FOR "IRRESPONDIBLE, RECKLESS OR OTHERWISE CULPABLE BANKRUPTS" THE COURT WILL EXTEND BANKRUPTCY BY UP TO 15 YEARS
The trend of increasing Individual Insolvencies in England & Wales continues to gain momentum with 10'465 registered in November 2022 representing a 11.4% rise against the previous year and an 8.9% upsurge compared to November 2019's pre-pandemic figures. With 612 individual bankruptcy orders made in January 2023 alone and near record numbers of sole traders and SME suffering from bad debt, this article will look at the court's powers to extend the restrictions of bankruptcy in cases of irresponsible, reckless or otherwise culpable bankrupts.
BANKRUPTCY RESTRICTIONS
Upon the making of a bankruptcy order, the bankrupt shall be subject to the following restrictions (among others):
Bank Cards: The bankrupt will be required to handover all bank debit and credit cards to the Official Receiver.
Money: Any money in a bankrupt's account(s) as of the date of the bankruptcy order are property of the bankrupt and consequently, these funds are assets that rest within the bankruptcy estate.
Joint Bank Accounts: The beneficial interest of a bankrupt held in a joint account at the date of the bankruptcy order will comprise an asset in the bankruptcy estate which will vest in the Trustee In Bankruptcy.
Contact the Banks: The Official Receiver will then contact the bankrupt's banks to inform them of the bankruptcy order and;
Request that no further transactions take place from the account without authorisation of the Trustee in bankruptcy.
Arrange for the transfer of any funds belonging to the bankrupt into the bank account of the bankruptcy's estate.
Prevented from obtaining Credit: It is an offence for a bankrupt to obtain credit in excess of £500 (whether by themselves or with another) without first disclosing their status as an undischarged bankrupt.
Prevented from acting as a Director: A bankrupt may not act as a director of a company (directly or indirectly) or be involved in the management promotion or formation of a company unless the court grants permission to act in this capacity. Breach of this prohibition is a criminal offence.
Trading Name: A bankrupt may not trade under a different name from the one in which the bankruptcy order was made. Unless, they disclose to all those whom with they trade that they are an undischarged bankrupt. Breach of this provision is also a criminal offence.
Dissolve Partnerships: Should a bankrupt be part of a partnership, the making of the bankruptcy order automatically dissolves that partnership in the absence of contrary provision in the partnership agreement.
Continue Payments: Subject to the Trustee In Bankruptcy placing an Income Payment Order (IPO) or an Income Payment Agreement (IPA) over the bankrupt, the Trustee In Bankruptcy may claim any earnings, income or payments of the bankrupt beyond the amounts needed to satisfy the bankrupt's basic domestic needs. This may be for a lump sum payment following a windfall, regular monthly payments or both. IPOs and IPAs typically last for 36 months and so will continue to bind the debtor after their discharge from bankruptcy as well as employers.
In the majority of cases, these restrictions shall cease on the 1st anniversary of the making of the bankruptcy order. However, for bankrupts that are deemed to have been irresponsible, reckless or otherwise culpable either prior to or during the bankruptcy, the court has the power to extend the bankruptcy through the bankruptcy restriction regime.
THE BANKRUPTCY RESTRICTION REGIEME
The Bankruptcy Restrictions regime comprises Bankruptcy Restriction Orders (BROs), Bankruptcy Restriction Undertakings (BRUs) and Interim BROs (IBROs).
BROs and BRUs extend the period of restrictions imposed on bankrupts whose conduct is deemed irresponsible, reckless or otherwise culpable for between 2 to 15 years, depending on the severity of the bankrupt's misconduct.
Bankruptcy Restriction Orders
Upon considering an application for a BRO either from the Official Receiver or the Secretary of State, the court shall, in particular, take account the behavior listed in Paragraph 2(2) of Schedule 4A of the IA 1986 on the part of the bankrupt:
Lost Property: Failing to keep records which account for a loss of property by the bankrupt, or by a business carried on by them, where the loss occurred in the period beginning two years before the making of the bankruptcy application or (as the case may be) the presentation of the bankruptcy petition and ending with the date of the application for the BRO.
Records: Failing to produce records of that kind on demand by the Official Receiver or the Trustee in Bankruptcy.
Dispositions: Entering into a transaction at an undervalue.
Preferences: Giving a preference to any creditor in the 6 months prior to the presentation of the bankruptcy application.
Pensions: Making an excessive pension contribution to the extent that creditors have been unfairly prejudiced.
