Insolvency Lawyers

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Insolvency Lawyers

We advise on individual voluntary arrangements (IVAs), Fastrack VA (FTVA), company voluntary arrangements (CVAs), bankruptcy, restructuring, receivership, administration, liquidation.

We work closely with the best insolvency practitioner in the country, who like us, is totally on your side.

We help with debt restructuring and the impact of insolvency on property.

We advise on the transfer of undertakings (Protection of Employment Regulations 1981), “TUPE”.

We advise on wrongful trading and the liability of directors and directors’ disqualification.

We enforce securities and advise on the best method of recovery, or saving assets.

More Information about IVA and CVA Lawyers

Better than solicitors. For more information or a free legal opinion telephone 020-7381-8111 or email law@hylton-potts.com.

We offer a fast and efficient service and are committed to a high level of client satisfaction.

Bankruptcy for Europeans in the UK

A bankrupt is usually discharged after one year in England, and this binds Mainland European creditors, where the period is far longer. If therefore you are not in England, we can still help you get legally bankrupted in the UK to discharge your debts.

Credit Ratings Agencies’ Blacklisting

If a supplier or Finance Company notify credit reference agencies that you have defaulted and your name has been blacklisted, we can help.

If your reason for non-payment was legitimate (e.g. the computer you bought did not work, or the car on lease or HP broke down) can have your name cleared and claim substantial damages.

Consult Hylton-Potts, the experts who offer fixed fees, and give excellent value.

We operate a free and confidential 24 hour email service. Just click on law@rh-p.net or,  during office hours, there is a free and confidential legal helpline 020 7381 8111

Contact the experts. For more information or a free legal opinion telephone 020-7381-8111 or email law@hylton-potts.com.

How to turn the tables if you owe money

If one of your creditors under pressure to chase debts, fails to take note of harassment legislation it could lead to fines and even imprisonment, and you can turn this to your advantage.

There is a thin line between good business acumen and harassment. The courts are prepared to award damages if they feel that a debtor has been harassed in the race to secure debts. Undoubtedly, economic uncertainties will test tempers but if this leads to individuals in a business behaving inappropriately, a harassment claim is a real possibility. Whether it is a customer claiming damages for harassment against a big corporation or one businessman suing another for causing anxiety and distress, the Protection from Harassment Act 1997 is increasingly being used as a tool in a debt recovery matters.

If businesses fail to consider the harassment legislation in all of this, they may end up paying money out to you rather than getting it in.

Threatening behaviour

In a badly handled debt recovery action, British Gas sent Ms Ferguson threatening bills and letters. Such threats included legal proceedings and, threats to report her to credit rating agencies.

Ms Ferguson decided to take a stand and sued British Gas, saying that its behaviour amounted to unlawful harassment contrary to the Protection from Harassment Act. She claimed £5,000 for distress and anxiety and £5,000 for financial loss because of the time she had lost and expenses she had incurred in dealing with British Gas.

The Court of Appeal agreed with Ms Ferguson that the behaviour could amount to harassment and that it was strongly arguable that it did.

Oppressive and unacceptable

In S&D Property Investments Ltd v Nisbet, the case started off as a straightforward debt recovery action in the sum of £111,579, said to be due from Mr Nisbet relating to monies lent.

Mr Nisbet counterclaimed damages for harassment by Mr French, a director and shareholder in S&D. He maintained that S&D was also liable for Mr French’s behaviour.

The judge accepted that Mr French’s initial frequent and insistent chasing of the debt was not harassment but, when he made reference to being tempted to beat Mr Nisbet, this was oppressive and unacceptable and amounted to harassment. Judges are more streetwise than you may think. They know what ‘paying a visit’ means.

The court also had little trouble accepting that Mr French calling at Mr Nisbet’s house on two occasions and shouting abuse amounted to harassment).

This case shows that oppressive and unacceptable behaviour in seeking to recover a debt can backfire and result in the payment of compensation for distress, anxiety and financial loss. Mr Nesbit got £7,000 damages

When seeking to make a recovery of a debt, a business can end up actually paying out compensation under the Protection from Harassment Act or, indeed, being subjected to a fine or prison sentence of up to six months.

