Bankruptcy & IVA Solicitors

The trustee’s powers are set out in law and include the power to sell the bankrupt’s assets, to carry on the bankrupt’s business, to bring and defend legal proceedings, to pay dividends to the bankrupt’s creditors and to investigate the bankrupt’s affairs.

Even with these powers, it is key that a bankrupt and any third parties cooperate with the trustee in bankruptcy, whether that is by providing information or delivering up assets. 

A bankrupt is usually automatically discharged from bankruptcy 12 months after the date of the bankrupt order.  When a bankrupt is discharged, the bankruptcy restrictions that apply generally also come to an end.

However, a bankrupt’s discharge can be suspended where the bankrupt continues to fail to comply with their obligations.  Discharge only releases the bankrupt from the restrictions that apply whilst subject to the bankruptcy.  The bankrupt’s assets that vest in the trustee upon bankruptcy remain in the bankruptcy estate to be dealt with by the trustee.

Once discharged, the bankrupt is released from their bankruptcy debts (save for some debts such as fines, student loan debts, arrears of debt due in family proceedings, confiscation orders, debts incurred through fraud and debt in respect of personal injury damages) and the former bankrupt can begin to trade again or be a company director without the restrictions mentioned previously.  However, if the bankrupt’s conduct has been irresponsible or culpable in some way, they may have restrictions imposed on them for up to 15 years, notwithstanding their discharge. 

The trustee may continue to act after the bankrupt has been discharged if they need to continue in office, for example if there are still assets to realise or creditors’ claims to be agreed.

The trustee will cease to act when they have completed all the work necessary to administer the bankrupt’s estate. 

The rights of secured creditors, such as mortgagees, cannot be affected without their consent and therefore such creditors usually remain outside the IVA. 

Please note, however, a secured creditor may signal their intent to be bound by the terms of the debtor's IVA by valuing its security at nil and submitting a proof of debt, for voting and dividend purposes, as an ordinary unsecured creditor.

Whether an IVA that binds a secured creditor extinguishes that creditor's security rights depends on the terms of the particular IVA proposal.  If the terms of the IVA anticipate the creditor's security continuing to subsist, the creditor may still have the right to enforce its security over the debtor's assets, despite being bound by the terms of the IVA. 

For a debtor, the advantages of an IVA are:

• It is an effective alternative to bankruptcy proceedings.
• It provides protection against aggressive creditors as it binds all creditors. 
• It enables a sole trader or partnership to continue trading to generate income to be used for paying creditors.
• A flexible proposal is drawn up by the debtor to accommodate their personal circumstances.
• It avoids the stigma, restrictions and effects of bankruptcy, such as not being able to act as a director of a limited company or applying for personal credit.  However, in practice, credit may prove more difficult to obtain once an IVA is in place. 

For creditors, the advantages of an IVA are:

• The costs of administering an IVA are considerably lower than a bankruptcy estate.
• A potentially higher return, as a dividend.
• Tax and VAT bad debt relief may still be claimed.

Most of the disadvantages associated with an IVA affect the debtor, including:

• The IVA is entered on the Individual Insolvency Register which is a public insolvency register accessible to everyone.
• Duration: where contributions from income are made, an IVA is generally expected to last for a much longer period than bankruptcy.
• Change of circumstances: if the debtor’s circumstances change and the creditors reject amended terms, the IVA is likely to fail.  The debtor will still owe the creditors the full amount of what they owed at the start of the IVA (less whatever has been paid to them under the IVA).
• Expense: an IVA can be expensive and there are inherent risks to consider.
• Home at risk if IVA fails: if the debtor fails to comply with the terms of their IVA, their home and personal assets may still be at risk.  On the failure of an IVA, the debtor may be made bankrupt on a petition presented by their supervisor or a creditor.
• Credit score: the debtor’s credit rating can be affected for up to seven years.

The role of the insolvency practitioner (IP) changes as an IVA progresses with five distinct phases.

