, Making someone bankrupt part 6
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Making someone bankrupt part 6

If someone owes a debt then in order to make them bankrupt you have to show an inability to pay the debt. That is determined in accordance with section 268 of the Insolvency Act 1986. There are two ways in which a person can be made to appear to be unable to pay a debt but the statute provides that this is "if, but only if, the debt is payable immediately and either" of the two ways is demonstrated.

One of the ways, under section 268 (1) (b) is that "execution or other process issued in respect of the debt on the judgement or order of any court in favour of a petitioning creditor, or one or more of the petitioning creditors to whom the debt is owed, has been returned unsatisfied in whole or in part.". What that means is as follows. If you successfully sue someone for money, you will get a judgment debt. The court provides various means in which that can be enforced. By way of example, the court has power under CPR 69 (this being a power which applies before proceedings have started, during proceedings, or after judgment) to appoint a receiver. The receiver is a person who will effectively receive and manage the property or business the subject of the appointment. As the practice direction in support of part 69 specifies, at paragraph 5, "Where a judgment creditor applies for the appointment of a receiver as a method of enforcing a judgment, in considering whether to make the appointment the court will have regard to

(1) the amount claimed by the judgement creditor;
(2) the amount likely to be obtained by the receiver; and
(3) the probable cost of his appointment."

This is an illustration of the various means that the court will use to enforce judgments. There are a number of them and it is important to bear in mind that when someone has a judgment debt and the person against whom the judgment has been given fails to pay, there are a number of weapons in the armoury available to them to enforce. However it is one particular sort of enforcement which, if it does not produce the money due under the judgment, is the one which gives rise to the entitlement to proceed to a bankruptcy petition.

The Practice direction pursuant to part 70 of the CPR specifies the various means of enforcing money judgments. There are a variety of means of enforcement but the most pertinent one for these purposes are the writs of execution. Basically these are means by which the enforcement officer is authorised to seize possessions and sell them to pay the debt and the costs of executing the judgment. Essentially if the creditor takes that line, a valid attempt at execution takes place and it is returned unsatisfied (i.e. there are not the goods available to satisfy the debt) then that can form the basis of a bankruptcy petition. Thus if you are subject to a judgment debt, if the other side are attempting to execute it if that is not going to produce enough money you are likely to face a bankruptcy petition.

The other means of demonstrating insolvency arises through the service of a statutory demand pursuant to section 268 (1) (a). We have already seen the use of statutory demands in connection with winding up companies, see Insolvency procedures: winding up part 10. However the procedure regarding the statutory demand has a much greater significance in bankruptcy than it does in the winding up of companies. This is because where companies are concerned that is merely one of the various ways in which inability to pay debts can be demonstrated. However in the case of an individual, it is one of the two necessary triggers which are required in order to demonstrate an ability to pay. You can get away without a statutory demand in respect of seeking to wind up a company, but you cannot get away without a statutory demand in order to make someone bankrupt, unless you are able to rely upon the unsatisfied execution.

Next week we shall look at the requirements regarding statutory demands in bankruptcy.

Michael J. Booth QC