The moral of the tale

If someone is getting ‘heavy’ with you, note it all on a spreadsheet which we can e-mail you free of charge. And then brief the expert Rodney ‘The Rottweiler’

We have had cases where the whole debt has been written off.

Do not get mad get even.

For more information or a free legal opinion telephone 020-7381-8111 or email law@hylton-potts.com.

‘Discharge from bankruptcy’ is a legal term used to describe the process that frees a person from the restrictions of bankruptcy and releases them from most of the debts they owed at the date of the bankruptcy order. A bankrupt will usually be automatically discharged 12 months after the date of the bankruptcy order, even if no payments have yet been made to creditors. However, depending on the date and circumstances of the bankruptcy, there are different dates which might apply.

For all bankruptcy orders made on or before 30 September 2013, it is possible to obtain discharge from bankruptcy earlier than one year. This requires the official receiver (or trustee in bankruptcy if appointed) to file a notice in court to say that enquiries into the bankrupt’s affairs have been concluded. The official receiver might do this in circumstances where the bankrupt has co-operated fully and where any matters raised by creditors have been fully resolved. The bankrupt will be discharged on the date this notice is filed in court. However, bankruptcy orders made on or after 1 October 2013 will no longer be considered for early discharge as a result of changes to the law.

The official receiver may also apply to the court for an order to stop automatic discharge from bankruptcy taking place. This is called ‘suspension of discharge’. The official receiver might do this in circumstances where the bankrupt has refused to provide information or otherwise not fully co-operated with him. Alternatively, the official receiver may apply to the court for a Bankruptcy Restrictions Order. This means that the bankrupt will continue to be subject to restrictions for the period stated on the order (usually between two and fifteen years). The official receiver might do this in cases where the bankrupt has abused the system or whose conduct has been ‘dishonest, reckless or otherwise culpable’. However, a Bankruptcy Restrictions Order will not affect the discharge of the bankrupt’s debts.

After discharge, the bankrupt is released from all bankruptcy debts and any property he acquires after his discharge is his; the official receiver cannot lay claim to it. However, property comprised in his estate at the time of the bankruptcy order remains under the control of the official receiver to be sold for the benefit of the creditors.

The purpose of this note is to provide an overview of the discharge from bankruptcy procedure. In the process, it also considers the effect of discharge; the circumstances which may cause automatic discharge to be postponed by the court; and when a Bankruptcy Restrictions Order may be imposed.

Contents

1          Introduction – the bankrupt’s estate                                                                               2

2          What is discharge from bankruptcy?                                                                            3

2.1      Automatic discharge                                                                                           ____    3

2.2      Early discharge                                                                                                        __     4

2.3      When discharge from bankruptcy may be suspended                                               4

3          Bankruptcy Restrictions Order and undertaking                                                       5

 

3.1 Bankruptcy Restrictions Order

5

3.2 Interim Bankruptcy Restrictions Order

6

3.3 Bankruptcy Restrictions Undertaking

6

4 What is   the position after   discharge?

7

4.1 Overview

7

4.2 What happens to public records   after discharge?

8

Individual Insolvency Register

8

HM Land   Registry

8

Credit reference agencies

8

4.3 What happens to the family   home?

8

4.4 How is after-acquired property treated?

9

4.5 What happens to assets   obtained after   discharge?

10

4.6 How does discharge from bankruptcy differ from   annulment?

10

 

1   Introduction – the bankrupt’s estate

Bankruptcy procedure is determined by provisions of the Insolvency Act 1986 (as amended) [the IA 1986], the Insolvency Rules 1986 (as amended) and the Enterprise Act 2002 [EA 2002]. Once a bankruptcy order has been made by the court, the official receiver (or, if appointed, a private insolvency practitioner acting as trustee in bankruptcy) is legally entitled to seize all assets in the bankrupt’s possession at the time of the bankruptcy order.1 The primary objective of the official receiver is to raise money to pay the bankrupt’s creditors.

