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LPC Law Notes Insolvency and Liquidation Notes

Personal Insolvency Notes

Updated Personal Insolvency Notes

Insolvency and Liquidation Notes

Insolvency and Liquidation

Approximately 45 pages

A collection of the best Insolvency and Liquidation notes the director of Oxbridge Notes (an Oxford law graduate) could find after combing through dozens of LPC samples from outstanding students with the highest results in England and carefully evaluating each on accuracy, formatting, logical structure, spelling/grammar, conciseness and "wow-factor". In short these are what we believe to be the strongest set of Insolvency and Liquidation notes available in the UK this year. This collection is ful...

The following is a more accessible plain text extract of the PDF sample above, taken from our Insolvency and Liquidation Notes. Due to the challenges of extracting text from PDFs, it will have odd formatting:

Advise on circumstances in which a D can be become bankrupt

Personal insolvency = ‘bankruptcy’; applies only to indiv s.265 IA86

- Any person domiciled in England and Wales and who is personally present in E&W on day bankruptcy petition is presented; or

- Any person who has in the land 3 years ending on day petition presented:

- has a place of residence or has been ordinarily resident in E&W; or

- has carried on business in E&W

Aim to encourage entrepreneurship by allowing honest bankrupts to be discharged after one year or less with a clean slate, while punishing reckless by imposing restrictions for up to 15yrs.

When is an indiv insolvent?

IA 1986 contains 2 tests (s.267(2)) based on whether able to pay debts:

  • Debt(s) payable immediately and debtor doesn’t have sufficient funds to do this, even though may at some point in the future

  • Debt(s) payable at some specified point in the future and debtor has no reasonable prospect of being able to pay

How can creditor prove debtor insolvent?

Three ways creditor may show debtor insolvent and so force bankruptcy (s.268):

  • Serve stat demand on debtor for a liquidated debt in excess of 750 and wait 3 weeks to see whether pays or applies to court to set aside

  • Serve stat demand on debtor in respect liability to pay creditor a sum in excess 750 on a future date and wait 3 weeks to see whether shows reasonable prospect of being able to pay the sum when it falls due, or applies to court top set aside.

  • Obtain court judgment for debt in excess of 750 and attempt execution of that judgment debt without debt being satisfied in full.

Insolvent debtor’s options?
  • Petition for own bankruptcy to show trying to sort things out

  • Talk to creditors – compromise

  • Enter into formal arrangement with creditors called (IVA)Individual Voluntary Arrangement

  • Apply for debt relief order

Bankruptcy is a judicial process during which court passes all assets to an official – the trustee in bankruptcy – to pay off as many debts as poss. Once done, bankrupt will usually be discharged, free from almost al debts and able to start afresh.

Can visit Official Receiver’s Office for discharge or auto discharge after one year (IA s.279)

The bankruptcy process

Step 1: petition

Commenced by presentation to Official Receiver of petition by debtor, any creditor or various others listed in s.264.

If petition granted, bankruptcy order is made.

Creditor’s petition s.267

Creditor may petition if debtor owes his 750 or more. Must also be able to claim that debtor is unable to pay debt or has little prospect of being able to s.267(2)(c). Will be presumed if follows one of the methods in s.268 (above).

  • Creditors owed less than 750 may join tog to petition if tog owed more than 750 s.267(2)(a)

  • Present petition to debtor’s local court

  • Creditor must pay a deposit to cover costs of trustee in bankruptcy and fee to the court

  • Must arrange for petition to be served personally on debtor

Debtor’s petition s.272

- Must allege he cannot pay his debts (IA s.272(1)), accompanied by statement giving details of creditors, debts, liabilities and assets.

- Must not abuse process (e.g. cannot withdraw petition once made, without leave of court s.266)

-> places responsibility for his financial affairs into hands of trustee in bankruptcy

Step 2: the order

Where creditor’s petition before court, order will usually be granted if court satisfied the debt is either:

  • currently payable and hasn’t been paid, secured or compounded (i.e. creditor agreed to accept less or

  • not currently payable but one which debtor has a real prospect of being able to pay

Court can dismiss petition if satisfied either:

  • D can pay its debts

  • Creditor unreasonably refused offer to secure or compound the debt

If debtor’s petition, court won’t make order immediately if:

  • Thinks debtor could raise funds in a short time (e.g. sell house)

  • Debts are below small bankruptcies level (currently 40,000) and debtor has some assets (currently at least 4,000) -> court will require a report to be prepared (s.263) on possibility of an IVA

  • Within 5 years petitioner has neither been adjudged bankrupt nor been in a scheme of arrangement – court will ask for report under s.273

Under changes by the EA, aim for general discharge period to be one year. However, may be reduced if OR states that further investigation into bankrupt’s conduct is unnecessary or has been concluded (s.279)

Role of the Official Receiver

Initially takes control bankrupt’s property when order made. Will:

  • Ask d for statement of affairs and investigate if necessary

  • Take steps to protect property

  • Possibly dispose of perishable goods or those going down in value

  • Decide whether OR should carry on himself or call meeting of creditors to appoint insolvency practitioner to act as trustee in bankruptcy

    • Insolvency practitioner must be licensed to act as trustee (usually an accountant).

    • Creditor may demand a meeting if he and those supporting him comprise 25% of bankrupt’s creditors (s.294)

Role of trustee in bankruptcy
  • Bankrupt’s estate vests automatically in them (s.306).

  • Function to collect and, if necessary, sell assets, so can distribute to creditors in accordance s.328.

  • Can then apply for release.

  • Wide ranging powers to investigate affairs and may set aside some transactions entered prior to bankruptcy

Bankrupt’s property
  • Estate vests in trustee (defined s.283);

  • includes most real and personal property except bankrupt able to keep some assets needed for day-to-day living,

  • e.g. tools of trade, clothing and furniture, unless it is of high value (trustee able to sell and replace with lower value item – s.308)

  • also entitled to retain salary, but trustee may apply for income payments order if exceeds a sum sufficient to meet the reasonable needs of bankrupt and his family (s.310) -> this order can last up to 3 years even if b discharged

Matrimonial home

  • debtor’s interest passes to trustee

  • however, others may...

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