Bankruptcy: Procedure and Statutory Demands explained

Bankruptcy

The bankruptcy procedure is governed by provisions in the Insolvency Act 1986 (IA 1986). The insolvency process is where the court orders an individual’s assets to be distributed amongst their creditors.

A bankruptcy order can be made either on the application of the debtor or following a creditor's petition.

To issue bankruptcy proceedings the debt(s) must be equal to or over £5,000 at the time the petition is presented. The debt must be liquidated, due and owing and it must not be a disputed debt.

Finally, there must be evidence that the debtor is unable to pay, or the debt has no reasonable prospect, of being repaid.

Usually, a creditor will issue a Statutory Demand before issuing proceedings. A Statutory demand in accordance with section 268(1)(a) of the IA 1986 is a written demand for payment of a debt to an individual or if to a company, in accordance with section 123(1)(a) or 222(1)(a) of the IA 1986. Once the demand has expired, a petition can be issued, and a hearing date scheduled.

If the individual fails to comply with its terms within 21 days, then they are at risk of having bankruptcy proceedings issued against them.  Issuing a Statutory demand does not mean that court proceedings have to commence once the time period has expired. It merely exerts pressure on the party, but there is no obligation to follow up on commencing proceedings.

The order of priority of funds in Bankruptcy:

• Secured debts

• Expenses of the bankruptcy

• Preferential debts

• Unsecured debts

• Interest

• Deferred Debts

• If there are any monies left over after these payments have been made, they are returned to the bankrupt.

Our experienced Litigation and Disputes team can support you in any queries you may have or further questions relating to insolvency and bankruptcy issues. We also act for business directors and business owners. Please contact us if you need any advice or support in these matters.  Contact Us.

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