1. Providing initial advice.  When first approached by a debtor in financial difficulty, the IP acts as an advisor.  The IP should outline the options available to the debtor, for example bankruptcy or a debt management plan, and what they consider to be the respective advantages and disadvantages.
2. Preparing for an IVA.  When preparing for an IVA, the IP should ensure that the debtor understands their obligation to cooperate and the consequences of proceeding.
3. Proposal.  When assisting with an IVA proposal, the IP should verify the debtor's financial position and be satisfied that the proposal is credible and has a reasonable prospect of being implemented in the form presented.
4. Nominee.  If a debtor decides to proceed with the IVA, the consenting IP becomes the nominee (and may act as a trustee or otherwise for the purpose of supervising the implementation of the IVA).  The IP has a duty to the court at this point and is obliged to tell the court whether they think the debtor's proposal is viable for consideration by creditors. The nominee's report should provide sufficient information to enable creditors to make informed decisions in relation to the IVA proposal and report accurately in a clear and useful manner.  Any modifications to the proposal must be approved by creditors and have the debtor's consent.
5. Supervisor.  If the IVA is approved, the IP becomes the supervisor and supervises the implementation of the IVA according to its terms.  The IP now acts even-handedly between the creditors and the debtors.  The supervisor must monitor progress and issue annual reports to the debtor, the creditors and the court.

We acted for a trustee in bankruptcy in connection with a successful application to the court to fix the basis of our client’s remuneration as trustee in bankruptcy by reference to the time spent by our client and their staff in dealing with the bankruptcy.  The application was required due to the non-engagement of the creditors of the bankruptcy estate. 

One of the factors the court considered when determining the application was whether there had been any delay in the application being made.  Our client’s application to the court was made approximately 4 years after our client was appointed as trustee in bankruptcy (clearly a significant period of time).  Our client only decided to make the application to the court following the realisation of £150,000 into the bankrupt’s estate which enabled a distribution to creditors. 

Had our client’s application to the court been unsuccessful, our client’s remuneration would have been limited to the small, fixed amounts allowed pursuant to the Insolvency Rules 2016 which would not have adequately compensated our client for the extensive amount of work carried out on this matter which enabled a significant dividend to be paid to the bankrupt’s creditors. 

We acted for the trustees of a bankruptcy estate in respect of an income payments order application which had to be made to the court as the bankrupt received surplus income which was over and above what the bankrupt required for his reasonable domestic needs.  We were successful in agreeing an order with the bankrupt prior to the final hearing of the application, which included a contribution towards our clients’ costs. 

We acted for the trustees of a bankruptcy estate in successfully applying to the court for the bankrupt’s discharge from bankruptcy to be suspended until the bankrupt cooperates with his trustees in bankruptcy in regard to the provision of information and documents.  The court application was required because of the bankrupt’s non-cooperation with his trustees in bankruptcy in providing information and documents relating to his wide-ranging business interests and assets. 

We acted for the trustees of a bankruptcy estate in successfully applying to the court for the bankrupt, his current partner and his ex-wife to be privately examined at court about the bankrupt’s dealings, affairs and property.  Once the bankrupt, his current partner and ex-wife had answered the questions put to  them, this led to further claims being brought within the context of the bankruptcy estate, including for the possession and sale of two properties owned by the bankrupt and in relation to transactions at an undervalue and transactions defrauding creditors, where the claims were brought against the bankrupt’s current partner. 

We acted for the trustees of three connected bankruptcy estates.  The bankrupts were a husband and wife and their son who had failed to disclose to our clients the existence of three safe deposit boxes.  We were successful in obtaining from the court an order allowing our clients to search and seize the contents of two of the safe deposit boxes, which contained a vast amount of items such as jewellery, watches, cash and even a gold bar.  Ultimately, we were able to resolve the search and seizure applications by agreeing a compromise with the bankrupts whereby they agreed to pay a cash settlement sum in respect of the value of the items in the safe deposit boxes.    

We acted for a private individual in relation to an order for bankruptcy that was made by a creditor based on a debt that our client indicated was never incurred.  We provided advice to our client on the making of an application to the court for the annulment of our client’s bankruptcy on the basis that the bankruptcy order should never have been made.

We provided advice to an insolvency practitioner who was the nominee of an IVA in regard to the voting process required for the approval of the IVA.