The bankrupt’s estate consists of all the property which belongs to or is vested in the bankrupt at the commencement of his bankruptcy (i.e. the date on which the bankruptcy order is made).2  Specifically, section 283(1) of the IA 1986 defines the bankrupt’s estate as:

283.-(a)   all   property   belonging   to   or   vested   in   the   bankrupt   at   the commencement of the bankruptcy; or

1  Section 283(2) of the Insolvency Act 1986

2  Section 278(a) of the Insolvency Act 1986

(b) any property which is or is treated as being comprised in the estate by virtue of the provisions of the Act which relate to the insolvency of individuals.3

 Under section 436 of the IA 1986, the term ‘property’ is defined widely. It includes:

…money, goods, things in action, and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property.

This means that the official receiver may claim property belonging to, or obtained by, the bankrupt at any time before discharge. (For example, the court may order that part of the bankrupt’s income from employment should be paid to the official receiver). In addition, it is clear that the statutory definition of ‘property’ draws into the bankrupt’s estate future and contingent interests, so long as they exist as proprietary interests at the date of the bankruptcy order.

 

2   What is discharge from bankruptcy?

2.1         Automatic discharge

Under section 279(1) of the IA 1986, most bankrupts are automatically discharged from bankruptcy 12 months after the making of the bankruptcy order, even if no payments have yet been made to creditors.4 The automatic discharge from bankruptcy period was reduced from 3 years to 1 year by the EA 2002. The intention being to remove the stigma of bankruptcy; to give bankrupts the opportunity of prompt rehabilitation in relation to their financial affairs; and to encourage entrepreneurs to try again.

The bankrupt does not have to do anything to obtain their automatic discharge from bankruptcy; no formal application or court hearing is necessary for discharge to be granted. In effect, on the one year anniversary date of the bankruptcy order, the individual is simply discharged from bankruptcy. The court does not issue a formal certificate of discharge and in most cases a certificate is not necessary. However, the bankrupt can request a certificate of discharge from the court that dealt with the bankruptcy.5

A bankrupt cannot make an application to the court for discharge earlier than the 12 months automatic discharge period; only the official receiver can make such an application in very limited circumstances (see below). The only way out of bankruptcy before the automatic discharge date would be for the bankrupt to apply to the court for an annulment of the bankruptcy order (see below).

When a bankrupt is discharged from bankruptcy he/she is generally no longer bound by the restrictions placed on them by the bankruptcy order – unless they are subject to a Bankruptcy Restrictions Order (BRO) or undertaking (see below). Discharge also releases the bankrupt from the debts they owed at the date of the bankruptcy order with certain exceptions relating to fraud, fines, student loans and maintenance payments. However, it is important to note that the assets which were part of the estate during the period of the bankruptcy remain under the control of the official receiver and can be sold by him for the benefit of the creditors – even after discharge (although there are specific conditions relating to the bankrupt’s family home, see below).

3 Section 283(1) of the Insolvency Act 1986

4 The Enterprise Act 2002 introduced a new section 279 to the Insolvency Act 1986, this states that a bankrupt will generally be discharged one year from the making of the bankruptcy order where that order is made on or after 1 April 2004

5   A fee is payable to the court for issuing a certificate of discharge.

2.2         Early discharge

Early discharge will only be considered if the bankruptcy order was made on or before 30 September 2013. Due to changes in the law, early discharge will no longer be considered for bankruptcy orders made after that date.

For bankruptcy orders made on or before 30 September 2013, the duration of bankruptcy could be reduced to less than 12 months, by the official receiver filing a notice of early discharge at the court stating that an investigation of the conduct and affairs of the bankrupt is unnecessary or concluded.6 No bankrupt has an automatic right to be given an early discharge from bankruptcy; it is a decision for the official receiver. Before filing a notice for early discharge, the official receiver is required to send a notice of his/her intention to begin the early discharge process to all the bankrupt’s creditors and to any trustee in bankruptcy (if one has been appointed).7 It follows from this that the official receiver may only file the notice with the court if no objections have been received or, if any objections which have been received have been finally resolved.8

The original intention behind the early discharge provisions was to benefit those bankrupts who fully co-operated with the official receiver and who posed no risk to the public or to other businesses. It was thought  appropriate that  these bankrupts should be given the early opportunity of a ‘fresh start’ sooner than one year,  which would remove the stigma of bankruptcy and encourage entrepreneurs to try again.

