Answer 3

It must be approved by creditors holding at least 75% of the total debt owed to the creditors voting on the proposal.

It will not be effective if more than half of the total value of creditors vote against it.

Question 4

Who is an IVA binding on?

Answer 4

The debtor and all unsecured creditors.

Question 5

Outline the procedure for setting up an IVA.

Answer 5

1. The debtor drafts a proposal for compromise of their liabilities and a statement of their affairs with the assistance of a Nominee
2. The Nominee submits a report to the Court stating their opinion as to whether the debtor’s proposal has a reasonable prospect of being approved
3. A debtor can apply to the court for an interim order which if granted, brings about a moratorium. The interim order and moratorium lasts 14 days.
4. In order for the proposal to be binding, it must be approved by creditors holding at least 75% of the total debt owed to the creditors voting on the proposal.

It will not be effective if more than half of the total value of creditors vote against it.

Question 6

What is bankruptcy?

Answer 6

Bankruptcy is the equivalent to liquidation for a company. The bankruptcy process begins by a bankruptcy petition being presented, usually by a creditor but sometimes by the debtor.

Question 7

How must a debtor’s inability to pay their debts be evidenced?

Answer 7

-A statutory demand that has neither been satisfied within three weeks from service of that demand, nor set aside by the Court; or

-An unsatisfied execution of a judgment of another legal process

Question 8

What is the statutory order of priority in bankruptcy?

Answer 8

1. Secured creditors
2. Expenses of the bankruptcy including Trustee’s remuneration
3. Two tiers of preferential creditors
4. Ordinary unsecured creditors
5. Statutory interest
6. Debts of a spouse
7. Any surplus is payable to the bankrupt

Question 9

When is a bankrupt discharged from bankruptcy?

Answer 9

Upon the filing by the Official Receiver/Trustee of a notice stating the bankruptcy no longer requires investigation.