INS10155 - Introduction to Voluntary Arrangements

Insolvency orders and debt forgiveness

Bankruptcy or winding-up proceedings cannot be taken without the permission of the Court.

Following a bankruptcy or winding up order made by the Court the individual debtor ( bankruptcy) or company ( liquidation) obtains forgiveness of their debts.

Bankruptcy

A trustee is appointed to realise a bankrupt’s worthwhile assets. (This may include the debtor's share in the marital home.)

Basic domestic items and the bankrupt's tools of their trade are exempt, but any excess income over that required for basic needs may be claimed as a contribution in the bankruptcy.

An undischarged bankrupt can continue to trade but there are restrictions. A bankrupt

• Who trades under a new name must disclose the old name to anyone with whom they do business
• May not act as a company director or be concerned with a company's management without leave of the Court
• Cannot obtain credit of more than £500 without disclosing the bankruptcy.

After one year most bankrupts are discharged. But in practice there will be credit restrictions which will often apply to everyone at the same address for up to six years.

Bankruptcy means that the debtor loses their assets and it often makes a fresh start difficult in the longer term.

Liquidation

For a non-viable insolvent company liquidation is generally final. The Official Receiver becomes liquidator (but will hand over to an independent insolvency practitioner if there are any significant assets).

The liquidator's role is to

• Realise the company's assets
• Pay all the fees and charges arising from the liquidation
• Distribute remaining funds to creditors.

The company will ultimately be dissolved and disappear as a legal entity.

Occasionally a liquidator continues the trade of a viable company for a short time after liquidation in order to sell the business as a going concern at a better price. A liquidator of a temporarily insolvent company with a viable business will likely help the company to survive liquidation through a Company Voluntary Arrangement (CVA).