Termination and personal insolvency Flashcards
What does insolvent mean?
An inability to pay their debts
What is bankruptcy?
A judicial process whereby most of the bankrupt’s assets pass to a trustee in bankruptcy
How does the bankruptcy process start?
Either by a creditor’s petition or a debtor may seek to make a debtor’s application
What does the creditor need to do?
The creditor has to be owed more than £5k and show an inability to pay
What happens if one creditor is owed £4500 and another is owed £700, can either petition for bankruptcy?
Not on their own but they could make a joint petition for the combined sum but they would need to show an inability to pay
What happens to bankrupt’s property once an order has been made?
Title in the property vests with the trustee with the exception of tools of the trade and every day items such as clothes and furniture
What investigations can the trustee carry out?
- disclaiming onerous property
- transactions at an undervalue
- preferences
- transactions defrauding creditors
- extortionate credit transactions
How many years can a trustee go back to set aside transactions at an undervalue?
5 years from the date of the presentation of the petition (‘relevant date’)
Are there any pre-conditions required in relation to the number of years for transactions at an undervalue?
If the transaction was in the first two years no, however if it was before the first two years from the relevant date it must be proved that the bankrupt was either insolvent at the time or became insolvent because of the transaction
When is there a rebuttable presumption that the bankrupt was insolvent at the time of the transaction?
When the undervalue was in favour of an associate
Who is an associate?
- relatives
- spouse and their relatives
- spouses partners of relatives or of spouses partner’s relatives
- business partners and employees/employers
- a company controlled by a person either alone or together with their associates
What is a preference?
An arrangement that places a creditor or guarantor in a better position than they would otherwise have been in
What is needed to be shown?
A desire to prefer the particular creditor and this is presumed if the preference is in favour of an associate and that the bankrupt was insolvent at the time or became insolvent because of entering into the transaction
What are the timescales for preferences?
The trustee can go back 6 months from the relevant date for any preference or up to two years from the relevant date in favour of an associate
What is the order of distribution of bankrupt’s assets?
- secured creditors
- costs of bankruptcy
- preferential debts
- unsecured creditors
- postponed creditors
