Company: Insolvency Sole Proprietors

Question 1

Who does insolvency for sole proprietors apply to and what are the options?

Answer 1

Sole traders and partners in general partnership

Options
1. negotiations with creditors
- not binding

2. Individual Voluntary Agreement
   - like negotiation but binding
3. Bankruptcy
   - judicial process where assets are given to trustee

Question 2

What is the issue with negotiation with creditors?

Answer 2

Will not be binding for lack of consideration

Question 3

When is a Individual Voluntary Agreement suitable?

Answer 3

Only if debtor has enough money, or prospect of receiving some money, to enable them to make reasonable offer to creditors.

Question 4

What are the advantages of an IVA to each party?

Answer 4

Debtor
- avoids restrictions of bankruptcy
- can continue to trade

Creditor
- may receive more than through bankruptcy
- keep potential customer
- quicker

Question 5

What is the procedure (general for IVA)?

Answer 5

1. take professional advice from insolvency practitioner
2. Prepare Statement of Affairs
3. Apply for interim order
4. Call meeting of creditors to vote on it
5. Implementation

Question 6

What is an interim order in an IVA? Who to apply to?

Answer 6

Apply to bankruptcy court

Whilst order is in force:
- no bankruptcy petition without permission by court
- no other proceedings or executions can be commenced without permission
- lasts 14 days (can apply for extension)

Question 7

How is an IVA approved?

Answer 7

Meeting with creditors

Agreement of at least 75% in value of unsecured creditors

Question 8

Who is bound / not bound by an IVA?

Answer 8

Bound
- all ordinary unsecured creditors who had notice of meeting
- preferential creditors ONLY unless they agree

Not bound
- preferential creditors:
- employees for wages/holiday pay in last 4 months
- secured creditors

Question 9

When can petition for bankruptcy be brought during IVA? And by whom?

Answer 9

By:
- supervisor (practitioner)
- creditor who is party to IVA

If debtor:
- provided false or misleading information; or
- tried to put money or assets out of reach;
- gave preference to creditor; or
- failed to comply with IVA

Question 10

Who can apply for bankruptcy?

Answer 10

One of 3 ways:

1. debtor can apply online
   - heard by adjudicator
   - granted if found they are unable to repay debts
2. Unsecured Creditor(s)
   - jointly owed £5k+
   - present petition to bankruptcy court
3. From IVA
   - if breach conditions; or
   - give false/misleading info
   - preference to creditor
   - hid assets

Question 11

Who can be the official receiver? What is that?

Answer 11

Official receiver is the trustee in bankruptcy

Either
- civil servant
- creditor can seek to appoint own

Question 12

How may a creditor show that debtor is insolvent?

Answer 12

Statutory Demand for Payment
- if not paid in 3 weeks; or
- debtor does not apply to set it aside in 3 weeks

Statutory Demand for Proof of Ability to Pay
- if debtor does not show reasonable prospect of being able to pay in 3 weeks (21 days); or
- does not apply to court to set aside demand (18 days)

Debtor owes judgement debt and Creditor Seeks to Execute
- and attempted fails

Question 13

What is the bankruptcy implementation?

Answer 13

Official receiver appointed

Bankruptcy estate vests automatically

Sell assets and repay in strict order

Question 14

What is exempt from Bankruptcy Estate?

Answer 14

Assets needed for day to day living

Tools of Trade

Any Salary debtor makes
- subjecting to income payment order

Question 15

What is an income payment order in bankruptcy? How long does it last?

Answer 15

Can be applied for if:
- income of debtor exceeds amount needed for reasonable needs of debtor and their family

Can last max of 3 years

Question 16

Is home excluded from bankruptcy estate?

Answer 16

No passes to trustee subject to below. After one year like court will grant order

Cannot sell without court order if:
- held in joint names
- partner/spouse has equitable interest arising from trust
- spouse has right of occupation
- children under 18 live there

Question 17

What are the restrictions on the debtor in bankruptcy?

Answer 17

• cap on amount of credit they can apply for
• cannot be a director
• cannot be a partner
• cannot trade under another name without disclosing bankruptcy

Question 18

What is the order of distribution to creditors under bankruptcy?

Answer 18

1. cost of bankruptcy
2. preferential debts
   - employees last 4 months
   - VAT, PAYE and National Insurance
3. Ordinary unsecured creditors
4. debts to Spouse

When monty runs out those in certain section are paid proportionately

Question 19

When will bankruptcy end?

Answer 19

Not-Culpable
- 1 year

Culpable bankrupt
- up to 15
- restrictions can extend longer

Question 20

When is someone a culpable bankrupt?

Answer 20

if they caused bankruptcy by their own dishonesty , negligence or recklessness

Question 21

What happens to partnership if individual parter is bankrupt?

Answer 21

Partnership at Will
- dissolved
- money due to insolvent partner goes to trustee

Partnership not at Will
- if PA provides it doesn’t dissolve due to bankruptcy
- remaining partners purchase interest in accordance with retirement provision

LLP
- remaining partners purchase interest in accordance with retirement provision

Question 22

What happens if all partners in partnership are bankrupt?

Answer 22

Partnership subject to bankruptcy proceedings

Proceedings used
- for individuals if partners are individuals
- for business if partners are business
- mix if mix