Making someone bankrupt part 2

Last week we saw the condition regarding domicile as regards presentation of a bankruptcy petition. This week we consider other necessary aspects.

Domicile is a necessary prerequisite. However assuming you are able to show domicile, then one of two other factors need to be demonstrated as questions of fact. The first is that the person is present in England and Wales on the day on which the petition is presented to make such person bankrupt. The alternative to that is that one of two different things has to be demonstrated relating to the period of three years ending with the day on which the bankruptcy petition is presented. The first is that it any time within that three-year period the person has been ordinarily resident or has had a place of residence in England and Wales. The second alternative is that at any time during that three-year period the person has carried on business in England and Wales. Carrying on business can be through a firm or a partnership with the person to be made bankrupt being a member, or by an agent or manager for such person or a partnership or firm which they are a member.

There is in any event a qualification to these conditions which is that section 265 is subject to Article 3 of the applicable EC regulation. Basically if the debtor has a main centre of interest within a member state then main proceedings will occur there and any proceedings elsewhere will be secondary proceedings.

If the person is susceptible to a bankruptcy petition, the next thing to consider is who may present it. Section 264 of the Insolvency Act 1986 is the section which deals with this. There are a number of potential candidates. The first is someone who is a creditor of the individual to be made bankrupt. If others are creditors than the bankruptcy petition can be pursued jointly by such creditors. The individual himself can petition for his own bankruptcy. There are also a number of offices which give rise to the right to petition under various articles of the EC Regulation (those known as temporary administrators or liquidators). There is also a provision regarding individual voluntary arrangements. These are arrangements which people in financial difficulties can make with their creditors. Essentially they are a means of coming to terms with creditors while seeking to avoid bankruptcy. For example, it may make more sense for the creditors if they receive a portion of the debt and at the same time give an incentive to the person who would otherwise become bankrupt to earn the money to pay them off in a way which might not operate in a bankruptcy. (So that although they get less than a road, they get more than they would receive on bankruptcy) The person who controls such an arrangement is known as the supervisor of the arrangement. Either the supervisor or any person bound by the voluntary arrangement (other than the person owing the debts) can petition. There is also the ability for specified persons to petition when there has been a criminal bankruptcy order.

It follows that because of the various conditions, someone might have the ability to petition to make someone bankrupt on one or more grounds. This could cause the prospective bankrupt a problem in terms of knowing precisely what has to be done to respond to the petition. Therefore under section 266 (1) if a person is entitled to present a petition under two or more paragraphs of section 264 they have rely upon the one ground specified in the petition so as to demonstrate which paragraph they are relying on.

Once a bankruptcy petition has been presented then it cannot be withdrawn without the leave of the court. This is not merely ensures that the court will be able to scrutinise petitions which may be an abuse. It also gives an opportunity for another creditor to be substituted pursuant to the insolvency rules. The Insolvency Rules that deal with bankruptcy are at part 6 of the Insolvency Rules 1986, to which we will return in a subsequent article. In addition, as will be seen those rules laid down exactly what is supposed to happen in respect of presentation and pursuit of the petition. Under section 266 (3) of the Insolvency Act 1986 the court has a general power if there is a contravention of the rules for any other reason to dismiss a bankruptcy petition or stay proceedings on the petition on such terms and conditions as it thinks fit. The court has those powers and can exercise them if it appears appropriate to it to do so. There obviously has to be a reason to justify use of this power, but such reason is not merely limited to breach of the rules. If for example there is something which demonstrates the use of this particular procedure is reprehensible (for example a party using it to try and obtain some advantage such as to put pressure on someone else) then it could justify dismissal of the bankruptcy petition if the court thought it appropriate.