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LPC Law Notes Business Law and Practice Notes

Bankruptcy, Iv As, Dr Os Notes

Updated Bankruptcy, Iv As, Dr Os Notes

Business Law and Practice Notes

Business Law and Practice

Approximately 649 pages

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BANKRUPTCY

Section Insolvency Act 1986

The Petition

Bankruptcy is commenced by petition by a creditor presenting a petition to the court or
by the grant of a bankruptcy order (to obtain full or part payment of the debt)

264

The debtor can apply online to an adjudicator to grant a bankruptcy order.

OR

The petition can be filed by one or more of the creditors, the supervisor of an IVA, or any creditor bound by an IVA.

* An Individual Voluntary Agreement [IVA] is an agreement the debtor makes with their creditors to pay back debts over five years to avoid declaring bankruptcy.

278 Bankruptcy commences on the day the order is made.
The Effect of Bankruptcy
284 Restriction: any disposition of property from the date of petition to the date of order is void
285 Bankruptcy order prevents creditors being sued by other (unsecured creditors)
The Process
Creditors’ Petition Debtor’s Application
Stage 1: Establish Prerequisites Stage 1: Establish Prerequisites
267
  1. Debt(s) for 5,000 or more.

263H
  1. Debtor applies online to an adjudicator appointed by Secretary of State who makes bankruptcy order, if appropriate.

  1. Debt is liquidated (a definite cash sum) – can be aggregated debts due to more than one creditor.

  1. Debt is unsecured.

  1. Debtor unable to pay debts.

265
  1. Debtor domiciled or personally present in England or Wales.

263I
  1. Debtor domiciled in England or Wales.

Stage 2: Prove ground that debtor unable to pay debt or has no reasonable prospect of paying Stage 2: Prove ground that debtor
unable to pay debts
268
  1. Serve statutory demand and wait 21 days OR

263J
  1. Debtor makes a statement of affairs which shows inability to pay debts (i.e. details of creditors, debts, liabilities and assets).

  1. Obtain judgment and show that execution or other process for debt unsatisfied.

Stage 3: Present petition Stage 3
263I Adjudicator makes bankruptcy order, if considers appropriate.
Stage 4: Court hearing of petition Stage 4: Court hearing of petition
273
  • The court will discourage bankruptcy where possible. The court will ask an insolvency practitioner to consider if IVA is appropriate.

  • Bankruptcy order made or petition dismissed.

Stage 5: If bankruptcy order made, Official Receiver becomes receiver and manager of bankrupt’s estate Stage 5: If bankruptcy order made, Official Receiver becomes receiver and manager of bankrupt’s estate
  1. Holds office until appointment of trustee in bankruptcy.

  1. Holds office until appointment of trustee in bankruptcy.

288
  1. Bankrupt must prepare statement of affairs within 21 days.

  1. Advertises the bankruptcy in the London Gazette.

284
  1. Any dispositions of property by bankrupt since presentation of petition are void.

284
  1. Any dispositions of property by bankrupt since presentation of petition are void.

  1. Bankrupt may be required to attend a public examination of his affairs.

  1. Bankrupt may be required to attend a public examination of his affairs.

Trustee in Bankruptcy

Duty to gather in the estate and to pay creditors in statutory order of entitlement.

291A The Official Receiver will act as trustee in bankruptcy from the date of the bankruptcy order until the appointment of the trustee in bankruptcy.
306 The bankrupt’s estate vests in the trustee in bankruptcy on appointment.
283 Definition of bankrupt’s estate – excludes tools of trade, books, household items
308 Property is a reasonable replacement for other property if it is reasonably adequate for meeting the needs met by the other property.
293 The Official Receiver must decide whether to summon a general meeting of the bankrupt’s creditors to appoint a trustee of the bankrupt’s estate within 12 weeks of the order being made. If the OR decides not to summon a meeting, he must give notice of his decision to the court and all known/identified creditors, and he will become the trustee of the bankrupt’s estate.
294 If the OR has not yet summoned, or has decided not to summon, the general meeting,
any creditor of the bankrupt may request the OR to summon such a meeting. It then becomes the duty of the official receiver to summon the requested meeting.
297 Special cases.
310

The court can make an income payments order. A set amount of the bankrupt’s income will be paid to the trustee in bankruptcy. The bankrupt will be allowed to keep such income as is deemed necessary for his/hers + family’s reasonable needs.

* Although discharge takes place automatically after one year, income payments orders can remain in force for up to three years.

310A The bankrupt and trustee in bankruptcy can agree an income amount to be paid to the trustee without a court order. This is a legally enforceable agreement.
Statutory Order of Entitlement
328 Priority Creditor Classification
1 Holder of fixed charge over bankrupt’s premises created and registered on [earlier date]

Secured

(ordinary for any deficit)

2 Holder of fixed charge over bankrupt’s premises created and registered on [later date]
3 Costs of trustee in bankruptcy Bankruptcy costs
4 Wages of bankrupt’s employees due in 4 months prior to bankruptcy order Preferential
5 Trade creditors Ordinary unsecured
HM Customs & Excise for VAT due in 6 months prior to bankruptcy order
Inland Revenue for PAYE income tax due in 12 months prior to bankruptcy order
Bankrupt’s business partner(s)
6 Spouse for money lent to bankrupt Postponed

RECOVERY OF ASSETS

284 Any dispositions of property after the date of petition, without the consent of the court or subsequent ratification by the court, are void.
315

The trustee in bankruptcy can disclaim onerous property, such as:

  • Any unprofitable contract (e.g. a lease)

  • Unsaleable property

  • Property that may give rise to a liability to pay money or perform any other onerous act

339 Transactions at an undervalue
339(3)(a) The individual makes a gift to a person, enters into a transaction with a person...

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