In 2007, an evaluation of personal insolvency provisions was carried out by the Insolvency Service as part of the EA 2002.9 In a final evaluation report, published in November 2007, the Insolvency Service concluded that discharge from bankruptcy earlier than the automatic one year did not have the desired impact of encouraging early rehabilitation.10 As a consequence, the Insolvency (Amendment) Rules 201311 repealed the early discharge from bankruptcy provisions under the IA 1986.12 This means that for bankruptcy orders made on or after 1 October 2013, the earliest a bankrupt can be discharged from bankruptcy is on the first anniversary of the bankruptcy order.

 2.3 When discharge from bankruptcy may be

        suspended

Under the EA 2002, where a bankrupt is not complying with the requirements of bankruptcy legislation, the official receiver can apply to the court for an order to suspend the automatic one year discharge. An application for suspension should only be made in instances where the bankrupt’s conduct has adversely affected the proceedings. For example, in cases of the bankrupt’s willful default or where he has failed to:

  •  submit accounts;
  • attend meetings; or
  • deliver-up property or provide information to the trustee

The court  application must be accompanied by a report  by the official receiver on the bankrupt’s conduct, submitted at least 21 days prior to the hearing of the application.13

6   Sections 279(2) and 289 of the Insolvency Act 1986 (as amended)

7   SI 1986/1925)

8   See Rule 6.214A of the Insolvency Rules 1986 (as amended)

9   The Insolvency Service is an executive agency of the Department for Business, Innovation and Skills (BIS)

10  The Enterprise Act 2002 – the Personal Insolvency Provisions: Final Evaluation Report’, November 2007, [online] (accessed 17 December 2013)

11    SI 2013/2135

12    Section 279 of the Insolvency Act 1986

13    Rule 6.125 of the Insolvency Rules 1986

In practice, the official receiver should make the application as soon as he has sufficient evidence of the bankrupt’s non-cooperation. This is because court applications for a Bankruptcy Restrictions Order (see below) must be made within 12 months of the bankruptcy order unless leave (i.e. permission) of the court is obtained. A suspension order effectively stops the clock ticking; the running of the bankrupt’s automatic discharge is suspended. This means that the bankrupt will remain an undischarged bankrupt (and still subject to restrictions) for a longer period of time.

Usually, the official receiver will seek suspension of discharge for a specific period or until certain conditions are met by the bankrupt (i.e. not an indefinite suspension). For example, the bankrupt’s discharge may be suspended by the court until such time that the bankrupt submits accounts etc. Alternatively, a fixed-term may be appropriate in cases where the bankrupt’s conduct has been unsatisfactory, but the official receiver believes that the bankrupt is genuinely not (and never will be) in a position to provide proper explanations, accounts etc. When a suspension order is made by the court, it is important that the bankrupt knows what he has to do to reinstate the running of the discharge period or when the discharge will take effect. If matters subsequently improve, an application can be made to the court by the official receiver to lift the suspension order.14

In urgent cases, the official receiver can apply for an interim order suspending the discharge, with or without notice to the bankrupt. However, the court will only make such an order if it is satisfied that it is in the interests of creditors to grant an interim order immediately. An interim order will run until the full hearing of the court application, by which time the bankrupt will have had the required 21 days notice of the application to suspend automatic discharge.

 

3 Bankruptcy Restrictions Order and undertaking

The EA 2002 introduced a new civil regime called Bankruptcy Restrictions Orders (BROs) and Bankruptcy Restrictions Undertakings (BRU). BROs and BRUs are a way of dealing with the minority of bankrupts who abuse the system or whose conduct has been ‘dishonest, reckless or otherwise culpable’ and cover a wide variety of conduct

3.1         Bankruptcy Restrictions Order

BROs operate so as to extend the period of restrictions for a bankrupt for a minimum period of 2 years up to a maximum period of 15 years from the date the BRO or BRU was made.15 Types of restrictions include:

  • restrictions on obtaining credit of more than £500 without disclosing status;
  • restrictions on trading in a name/style other than the one in which the bankruptcy order was made; and
  • restrictions on acting as a director

Breach of a BRO is a criminal offence. In addition, if a bankrupt, subject to a BRO, takes part in the management of a company without  the court’s permission,  he/she may be held personally liable for any debts of the company that arise while he/she managed it.

