, Restrictions after discharge from bankruptcy part 2: leadingcounsel.co.uk
Skip to main content.

Restrictions after discharge from bankruptcy part 2

This week we look at the criteria which the court exercises in order to decide whether to impose restrictions under section 281A of the Insolvency Act 1986, namely post discharge from bankruptcy restrictions.

In essence the court applies the same approach that it does under applications to disqualify people from acting as directors under section 6 of the Company Directors Disqualification Act 1986. Therefore the starting point is for the court to consider, by reference to the improper conduct which is being alleged under the application, exactly what of the conduct alleged has been established. Having determined what conduct has been established, it then has to determine the effect of that conduct. That would be looked at both as regards each individual allegation, and the cumulative effect of those allegations. Of course, in each case, whether individually or cumulatively, it will take account of any mitigating circumstances. Whether looking at the allegations individually or cumulatively, the question is whether the person against whom the application is made has seriously failed to meet the proper standards of conduct fixed by the courts as those required of individuals conducting their financial affairs. If such conduct is made out then the court must make a post discharge restriction order.

In deciding how far a party has fallen from those standards which can be expected of persons regarding their financial affairs, the court has to bear in mind the purpose of a bankruptcy restriction order. The aim of such an order is to protect the public. The first aspect of that is to stop persons whose conduct is sufficiently bad to merit preventing them being able to engage in ordinary business affairs. The second aspect of public protection is to spell out the message to those people that they should not repeat this conduct, in other words seeking to deter the individual bankrupt from doing something unacceptable ever again. There is also then the general deterrence aspect, namely that the effect of the order should be such as to deter other bankrupts from behaving improperly. All of these are part of the public purposes to which such orders are addressed.

If the judge decides that the bankrupt's conduct is culpable, and justifies the making of a bankruptcy order, the judge has no discretion to refuse to make a bankruptcy order and is obliged to make an order for at least two years.

How long a bankruptcy restrictions order should be for depends upon the circumstances. In each case the facts will determine the position. However the length of the period is both designed to protect the public and to send a message to both the bankrupt him or herself and others to prevent them from committing similar misdeeds.

It is difficult to predict precisely how and in what circumstances such an order will be sought, or the circumstances in which it will be granted. However at the very least in order to avoid this section it is very important that a bankrupt is to be seen to be actually complying with the rules and attempting to help the trustee, rather than just indicating that the trustee can do what the trustee wants And the bankrupt has absolutely no intention of cooperating.

Much of this analysis ultimately comes down to personal preference and what is appropriate.

Michael J. Booth QC