BANKRUPTCY IN THE UNITED KINGDOM
Submitted by Sadanand Naik Bangalore, India
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INDEX 1. Introduction 2. Governing law 3. Hierarchy and jurisdiction of courts 4. How the procedure takes place 5. Implications of bankruptcy 6. Duties of bankrupt 7. Alternatives to bankruptcy 8. Annulment or reversal of bankruptcy order
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Introduction Bankruptcy is an option that often has to be considered when an individual cannot pay their debts as they fall due. Having aim of freeing an individual from the pressures of creditors (people they owe money to) to enable him or her to make a fresh start and to ensure that all assets (such as property and investments) are distributed fairly among the creditors. GOVERNING LAW 1. Insolvency Act 2. Enterprise act (Replaced by competition act 1998) Main changes of the new legislation (Enterprise Act 2002) The main changes are as follows: In certain circumstances you may be discharged from
bankruptcy after one year (previously the minimum was two year’s) A limit of three years may be placed on the Trustee’s rights to realize equity in your home. (Previously this was open ended). Harsher penalties imposed on those who are considered to have brought about their bankruptcy through reckless or irresponsible behavior. Restrictions after bankruptcy could last for a further two to fifteen years.
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COURTS
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BANKRUPTCY1
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JURISDICTION House of lords ( appeal on a matter of legal importance only ) Court of appeal ( civil Division ) County courts or High court (chancery division) Normally county courts and high courts deal with the bankruptcy matters. Petition for bankruptcy can be made to the court that deals with the area where you have lived or traded for the longest period in the previous 6 months. If you live in one court district and run your business in another, you should go to the court dealing with the district where your business is, as this takes priority over your home address.
HOW THE BANKRUPTCY PROCEEDINGS TAKES PLACE Filing of petition 1) Voluntarily - By the debtor themselves. (Insolvency Rules 1986 form 6.27) Along with the voluntary petition a debtor is also need to file the statement of affairs (Form 6.28) 2) Involuntarily Minimum). Bankruptcy hearing or grant of time for arrangement By the creditor owed money (£750
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http://www.leeds.ac.uk/law/hamlyn/courtsys.htm
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Once the petition and statement is filed in the court the case will be referred to the district judge. Court will also refer the case to an insolvency practitioner for consideration of an IVA if the debts are below £20,000, the assets are at least £2,000, the debtor has not been subject to bankruptcy proceedings in the last five years and if it seems appropriate for an insolvency practitioner to be appointed. If the debtor does not want an IVA, the court can do one of four things: 1) Stay (delay) the proceedings - often because the Court needs further information before it can decide whether to make a bankruptcy order. 2) Dismiss the petition - perhaps because an administration order would be more appropriate. 3) Appoint an Insolvency Practitioner2 - if the Court thinks that an Individual Voluntary Arrangement would be more appropriate. This will only be possible if your assets are more than £2,000; your unsecured debts are less than £20,000; and you have not been bankrupt or made an Individual Voluntary Arrangement in the previous five years. If you do not wish to enter into such an arrangement, you should inform the Court. 4) Make a bankruptcy order. You will be bankrupt the moment the order is made by the Court. Order will be notified to the official receiver
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The Insolvency Practitioner is a person who is responsible for the disposing of debtor assets
and making payments to the creditors. An Insolvency Practitioner can be appointed Trustee instead of the Official Receiver; they must be licensed and are usually accountants or solicitors.
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First Appointment in the
Official receiver3 for interview or
completion of questionnaire after receipt of notice 1) Your questionnaire will be checked 2) You will be interviewed by an examiner about your property details. 3) You need to provide all financial information 4) Further interview if any Issue of report to the creditors Call for meeting of creditors if an appointment of insolvency practitioner is required to distribute the assets. DISCHARGE - A bankrupt may be discharged (freed from obligations under the bankruptcy order) after one year. Discharge releases the bankrupt from most of the debts owed at the date of the bankruptcy order. Exceptions include debts arising from fraud, certain crimes and fines. ASSETS OBTAINED BEFORE DISCHARGE: When discharged, there may still be assets that were owned either when the bankruptcy began or which were acquired before discharge, which the Trustee has not yet dealt with. These may include property, insurance or pension policy, an interest in a will or trust fund etc. These assets are still controlled by the Trustee, who can deal with them at any time in the future. Assets Obtained After Discharge: After discharge, any assets that are acquired may usually be kept The supervisor or anyone bound by an IVA
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The Official Receiver is a civil servant and an officer of the Court who is responsible for
administering bankruptcies and acting as a Trustee of an estate unless a private sector Insolvency Practitioner is appointed.and entrusted with the duty of investigating into the financial affairs of a debtor.
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IMPLICATIONS OF BANKRUPTCY Debtor cannot obtain credit for over £250 without the permission from the lender. Debtor cannot act as a company director Debtor cannot take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court. Debtor cannot trade in any business under any other name unless you inform all persons concerned of the bankruptcy Debtor may not practice as a Charted Accountant / Lawyer. Debtor may not act as a Justice of the peace (JP). Debtor may not become a member of parliament. Debtor may not become a member of the local authority. Debtor’s credit is affected for many years after the annulment. Debtor may be publicly examined in court.
DUTIES OF A BANKRUPT to provide the Official Receiver with information relating to your financial affairs such as, a list of your assets (property, pensions, insurance policies etc), amounts of each debt and to which creditor they are owed to, within 21 days. to inform any assets are then to be handed over to the Official Receiver along with any bank statements and insurance policies relating to your property and financial affairs. to inform any assets and income increases obtained during the bankruptcy should be declared to the Trustee. not to obtain credit of £250 or more from any person without first disclosing the fact that you are bankrupt
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ALTERNATIVES TO BANKRUPTCY The alternatives to bankruptcy are: Informal arrangement - Debtor can consider writing to all his creditors to see if they can reach a compromise. Include a timetable of when debtor will repay them. Individual Voluntary Arrangement (IVA) -Debtor is required to apply to the court with the help of an authorized insolvency practitioner. He or she would supervise the arrangement and pay creditors in line with the accepted proposals. Administration orders - If one or more of creditors have a court judgment against debtor and if the debtor total debts are £5,000 or less, the county court could make an administration order. Under the administration order, debtor makes regular payments to the court, which will then pay the creditors. While debtor is paying the administration order, creditors can't take any further action against debtor to get their money, without asking the court first. Also, debtor will not have to pay any interest on debts. Debtor will have to pay a fee for an administration order, but this will be added to the money debtor already owe and not charged separately. ANNULMENT OR REVERSAL OF BANKRUPTCY ORDER This is a procedure which cancels your bankruptcy order. An order of annulment can only be made by the court. Debtor can apply for a reversal or annulment at any time if:
the bankruptcy order should not have been made, for example because the proper steps involved in obtaining the order were not
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followed; (application under section 282(1)(a) of the Insolvency Act 1986):or
all your bankruptcy debts and the fees and expenses of the bankruptcy proceedings have been either paid in full or guaranteed to the satisfaction of the court; (application under section 282(1)(b) of the Insolvency Act 1986): or debtor have reached an agreement called an Individual Voluntary Arrangement” with your creditors to repay all or part of your debts. (application under section 261 of the Insolvency Act 1986):
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