The Mad, the Bad and the Bankruptcy Restriction Order

 

 

The modern personal bankruptcy regime in the UK is intended to be ‘non-judgemental’. Gone are the days of debtors prisons in favour of a culture that recognises that a nation of risk taking entrepreneurs sometimes produces losers.

However, there is still a requirement for extreme behaviour to be moderated and controlled. These controls come in the form of the Bankruptcy Restrictions Order (“BRO”).

BRO’s can restrict your freedoms in a wide variety of ways that will be looked at in this article.

The Enterprise Act 2002 introduced BRO’s that act as a safeguard, punishing blameworthy bankrupts whose behaviour is such that a form of sanction is considered to be appropriate.

What type of conduct may lead to the imposition of a BRO?

 

• Those who have ‘gamed’ the bankruptcy system
• Those who have taken on credit with no possibility of paying
• Those engaged in unlawful or improper conduct

 

There is no dispute: BRO’s are intended to be penal in nature. Any application for a BRO (which must be made before the end of the first year of bankruptcy) must be supported by a report from the Secretary of State detailing the conduct complained of.

The discretion of the court to impose a BRO is very wide. The types of conduct that the court will have particular regard to are the following –

 

*          failing to keep records which account for a loss of property by the bankrupt, or by a business carried on by him, where the loss occurred in the period beginning 2 years before petition and ending with the date of the application;

*          failing to produce records of that kind on demand by the official receiver or the trustee;

*          entering into a transaction at an undervalue;

*          giving a preference;

*          making an excessive pension contribution;

*          a failure to supply goods or services which were wholly or partly paid for which gave rise to a claim provable in the bankruptcy;

*          trading at a time before commencement of the bankruptcy when the bankrupt knew or ought to have known that he was himself to be unable to pay his debts;

*          incurring, before commencement of the bankruptcy, a debt which the bankrupt had no reasonable expectation of being able to pay;

*          failing to account satisfactorily to the court, the official receiver or the trustee for a loss of property or for an insufficiency of property to meet bankruptcy debts;

*          carrying on any gambling, rash and hazardous speculation or unreasonable extravagance which may have materially contributed to or increased the extent of the bankruptcy or which took place between presentation of the petition and commencement of the bankruptcy;

*          neglect of business affairs of a kind which may have materially contributed to or increased the extent of the bankruptcy;

*          fraud or fraudulent breach of trust;

*          failing to cooperate with the official receiver or the trustee.

The Court must also consider whether the person that is subject to the BRO application was an undischarged bankrupt within the last 6 years.

A BRO can be imposed for a period of between 2 to 15 years depending upon the severity of the conduct.

The regime allows for the Court to make an interim BRO where the substantive BRO hearing is unlikely to be heard by the Court before the bankrupt is discharged.   The Court is likely to grant an interim BRO if it is in the public interest to do so or it appears likely that that a BRO will be made at the substantive hearing.

A cost effective way to deal with a BRO is for the person who is subject to the BRO application to enter into an undertaking accepting the restrictions, commonly referred to as a Bankruptcy Restriction Undertaking (“BRU”) –

BRO and BRU restrictions include the rules you have to keep to when you are made bankrupt and other extra rules. For example, you must not:

• act as a director of a company, or form, manage or promote a company, without permission from the court
• carry on business under a different name without telling people you do business with the name (or trading style) in which you were made bankrupt
• try to borrow more than £500 without saying you are subject to restrictions
• be a trustee of a charity
• work in various posts in education such as being a school governor

There are many other types of restrictions that can be considered in the following document produced by the Insolvency Service.

 

To discuss Bankruptcy Restriction Orders with an experienced bankruptcy lawyer contact Stephen Chinnery by email or on 07460 005 769.