An application for a BRO is made in the civil court by the official receiver acting on behalf of the Secretary of State. The application must be made before the end of the one-year discharge period and must be supported by a report setting out its grounds. Evidence from interested parties and any opposition by the bankrupt must be made in an affidavit (i.e. a

14    Rule 6.216 of the Insolvency Rules 1986

15  This will not affect the discharge of the bankrupt’s debt

sworn document). Notice of a BRO hearing, with a copy of the application and report, must be served on the bankrupt at least 14 days beforehand.

Ultimately, it is for the court to decide, on consideration of the official receiver’s report and any evidence put before it, whether the making of a BRO against the bankrupt is justified. Actions that could be considered to be dishonest or blameworthy and contribute towards a BRO include:

  • failing to keep or produce records that would explain a loss of money or property;
  • giving away assets or selling them at less than their value;
  • deliberately paying off some creditors in preference to others;
  • failing to supply goods or services that have been paid for;
  • carrying on a business while unable to repay debts;
  • incurring debts with no reasonable expectation of repaying them;
  • gambling, rash speculations or being unreasonably extravagant;
  • causing debts to increase by neglecting business affairs;
  • fraud or fraudulent breach of trust; and
  • not co-operating with the official receiver or trustee in bankruptcy

Any previous bankruptcies will also be taken into account by the court when considering a BRO case. If the court decides to make the BRO, two sealed copies of the order are sent to the Secretary of State, one of which is then sent on to the bankrupt.16

As a general rule, where an order for suspension of discharge is in force, an application for a BRO should not be made, as the court will expect the matters giving rise to the suspension order to have been dealt with first.

3.2         Interim Bankruptcy Restrictions Order

The court can make an Interim Bankruptcy Restrictions Order (IBRO) (pending a full BRO) but only in cases where the alleged misconduct appears to be so serious that it is considered to be in the public interest that there is urgent and continuous protection from the individual in question.

An application for an IBRO must be supported by a report setting out its grounds; any relevant evidence from interested parties can be submitted to the court by affidavit. Notice of the IBRO hearing, with a copy of the application and report, must be served on the bankrupt 2 days beforehand.

An IBRO may be removed on an application by the bankrupt giving 7 days notice of the hearing to the Secretary of State with a copy of the application and affidavit evidence in support. If the court makes an order to remove the IBRO, sealed copies of the order are sent to the Secretary of State, one of which is then sent on to the bankrupt.17

3.3         Bankruptcy Restrictions Undertaking

As an alternative to a BRO, under the EA 2002, the bankrupt may consent to be bound by a BRU. This is an agreement between the bankrupt and the official receiver that the bankrupt agrees to the extension of the restrictions until a specified date. A BRU will have the same effect as a BRO, lasting for a minimum of 2 and a maximum of 15 years. It is a binding

16    New rules 6.241 to 6.244

17    Rules 6.245 to 6.248

agreement and operates in the same way as the court order. The BRU, which must be in writing, takes effect when signed by both parties. A copy of the BRU is sent to the court.

As started by the Insolvency Service, the benefit of BRUs to all parties is the saving of court costs:

The purpose of the BRU procedure is to avoid, where possible, the time and expense of court proceedings. Generally, where an agreement can be reached this will entail some discount on the period that would have been sought via the BRO route.18

A BRU may be annulled on an application by the bankrupt giving 28 days notice of the hearing to the Secretary of State with a copy of the application and affidavit evidence in support. If the court annuls a BRU, two sealed copies of the order are sent to the Secretary of State, one of which is sent to the bankrupt.19

4   What is the position after discharge?

4.1         Overview

As already stated, discharge from bankruptcy is a process which frees the bankrupt from the restrictions of bankruptcy and releases him/her from most of the debts they owed at the date the bankruptcy order was made. In effect, after discharge the bankrupt can carry on a business without the restrictions that applied during bankruptcy. This means, for example, that the bankrupt can now:

  • act as a director of a limited liability company, or
  • be  involved  in  its  management  (unless  the  bankrupt  is  subject  to  a  separate disqualification order)
  • obtain credit without having to mention their bankruptcy (unless they are specifically asked to do so)

However, There are certain debts a bankrupt is not freed from on discharge from bankruptcy, including:

