W10: Personal Insolvency Flashcards
(20 cards)
2 key personal insolvency procedures
Individual voluntary arrangements (IVAs)
Bankruptcy
What is an IVA?
an individual voluntary arrangement - a debtor makes a proposal for a compromise of their liabilities with their creditors
How long can an IVA last?
any length of time (3-5 years is common)
For an IVA to become binding, what % of creditors must approve it?
must be approved by more than 75% in value of creditors voting on the proposal
If approved, who is bound by the IVA?
An IVA binds the debtor and all of their unsecured creditors.
An IVA cannot bind a secured creditor or a preferential creditor without that creditor’s consent.
Advantages of an IVA
alternative to bankruptcy, avoids the restrictions associated with bankruptcy;
can bind all unsecured creditors; and
a moratorium is available if an interim order is made
Grounds for debtor’s petition for bankruptcy
the debtor is unable to pay their debts; must be accompanied with a statement of affairs setting out their assets and liabilities
Grounds for creditor’s petition for bankruptcy
the debtor appears unable to pay or has no reasonable prospect of paying; debt owed to the creditor is for an unsecured liquidation sum exceeding £5,000; debtor must be domiciled or present in England/Wales
When will the courts make a bankruptcy order?
If a court is satisfied that the grounds for a petition and other requirements set out above have been met, the court has discretion to make a bankruptcy order
What happens to the bankrupt’s estate upon making of the bankruptcy order?
It vests in the Trustee immediately and automatically by operation of law upon the making of the bankruptcy order
Consequences if the bankrupt fails to comply with their bankruptcy obligations
criminal offence, they could face imprisonment for up to 2 years and unlimited fines. They also run the risk of having their automatic discharge suspended.
Generally, a bankrupt is automatically discharged from bankruptcy after how long?
a max. period of one year
Who can apply for a Bankruptcy Restriction Order (BRO)?
The Secretary of State, or the Official Receiver acting on the Secretary of State’s direction
Conduct that could result in a BRO
failure to keep records, entering into preferences or transactions at an undervalue, fraud and incurring a debt without reasonable expectation of being able to pay it
A BRO will operate for a period of between
2 - 15 years
What can the bankrupt do to avoid the court process of a BRO?
a bankrupt can offer the Secretary of State a bankruptcy restriction undertaking (BRU) which, if accepted, will have the same effect as a BRO
If the requirements for voidable transactions are met, the court has the power to make such order as it thinks necessary to restore the position to what it would have been
BUT FOR the transaction or preference
A transaction at an undervalue (TUV) must take place within what time frame?
TUV must take place within 5 years preceding the day of presentation of bankruptcy petition
Is insolvency required for a TUV?
Yes, it must be proved that the individual was insolvent but only if the transaction took place 2-5 years from the day of the presentation of the bankruptcy petition
To bring a claim for TDC, it must be shown that the transaction was a
transaction at an undervalue with an intent to defraud creditors
