Posts Tagged ‘Bankruptcy’

Business Bankruptcy

Tuesday, February 15th, 2011

According to experts, 50% of businesses fail in their first year and only 20% survive past the four year mark.

It is a sad fact of life that so many businesses never really make it off the ground. And for new business owners, particularly sole traders, who invested substantially to make their idea work, choosing the path of bankruptcy is an all too real option.

Business bankruptcy or IVA?
In the case of sole traders, the business they own is intrinsically linked to them as an individual, so they are liable for all debts should the company fail. For individual bankruptcy, an Individual Voluntary Agreement (IVA) may be best step forward to getting back on your feet, and there are equivalent schemes for businesses.

Business bankruptcy legal advice
Bankruptcy should always be a last resort, and it’s highly recommended you consult a commercial bankruptcy lawyer for advice before going ahead with anything. In order to be declared bankrupt you need to go to court and convince a judge that given your financial situation bankruptcy is the best course of action. Bankruptcy can last for up to 5 years, but is usually set at 12 months by the court.

Going bankrupt
When you are declared bankrupt everything you own is sold to pay off your debts. For the duration of the bankruptcy your finances are controlled by a court officer called the Official Receiver. All of your income will be paid into your bankruptcy although you will be given a small allowance to cover your living expenses. Once the period set by the court has passed, you will be discharged from bankruptcy and whatever is left of your debt will be written off.
There are also quite a few penalties and restrictions imposed on individuals in bankruptcy. For example, you cannot:

  • Take any part in the promotion, formation or management of a limited company (LTD) without the permission of the court.
  • Trade in any business under any other name unless you inform all persons concerned of the bankruptcy.
  • Practice as a Charted Accountant / Lawyer.
  • Act as a Justice of the peace (JP).
  • Become a member of parliament.
  • Become a member of a local authority.
  • Obtain credit for over £250 without the permission from the lender.
  • Act as a company director.

In addition:

  • You may be publicly examined in court.
  • You lose control of your assets.
  • Your credit rating will be affected for many years after the annulment.

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    Bankruptcy and Divorce

    Sunday, October 3rd, 2010

    The bankruptcy or threatened bankruptcy of a spouse during divorce proceedings can be worrying, but there is some protection for the non bankrupt spouse:

    • Property owned in the sole name of a non bankrupt spouse cannot be used to pay off the bankrupt spouse’s creditors;
    • Courts can order the sale of jointly owned property, such as the matrimonial home. If this happens the non bankrupt spouse will receive their share, although this may not be enough to buy another home for themselves and any children;
    • If the matrimonial home was jointly owned but has already been transferred to the non bankrupt spouse, the trustee in bankruptcy can apply to set aside any transfer made up to five years before the bankruptcy. However, a transfer will not normally be set aside if it was as a result of a divorce.

    Although the non bankrupt spouse will still keep their own property and their share in any joint property, there may be nothing left for any child maintenance or spousal maintenance, as demonstrated by a recent high net worth divorce case.

    In Young v Young, the couple married in 1995 and separated in 2006 with divorce proceedings starting a year later. They have two teenaged daughters. Towards the end of last year, Mr Young was ordered by the court to pay £27,500 per month in interim child and spousal maintenance. Mrs Young claimed her husband was worth over £400 million. Mr Young claimed to be in debt.

    In September 2009 he was ordered to provide more details about his financial situation. He was given a suspended sentence for contempt of court and has since handed over 50 files of information to his wife’s solicitors. Due to his failure to pay interim maintenance, Mrs Young and their daughters were evicted from their rented property as she had fallen into rent arrears. They have since found another property. She has said that she has sold jewellery to help pay legal costs but owes a substantial amount in legal fees.

    HMRC have since started bankruptcy proceedings against Mr Young. If he is made bankrupt, Mrs Young may end up with no spousal or child maintenance.

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