Personal Insolvency Flashcards
(33 cards)
2 main formal insolvency procedures for individuals?
- Individual Voluntary Arrangements IVA
- Bankruptcy
Purpose of bankruptcy?
collective procedure to sell and distribute an insolvent individual’s assets for the benefit of creditors
Steps to set up an IVA?
1) Debtor drafts proposals and statement of affairs
2) Nominee reports to court
3) Debtor may apply for an interim order creating a 14-day moratorium
4) Creditors vote on the proposal
What is required for an IVA proposal to be approved?
75% (by value) of creditors voting must approve it, and it is invalid if more than 50% (by value) of non-associated creditors vote against it
Who is bound by a validly approved IVA?
Debtor and all unsecured creditors. Secured and preferential creditors must consent to be bound
What happens to outstanding debts at the end of an IVA?
Written off if debtor has complied with IVA terms
Who can petition for bankruptcy?
Creditor or debtor
What is required for a creditor’s bankruptcy petition?
- Debt over £5k
- Liquidated and usually unsecured
- Debtor domiciled or present in England and Wales
- Debtor is unable or has no reasonable prospect of paying
What is required for a debtor’s bankruptcy petition?
- Debtor unable to pay debts
- Petition must include a statement of affairs
What evidence supports inability to pay debts?
- Unsatisfied statutory demand after 21 days
- Failed execution of judgment
What happens to the bankrupt’s estate upon the order?
Bankrupt loses property rights and they vest automatically in the Trustee
Trustee’s powers?
- Sell assets
- Continue business temporarily
- Challenge transactions
- Grant security over assets
Can trustees disclaim property?
Yes - they can disclaim onerous property to end the bankrupt’s liability (e.g. leases)
What must the Trustee do before paying a dividend?
Notify creditors of sale proceeds, deductions, and expected payments
Order of priority in Bankruptcy?
- Secured creditors (to the extent of the security)
- Bankruptcy expenses (including Trustee’s fees)
- Preferential creditors (two tiers)
- Ordinary unsecured creditors
- Statutory interest
- Spouse’s provable debts (postponed)
- Surplus to the bankrupt
Duties of the Bankrupt?
- Provide information
- Attend as required
- Do all things reasonably requested by the Trustee
What are the consequences of failing to comply?
Criminal offence punishable by up to 2 years imprisonment or a fine; discharge can also be suspended
When is a bankrupt usually discharged?
Automatically after 1 year, releasing them from most debts and restrictions
Can discharge happen earlier than 1 year?
Yes, if investigations are concluded or not required
What is a Bankruptcy Restriction Order - BRO?
Court order restricting a bankrupt’s conduct for 2-15 years based on misconduct
What behaviours can lead to a BRO?
- Failing to keep records
- Preferences
- Transactions at undervalue
- Fraud
- Incurred debt with no intent to repay
What are the effects of a BRO?
Prevents acting as director or obtaining over £500 in credit without disclosure; breach is a criminal offence.
Who can challenge voidable transactions in bankruptcy?
The Trustee or Official Receiver.
voidable transactions?
- Transactions at an undervalue (TUV)
- Preferences
- Transactions defrauding creditors (TDC)
