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Restrictions after discharge from bankruptcy

Under section 281A of the Insolvency Act 1986 a bankruptcy restrictions order can be made under the provisions of schedule 4A to the Act. Whilst the court can grant such an order, it can only be made on the application of the Secretary of State or the official receiver acting on the direction of the Secretary of State.

The application for the order has to be made before the end of the period of one year beginning on the date on which the bankruptcy commences (although this one-year period is suspended during any order suspending the period for the discharge of a bankrupt either to the end of a specified period or until the fulfilment of whatever is the specified condition pursuant to section 279 (3). If the application is not made within the year (or the year as extended by the suspension) it can only be made thereafter with the permission of the court. If an order is made it runs for a minimum of two and a maximum of 15 years. Essentially for persons who have become bankrupt this is the equivalent of the regime for company directors whereby they can be disqualified from acting as a director.

If an order is applied for then an interim order imposing restrictions can be made if the court considers there are prima facie (i.e. on the face of how things appear) grounds to suggest that the application for the bankruptcy restrictions order will be successful and furthermore that it is in the public interest to make an interim order. Again only the Secretary of State or an official receiver acting on the direction of the Secretary of State can apply for an interim order.

The principles that the court will apply in considering a bankruptcy restrictions order are as follows. The first point is that the bankruptcy restrictions order is an order for protection of the public. The way in which it is used to protect the public is firstly to impose restrictions on any bankrupt whose conduct means that the public needs to be protected from him or her, secondly to deter any such bankrupt from doing anything of the same sort again, and thirdly also to deter others from so acting. Before imposing a bankruptcy order the court has to decide whether any of the misconduct alleged has been established: having done that, if it is established the court has to consider whether the conduct viewed as a whole (and taking account of mitigating circumstances counting in favour of a bankrupt) is such as to show that there is been such a serious failure to meet the proper standards of probity or rightful conduct and competence in the bankrupt's conduct of his or her financial affairs as to warrant making of the order.

If an order is made the following are the main restrictions imposed. The first is that you cannot obtain credit for more than £ 500 without disclosing that you are subject to a bankruptcy restrictions order. You are stopped from acting in the promotion formation or management of a company without permission of the court. You are also prohibited from trading under any name other than that in which you were made bankrupt without disclosure of that name. You are also prevented from acting as a Law of Property Act receiver of property of a company (other than if you are appointed by the court! Which one might think is, perhaps, somewhat unlikely if you are subject to a bankruptcy restrictions order). You are also not allowed to act as an insolvency practitioner.

Next week we will look at the criteria that the court use in order to decide whether to impose such an order.

Michael J. Booth QC