Making someone bankrupt part 3

We have seen that a petition can be presented by a creditor or by the debtor (namely the prospective bankrupt). This week we look at the grounds of a creditor's petition which are set out in section 267 of the Insolvency Act 1986.

In order to present a petition to make someone bankrupt, you have to be someone to whom the debtor owes a debt. The debt has to satisfy a number of conditions. The first point is that the debt (or if there is more than one debt the debts combined) exceeds the bankruptcy level. That is presently £750 although it can be changed by statutory instrument ordered by the Secretary of State and approved by a resolution of both Houses of Parliament. In consequence what that means is that (subject to some exceptions dealt with hereafter) that the starting point is that unless you owe a debt or debts for at least £750 you cannot be made bankrupt.

The debt has to be a liquidated debt. That means it has to be a specific sum. Thus if someone borrows £1000 from you, they owe you £1000, which is a specific sum. If however someone injures you and you sue them for damages (for example because they breach of contract or have run you over in a personal injury accident) even though that amount of money may be worth many times the bankruptcy limit, it is not a liquidated (i.e. specific and definite) sum and hence cannot be the subject of a bankruptcy petition. Of course if and when judgment is obtained and a court order for a specific sum made, then it is a liquidated sum.

The next ground is that the debt or each of the debts is a debt which the debtor appears either to be unable to pay or to have no reasonable prospect of being able to pay. Thus even if the debtor owes money whether someone has a reasonable prospect of paying is determined by the service of a statutory demand (see section 268), so that if it looks as though the debtor can pay or has a reasonable prospect of paying them the case is not a suitable one for bankruptcy. In connection with the statutory demand please see the previous article in this series, Insolvency procedures: winding up part 8.

Another condition for making a bankruptcy order on a creditor's petition is that there is not an outstanding application to set aside a statutory demand served under section 268 of the Insolvency Act 1986. Serving a statutory demand as previously referred to is a necessary part of making any person bankrupt.

It is important to bear in mind that if the debt is disputed the court will not make a bankruptcy order. That of course is assuming that the part of the debt which is disputed means that there is not still left and undisputed part which exceeds £750, because if there is then regardless of the dispute as to the rest person can be made bankrupt anyway. The court will determine whether the dispute about the debt is genuine (in other words whether it is disputed on bona fides substantial grounds. It does not have to be a defence which is likely to succeed, there has to be something in it to make it worth the matter going to a contested hearing). If the proposed defence to the alleged debt appears to be genuine, (and the court will not go on to try the matter to decide whether in fact the objection is correct) then the statutory demand will be set aside or the bankruptcy petition dismissed.

One issue that can arise is where there is a payment on behalf of the prospective bankrupt before the hearing date. If the payment is made before the hearing of the bankruptcy petition, the court can still make a bankruptcy order even if the unpaid parts of debt falls below the bankruptcy level.. Obviously no bankruptcy order can be made if the whole of the debt is paid. Whether the court will make a bankruptcy order where the debtor has paid a part of the debt depends upon the background. If the debtor has been effectively messing the creditor around and paying monies to reduce the debt to just below the bankruptcy petition on a number of occasions the court would be unlikely to exercise its discretion so as to assist such person.

Next week we will consider other aspects relevant to a bankruptcy petition before going on to consider a bankruptcy petition presented by the debtor.