Topic 13: Personal Insolvency

Question 1

What are the two formal personal insolvency procedures?

Answer 1

1. Individual Voluntary Arrangements (IVAs)
2. Bankruptcy

Question 2

What is bankruptcy?

Answer 2

A collective insolvency procedure for orderly collection, sale, and distribution of an insolvent individual’s assets for the benefit of creditors

Question 3

What is an IVA?

Answer 3

An arrangement where a debtor proposes a compromise of their liabilities with creditors, often paying only part of the debt

Question 4

Who must be appointed as Supervisor of the IVA?

Answer 4

A licensed insolvency practitioner

Question 5

What is the common duration of an IVA?

Answer 5

Three to five years

Question 6

What percentage of creditor approval is required for an IVA to be binding?

Answer 6

At least 75% by value of the total debt owed

Question 7

True or False: An IVA can bind secured creditors without their consent.

Answer 7

False

Question 8

What are some advantages of an IVA?

Answer 8

• Alternative to bankruptcy
• Can bind all unsecured creditors
• Moratorium available with interim order

Question 9

What are some disadvantages of an IVA?

Answer 9

• May last longer than bankruptcy
• Cannot bind secured or preferential creditors without consent
• Can be expensive and time-consuming

Question 10

What is the ground for a creditor’s petition in bankruptcy?

Answer 10

Debtor is unable to pay its petition debts

Question 11

What is the minimum debt amount for a bankruptcy petition?

Answer 11

Exceeding £5,000

Question 12

What must accompany a debtor’s petition for bankruptcy?

Answer 12

A statement of affairs detailing assets and liabilities

Question 13

What is the role of the Official Receiver in bankruptcy?

Answer 13

Becomes the first trustee in bankruptcy upon making a bankruptcy order

Question 14

What happens to the bankrupt’s estate upon the bankruptcy order?

Answer 14

Vests in the Trustee immediately by operation of law

Question 15

What is the order of priority of payments in bankruptcy?

Answer 15

• Secured creditors
• Expenses of the bankruptcy
• Preferential creditors
• Ordinary unsecured creditors
• Statutory interest
• Debts of a spouse
• Surplus to the bankrupt

Question 16

What is the maximum period for automatic discharge from bankruptcy?

Answer 16

One year

Question 17

What is a Bankruptcy Restriction Order (BRO)?

Answer 17

An order applied for by the Secretary of State to restrict a bankrupt’s activities based on conduct

Question 18

What are voidable transactions?

Answer 18

Transactions that can be challenged by a Trustee to increase assets available to creditors

Question 19

What is a transaction at an undervalue (TUV)?

Answer 19

A transaction where the value is significantly less than consideration provided by the bankrupt

Question 20

What is the relevant time for a transaction at an undervalue?

Answer 20

Within 5 years preceding the bankruptcy petition

Question 21

What is a preference in bankruptcy terms?

Answer 21

An act that puts a creditor in a better position than they would have been in if the individual was made bankrupt

Question 22

What is the relevant time for preferences to an unconnected person?

Answer 22

Within 6 months preceding the petition

Question 23

What must be shown for a preference claim?

Answer 23

The individual was influenced by the desire to prefer the creditor

Question 24

What is the relevant time period for a preference to an unconnected person?

Answer 24

Within 6 months preceding the day of the presentation of the petition.

This refers to the timing of transactions that may be considered preferential in bankruptcy cases.

Question 25

What is the relevant time period for a preference to an associate?

Answer 25

Within 2 years preceding the day of the presentation of the petition. ## Footnote An associate includes individuals with close relationships to the bankrupt individual.

Question 26

Is insolvency required to prove a preference?

Answer 26

Yes, it must be proved that the individual was insolvent at the time of the preference or became insolvent as a result of it. ## Footnote This establishes a critical connection between the preference and the individual's financial state.

Question 27

What must be shown regarding the individual's influence in a preference case?

Answer 27

It must be shown that the individual was influenced by the desire to prefer the creditor. ## Footnote This requirement includes a rebuttable presumption in cases involving associates.

Question 28

What does Transactions Defrauding Creditors (TDC) involve?

Answer 28

It involves transactions at an undervalue with intent to defraud creditors or to put assets beyond their reach. ## Footnote The evidential burden is high in these cases.

Question 29

Who can bring a claim for Transactions Defrauding Creditors (TDC)?

Answer 29

The Trustee or Official Receiver can bring a claim, in addition to the list of persons mentioned in corporate insolvency. ## Footnote This expands the scope for initiating claims against fraudulent transactions.

Question 30

What is the time limit for bringing a TDC claim?

Answer 30

There is no relevant time for bringing a TDC claim. ## Footnote This allows Trustees to act even after time limits for other claims have expired.

Question 31

Is it necessary to prove the debtor's insolvency for a TDC claim?

Answer 31

No, there is no need to prove that the debtor is or was insolvent. ## Footnote This differentiates it from other types of claims where insolvency must be demonstrated.

Question 32

What are the key requirements for Transactions at an undervalue under s 339?

Answer 32

* Transaction for an undervalue * Within 5 years preceding the day of presentation of bankruptcy petition * Individual insolvent at time / as a result (presumed with associates) ## Footnote This outlines the conditions under which a transaction can be scrutinized for undervalue.

Question 33

What are the key requirements for Transactions Defrauding Creditors under s 423?

Answer 33

* Must be a transaction for an undervalue * Need intention to defraud creditors or to put assets beyond their reach * No need for individual to be insolvent and no relevant time to consider ## Footnote This helps in identifying fraudulent intent in financial transactions.

Question 34

What are the key requirements for Preferences under s 340?

Answer 34

* Individual puts creditor in better position and influenced by desire to prefer * Within 6 months preceding the day of presentation of bankruptcy petition * Within 2 years preceding the presentation of bankruptcy petition if an associate * Individual insolvent at time / as a result ## Footnote This summarizes the conditions under which preferences can be challenged in bankruptcy cases.