Insolvency Made Clear: A Guide for Debtors

Effect Of Bankruptcy
to have an awkward conversation with the other directors. It may be that
the bankrupt owns the company: if so, ownership of the company (i.e. its
shares) would also transfer to the Trustee in Bankruptcy. The Trustee might
be happy to continue to let the bankrupt work as an employee, although this
is a matter for the Trustee to decide. This rule applies to ‘shadow’ directors,
i.e. it stops someone controlling a company even if they do not formally hold
the position of director.
• Cannot be an active member of a limited liability partnership: s7 of the
Limited Liability Partnership Act 2000. This does not affect their entitlement
to a payment from the partnership (see s7(3)).
• Cannot trade under a different name from the one in which the bankruptcy
order was made: s360(1)(b) of the Act. Breach of this is also a criminal
offence.
• Cannot be a solicitor without permission of the Solicitors’ Regulatory
Authority.
• Will be automatically expelled from any partnerships, unless the partnership
agreement provides otherwise.
The restriction on acting as a director applies under English law and to an
English company. The rules of acting as a director of a non-English company
may be different.
Box 9:
BANKRUPTCY AND EMPLOYMENT
As a general rule, most bankrupts do not automatically lose their
jobs if they are employed. If the bankrupt is a regulated professional
– for example, an accountant or an architect – it may be necessary
for the bankrupt to tell their regulator of the bankruptcy order, and
their regulator would decide what happens next. Some employment
contracts have a clause which says that the employee going bankrupt
is a ground for automatic dismissal, although the employer is likely
to have discretion about whether to use this right. In general, if an
employee is dismissed automatically because they go bankrupt, this
may be a ground for a claim for unfair dismissal in the Employment
Tribunal. The reader is directed to David Curwen’s ‘Employment Claims
Without a Lawyer’ for more information.
Most bankrupts do not have to tell their employer about their
bankruptcy, but this will depend on the terms of the employment
contract.
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