Insolvency Made Clear: A Guide for Debtors

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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. 27
Insolvency Law Made Clear – A Guide For Debtors In general, the Trustee in Bankruptcy will want the bankrupt to keep working. The bankrupt will sign an ‘income payment agreement’ (see below), and the bankrupt will need a job in order to be able to make the payments. A Trustee might even be prepared to write a reference to reassure a nervous employer or prospective employer. If the bankrupt themselves had employees, then those contracts will also not automatically end. If the Trustee in Bankruptcy decides to keep them, this counts as continuity of employment for various employment rights. However, the Trustee would be entitled to dismiss the employees – for example, for redundancy - and the employees can seek their redundancy payment from the National Insurance Fund. This becomes a preferential debt and the Trustee will repay the sum to the fund before the other unpaid creditors. There is also no restriction on a bankrupt opening a new bank account, although most banks will not offer this service to an undischarged bankrupt. Those that do are unlikely to offer any credit facilities whatsoever, i.e. to offer a current account with no overdraft. 2.9 Inability to obtain credit It is a criminal offence for a bankrupt to borrow more than £500 without first disclosing their status as an undischarged bankrupt (s360(1)(a) of the Act). This would include a hire-purchase agreement or an agreement where the bankrupt takes the goods early and pays in instalments over time. The criminal offence applies regardless of the lender, and so it includes personal contacts. However, the offence is only borrowing money without disclosing the status. It is not an offence for a bankrupt to borrow money from a friend if that friend is aware that they are an undischarged bankrupt. Credit rating agencies (and so credit suppliers, like credit card companies and payday lenders) will be aware of the bankrupt’s credit history. Professional lenders are unlikely to lend during the bankruptcy at all. Even after the bankruptcy is discharged lenders are unlikely to make a loan to a former bankrupt, and if they do the loan will be at a higher interest rate to reflect the higher risk. Credit rating agencies will keep a record of the bankruptcy for around six years. One of the effects of bankruptcy in practice is that it will be a long time until an individual can borrow money as freely as they did before. The impact on an individual’s credit rating is mitigated by the fact that an individual with high levels of debt is likely to have a low credit rating anyway. The marginal effect of going bankrupt is likely to be small. 28
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INSOLVENCY LAW MADE CLEAR A GUIDE F
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Published June 2021 ISBN 978-1-9163
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Acknowledgments I owe special thank
Page 9 and 10: Insolvency Law Made Clear - A Guide
Page 20 and 21: Preface: the effects of the pandemi
Page 22 and 23: Legal terms defined ‘The Act’:
Page 24 and 25: Legal Terms Defined A ‘dispositio
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Page 30 and 31: Introduction and aim of this book T
Page 32 and 33: Introduction And Aim Of This Book A
Page 34: Part 1 BANKRUPTCY The next few chap
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