Personal insolvency Flashcards
What is an Individual Voluntary Arrangement (IVA)?
A proposal by a debtor for compromise of their liabilities with creditors
How does a debtor pay into an IVA?
The debtor pays funds to the IVA supervisor out of their income. The IVA supervisor distributes payments to creditors based on their claims.
What is the process for an IVA?
- Debtor drafts proposal, statement of affairs to nominee
- The nominee submits the proposal to court with opinion about how reasonable it is
- Debtor can apply for an interim order as a moratorium
- IVA must be approved by requisite percentage of the creditors
How long does the interim order as a moratorium last?
14 days.
The court can extend this period beyond 14 days.
What percentage of creditor approval is needed for an IVA proposal?
Approval from creditors holding at least 75% in value of the total debt owed is required and more than 50% of the total value of creditors who are not associates of the debtor must approve.
What are the advantages of an Individual Voluntary Arrangement?
- It is an alternative to bankruptcy
- Binds unsecured creditors
- Moratorium
What are the disadvantages of an Individual Voluntary Arrangement?
- It does not bind secured creditors
- Can be expensive and time consuming
- May last longer than bankruptcy
What is a moratorium in the context of an IVA?
A period during which creditors cannot take action against the debtor
What is bankruptcy?
Bankruptcy is a legal status of a person or entity that cannot repay the debts it owes.
What might cause bankuptcy?
The creditor’s position:
- A debtor is unable or has no reasonable prospect to pay its petition debts
- Thedebt must be for a liquidated sum exceeding £5,000.
Debtor’s position?
- Unable to pay debts
How is inability to pay debts in bankruptcy evidenced?
- Statutory demand that neither has been satisfied within three weeks from service of demand, nor set aside by the court
- Unsatisfied execution of a judgment or of another legal process
What happens when a court makes a bankruptcy order?
An official receiver is appointed as the first trustee in bankruptcy, unless a majority of creditors seek another trustee.
What are the prohibitions for a bankrupt?
- Acting as a director/managing a company
- Obtaining credit of over £500 without disclosing the bankruptcy
- Giving gifts
- Practicing certain professions
What are the powers and duties of a trustee in bankruptcy?
- Has possession of all the bankrupt’s possessions
- Collects in assets of the estate
- Challenges undervalue or preferences transactions
- Sells value of estate and distributes in accordance with statutory order of priority
- Can discharge leases
- Asks creditors to prove their claims against the bankrupt
What must a trustee do when proposing to pay a dividend to creditors?
The trustee must give notice to creditors who have proved their debts, stating the amount of sale proceeds, deductions made, and expected dividend amount.
What is the order of payments in bankruptcy?
- secured creditors (but limited to the value of the security itself and ranking with ordinary unsecured creditors for any amount not recovered under the security);
- expenses of the bankruptcy including the Trustee’s remuneration;
- two tiers of preferential creditors (identical to the ones on a corporate winding up);
- ordinary unsecured creditors;
- statutory interest;
- debts of a spouse (must be provable but they are postponed to other creditors); and
- finally, any surplus is payable to the bankrupt.
What are the bankrupt’s duties?
Give trustee information, attend meetings and do stuff to help.
It is a criminal offence to fail to comply with obligations.
What is the discharge period for bankruptcy?
Automatic after a maximum period of one year.
Can the discharge period be less than one year?
Yes, if the Trustee files a notice stating bankruptcy does not require investigation or that they have concluded any such investigation.
What are Bankruptcy Restriction Orders (BRO)?
SoS may apply for a BRO if the court considers it appropriate to have regard to the conduct of the bankrupt.
What conduct may lead to a Bankruptcy Restriction Order?
- Failure to keep records
-entering into preferences or transactions at an undervalue
-fraud - incurring a debt without reasonable expectation of being able to pay it
What is the duration of a Bankruptcy Restriction Order?
A BRO will operate for a period of between two and 15 years.
What are the restrictions during a Bankruptcy Restriction Order?
The bankrupt is unable to act as a director or obtain credit of more than £500 without disclosing that they are subject to a BRO.
What are voidable transactions?
Transactions that can be declared invalid under certain conditions.