Services: Failing to supply goods or services which were wholly or partly paid for which gave rise to a claim provable in the bankruptcy.
Trading: Trading at a time before commencement of the bankruptcy when the bankrupt knew or ought to have known that they were unable to pay their debts.
Debts: Incurring, before commencement of the bankruptcy, a debt which the bankrupt had no reasonable expectation of being able to pay.
Falsifying: Failing to account satisfactorily to the court, the Official Receivers or the trustee for a loss of property or for an insufficiency of property to meet bankruptcy debts.
Reckless: Carrying on any gambling, rash and hazardous speculation or unreasonable extravagance which may have materially contributed to or increased the extent of the bankruptcy or which took place between the making of the bankruptcy application or (as the case may be) the presentation of the bankruptcy petition and commencement of the bankruptcy.
Neglect: Neglecting their business affairs, which materially contributed to (or increased the extent of) the bankruptcy.
Fraud: Committing a fraud or fraudulent breach of trust.
Cooperation: Failing to cooperate with the Official Receiver or the Trustee In Bankruptcy.
History: Whether the bankrupt was an undischarged bankrupt at some time during the period of six years ending with the date of the bankruptcy to which the OR's BRO application relates.
The aforementioned is not an exclusive list and indeed the court can consider other acts of ill behavior.
Interim Bankruptcy Restriction Orders (IBROs)
In extreme cases of an irresponsible, reckless or otherwise culpable bankrupt, the court may make an IBRO. That is to say, the restrictions of a BRO will be immediately applied prior to the full consideration of the court. Naturally, this will only take place when:
There are prima facie grounds for a BRO (i.e. it is obvious that a BRO is needed).
It is in the public interest.
Thereafter, the commencement of the BRO is taken to be the date that the IBRO was made.
Bankruptcy Restriction Undertakings (BRUs)
An alternative to being subject to a formal BRO, is when the bankrupt agrees to the extended restrictions through a BRU. Pursuant to paragraph 7(1), Schedule 4A, IA 1986 a bankrupt may offer a bankruptcy restrictions undertaking to the Secretary of State. These as per Paragraph 8 of Schedule 4A of the IA 1986 have the exact same effect as a BRO and any reference in legislation to a person or an individual subject to a BRO includes a reference to an individual subject to a BRU.
The BRU will still last a minimum of 2 to15 years however, the advantages of a BRU are:
The reduced cost incurred by the Official Receiver in having to undertake investigations and seek a BRO is less money that will be taken from the bankrupt's estate.
The co-operation makes it slightly less likely that the Trustee in Bankruptcy will exercise its powers to sell the bankrupts home or other property.
The co-operation in agreeing to a BRU means the restrictions contained in the BRU are less likely to be as long lasting or draconian as those ordered by the court through a BRO.
Regardless, a bankrupt facing the prospect of extended restrictions would benefit from seeking independent legal and/or financial advice.
BREACHING BANKRUPTCY RESTRICTION ORDERS
Breaching the terms of a BRO or a BRU is a criminal offence and an individual is liable to imprisonment or a fine or both on any subsequent prosecution.
Further, an individual subject to a BRO or a BRU who takes part in a company's management may also be personally responsible for debts of that company for the relevant period.
Equally, a third party enabling the individual to contravene their BRO or BRU may also be prosecuted and personally liable for the company's debts. Consequently, debtors whom employ faux-companies which invariably include family members or similar should consider not only the increased risk to them but their partners.
HOW WE CAN HELP
Unlike most law firms, our standard retainer includes a commitment to support clients past judgement and through enforcement. Our dedication to you does not cease with judgement but until you have received your court ordered damages/compensation in full and recovered with the costs of the litigation.
Prior to commencing any litigation, we undertake a detailed search of your opponents assets in order to ensure the cost of litigation never outweighs its benefits. Thereafter, we maintain a watchful vigil over these resources so you can be secure that you will receive your due judgment.
Gavin Renwick has successfully dealt with fraudulent debtors whom have supplied false information to county court bailiffs, High Court Enforcement Officers and/or made false representations in the Insolvency Courts in a bid to frustrate enforcement, hinder judgement and inflict further financial pressure on their creditors. In these cases often involving attempts to hide assets in faux-companies family run companies or through sham-divorces and fake addresses it may sometimes be necessary to present a bankruptcy petition at court and place the debtor's assets under the stewardship of the courts to protect them.
We have successfully advised and appeared for creditors at bankruptcy hearings. Should you require any legal advice whether as a debtor or creditor then contact us for confidential legal advice.
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