  • any money owed under family court proceedings (e.g. maintenance) or arising from any personal injury claims against the bankrupt unless the court directs otherwise;
  • any court fines or debts arising from fraud or certain other crimes;
  • debts the bankrupt incurs after the bankruptcy order;
  • since 1 September 2004, all outstanding student loads

It is important to note that any assets that the official receiver claimed during the bankruptcy (i.e. the period from the date of the bankruptcy order to the date of discharge) remain under the control of the official receiver. Discharge does not return ownership or control of bankruptcy assets to the bankrupt or prevent the official receiver from carrying out any of his remaining functions in relation to the bankrupt’s estate. It may be some time before all assets comprised in the bankrupt’s estate are dealt with. Furthermore, even after discharge the former bankrupt has a continuing obligation to attend on and provide information to the official receiver if required.

18    The Insolvency Service, “Dear Insolvency Practitioner – Enterprise Act 2002”, Issue No. 16, Special Edition, February 2004

19    Rules 6.249 to 6.251

It is also important to note that secured creditors (lenders who hold security such as a mortgage for their loan) still have a legal right to enforce or recover their security if payments are not made.

4.2         What happens to public records after discharge? Individual Insolvency Register

The  Insolvency  Service’s  Individual  Insolvency  Register  contains  records  of  bankruptcy

orders and Individual Voluntary Arrangements (IVAs) in England and Wales. The record of a particular bankruptcy will remain on the register for three months after the date of discharge.

HM Land Registry

Bankruptcy petitions and orders are registered at the Land Charges Department of HM Land Registry. These entries remain on the register for 5 years from the date of registration. Discharge from bankruptcy has no effect on this. Importantly, the official receiver can apply for entries to be renewed beyond the 5 years, for example, if the discharge has been suspended.

If a bankrupt legally owns property that is registered at HM Land Registry in their sole name, a bankruptcy notice (to protect the rights of creditors) and a Bankruptcy Restrictions Notice (to prevent dealings with the property) may also have been registered against the title to the property. If, after discharge from bankruptcy, the former bankrupt’s interest in the property is returned to them, the official receiver will notify the Land Registrar that the property is no longer part of the bankrupt’s estate.

If the property is legally registered at HM Land Registry in joint names (e.g. the bankrupt and his/her spouse), a Form J Restriction (against dealings) may have been registered against the title. Discharge from bankruptcy has no effect on this. If, however, the former bankrupt’s interest in the property is returned to them, the official receiver will notify the Land Registrar to remove the restriction.

Credit reference agencies

The official receiver does not send any form of notice to credit reference agencies (CRAs). The agencies obtain this information from other sources such as the Register of County Court Judgments. Consequently, the bankrupt may have to provide separate information of his/her discharge from bankruptcy to the CRAs to amend their records.

4.3         What happens to the family home?

The bankrupt’s ‘beneficial interest’ in a property (either freehold or leasehold) generally falls within his bankrupt estate and can be sold by the official receiver. A distinction is made between legal title and beneficial interest. The legal title to a property is held by the owner, whereas the beneficial interest is the bankrupt’s interest in the proceeds of sale of the property. For example, if the bankrupt is the sole owner, the beneficial interest is the whole value of the property. If the bankrupt jointly owns the property (perhaps with a spouse or partner) the beneficial interest  is usually an equal share of the value (unless specified otherwise in the deeds). If the property has been mortgaged, the mortgage company has fist claim on any proceeds of sale. Therefore, the bankrupt’s beneficial interest is calculated after deducting any loans secured against the property. In effect, the property passes to the official receiver in bankruptcy subject to the mortgagee’s interest and subject to the mortgagee’s right to take possession even after the bankruptcy and to exercise all the other rights of a mortgagee (including the right of sale).

After discharge (usually after one year) the property claimed during the bankruptcy (i.e. the period from the date of the bankruptcy order to the date of discharge) remains under the control of the official receiver. In practice, it may be some time (perhaps, years) before all assets comprised in the bankrupt’s estate are dealt with. The only exception is the official receiver’s ability to deal with the family home; the EA 2002 imposes a 3 years limitation period on the official receiver’s ability to deal with this asset.

Specifically, the EA 2002 inserts new section 283A after section 283 of the IA 1986. This new section, which came into force on 1 April 2004, applies only where property comprised in the bankrupt’s estate consists of an interest in a dwelling-house which at the date of the bankruptcy was the sole or principal residence of:

(a)  the bankrupt,

(b)  the bankrupt’s spouse, or

(c)  a former spouse of the bankrupt

Section 283A limits the time in which the official receiver can deal with the bankrupt’s home to a period of three years. If the official receiver fails to act within this three years period, the property will revert back to the bankrupt (i.e. it will no longer form part of the bankrupt’s estate) unless the official receiver:

(a)  realises the interest;

(b)  applies for an order of sale or possession in respect of the premises in which the interest subsists;

(c) applies for a charging order over the premises in respect of the value of the interest; or

(d)  enters into an agreement with the bankrupt regarding the interest.

On application of the official receiver, the court can extend the statutory 3 year period if it considers it ‘just and reasonable’ in all the circumstances of  the case.20 However, any application for an extension of time should be made by the official receiver expeditiously and before the expiry of the 3 year period.21

A separate Library note, What will happen to the bankrupt’s home?’ provides more detailed information on this subject.22

4.4         How is after-acquired property treated?

After-acquired property is any property (but not income) which has been acquired by or devolved upon the bankrupt during the bankruptcy (i.e. after the date of the bankruptcy order and before the date of discharge).

The bankrupt must declare all after-acquired property to the official receiver. The official receiver can make a claim to it, under section 307 of the IA 1986, for the benefit of the creditors (subject to certain time limitations). The official receiver is required to notify the bankrupt in writing of his claim within 42 days of his becoming aware of the after-acquired property. It should be noted that the official receiver may still claim after-acquired property

20 Under section 283A(6) of the Insolvency Act 1986, the court may substitute for the period of three years a longer period in (a) prescribed circumstances, and (b) in such other circumstances as the court thinks appropriate. Alternatively, under section 283A(7), a shorter period may be specified instead of the normal three years period.

21 According to the Insolvency Service, the legislation does allow for an application to be made after the expiry of the 3 year period. However, as a matter of policy trustees should not seek to extend the 3 year period after it has expired unless there are exceptional circumstances.

22 ‘What will happen to the bankrupt’s home?, Library standard note SN/HA/5178, 1 June 2013, [online] (accessed 29 November 2013)

(even if they only become aware of it after the bankrupt’s discharge)  providing it was acquired by, or devolved upon, the bankrupt during the bankruptcy.

The official receiver is under a legal duty to maximise the potential recovery for the bankrupt’s unsecured creditors. However, before claiming any property under section 307, the official receiver should be satisfied that the realisation of the property will produce a net benefit to the estate. For example, the official receiver might make a claim to ‘after-acquired property’ where the bankrupt receives an inheritance. The relevant date is the date of the death of the person who made the will. So long as the person dies prior to the bankrupt’s discharge, the property bequeathed can be claimed by the official receiver (even where it is not received by the bankrupt until after his/her discharge).

In exceptional circumstances, the bankrupt could make a representation to the official receiver as to why they should be allowed to keep some (if not all) of the after-acquired property.

4.5         What happens to assets obtained after discharge?

After discharge, any assets that are acquired by the bankrupt may usually be kept.

4.6         How does discharge from bankruptcy differ from annulment?

It is important to note that automatic discharge from bankruptcy is quite different from the annulment of a bankruptcy. Very briefly, annulment of bankruptcy is a procedure by which a court cancels the bankruptcy order it has made. This can happen if:

  • it turns out that the bankruptcy order should not have been made; or
  • all the bankrupt’s debts and fees and expenses of the bankruptcy have been paid in full; or
  • the creditors accept proposals for settlement under a voluntary arrangement

An order of annulment can only be made by the court. It is a procedure that cancels a bankruptcy order.

If you have any questions or a legal problem affecting bankruptcy or its discharge, consult Hylton-Potts, the experts who offer fixed fees, and give excellent value. 

We operate a free and confidential 24 hour email service. Just click on law@rh-p.net or  during office hours there is a free and confidential legal helpline 020 7381 8111.

 

 

 

 

 

 

 

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