Creditor's bankruptcy petition

Creditor's bankruptcy petition

Contents

Jurisdiction

The Recast EC Insolvency Regulation on insolvency takes precedence over the UK Insolvency Act for determining the appropriate court where there is a cross-border element to the insolvency proceedings. However, the EU Regulation would only apply if the debtor has its centre of main interest (COMI) in an EU member state (except Denmark). Under the Insolvency regulation prominence is given to insolvency proceedings started in the EU member state where the debtor has its COMI. These main proceedings are effective regarding all assets and creditors of the insolvent wherever situated (except for some restrictions regarding those territories where non-main proceedings have already been started). Non-main proceedings for the same debtor in EU states where the debtor does not have its COMI only has local effect. COMI is not defined within the regulations but in principle will be

  • for professionals - the place of their professional domicile; and
  • for natural persons - the place of their habitual residence.

The creditor can only present a bankruptcy petition in England or Wales if the debtor's COMI is there, and similarly to the High Court in Northern Ireland, if their COMI is in Northern Ireland. If this is not the case and the COMI is not in a member state of the EU that has adopted the Recast EC Insolvency Regulation, they will still be able to present the petition if:

  • the debtor is domiciled in the place they are making the petition; or
  • at any time in the 3 years before the presentation of the petition, the debtor was ordinarily resident, had a place of residence or carried on business in the place they are making the petition.

The debt

If a creditor (or a group of creditors together) wants to apply for a bankruptcy order their petition must show, amongst other things that the debtor owes them £5,000 or more in total and that for each debt specified in the petition:

  • it is an unsecured and liquidated (i.e. fixed) amount;
  • it is due and payable immediately or payable at some certain future time;
  • the debtor appears either to be unable to pay the debt or to have no reasonable prospect of being able to pay the debt; and
  • there is no outstanding application to set aside a statutory demand served for the debt.

Proving the debtor's inability to pay

To prove to court that the debtor is unable to pay their debts a creditor usually relies upon one of the following:

The debtor's failure to comply with a statutory demand

If the statutory demand is for a debt that is payable immediately, at least 3 weeks have passed since it was served on the debtor, it remains unpaid and has not been set aside, the debtor will be regarded as being unable to pay the debt for purposes of the bankruptcy petition.

If the statutory demand is for a debt that is not immediately payable, at least 3 weeks have passed since it was served on the debtor and the debtor has not shown to the satisfaction of the creditor that they will be able to pay the debt when it does fall due, the debtor will be regarded as having no reasonable prospect of paying the debt for purposes of the bankruptcy petition.

Contents of the statutory demand

In England & Wales, while there are not specific forms for this purpose, the statutory demand must follow a certain format prescribed by law. The format, examples of which the Insolvency Service has made available, depends on whether the debt is a specific amount payable now, at a future date, or a specific amount payable now following a judgment or court order.

The creditor must show in a certificate of service that the statutory demand was served on the debtor. The certificate of service must follow a certain format prescribed by law. It must be verified by a statement of truth and filed at court with a copy of the statutory demand that was served on the debtor.

In Northern Ireland you must use a different form for each of these situations:

  • The debt is a specific amount payable now - Form 6.01;
  • A specific amount is payable now following a judgment or court order - Form 6.02
  • A debt is payable at a future date - Form 6.03.

The creditor must then use a certificate of service to show that the statutory demand was served on the debtor. The particular form to use in Northern Ireland depends on how the statutory demand was served:

  • if served personally, a 'Certificate of personal service of statutory demand' - Form 6.13; or
  • if personal service was not possible and it was posted to the debtor, a 'Certificate of substituted service of statutory demand' - Form 6.14.

Serving the statutory demand

A creditor should take all possible steps to serve the statutory demand personally on the debtor. This means that personal calls should be made at all known residences and places of business of the debtor in an attempt to serve the demand personally. If those attempts fail, the creditor must take every further reasonable step to make sure that the statutory demand does come to the attention of the debtor. These steps could include writing a letter to the debtor to advise of the failed attempts to serve the demand and giving at least 2 business days' notice when a further attempt will be made. It should give the debtor the opportunity to suggest a different time or place if the proposed appointment is not convenient. The letter should also advise that if the further attempt is also unsuccessful the demand will be served by advertisement in the media or by post and the court will be asked to accept that as proper service of the demand. The letter should specify which method will be used.

When attending any appointment made by letter, the creditor should ask whether the debtor has received all letters left for them. If the debtor is away, they should ask whether letters are being forwarded to an address within the jurisdiction (England and Wales or Northern Ireland as applicable) or elsewhere.

If personal service remains unsuccessful and the debtor is represented by a solicitor, the creditor should also attempt to obtain personal service through that solicitor or for the solicitor to accept service on behalf of the debtor.

The creditor should make and keep a note of the way they serve the statutory demand. This should include the steps taken to serve it, the times and dates of service and the details of any people involved so that these details can be provided in the certificate of service. It is common practice to employ a 'process server' to carry out this task although they charge a fee for this service.

If the statutory demand is for payment of a sum due under a judgment or order of any court and the creditor knows, or believes with reasonable cause that the debtor has absconded or is keeping out of the way to avoid service, and there is no real prospect of the sum due being recovered by execution or other process, then the creditor may, without taking the steps discussed above, advertise the demand in such manner as they think fit. The time limited for compliance with the demand runs from the date of the advertisement's first appearance.

A formal process issued to enforce a judgment debt being unsuccessful

If an execution or other process issued to recover the debt on a judgment or order in favour of the petitioning creditor is returned without the debt being recovered in full, the debtor will be regarded as being unable to pay the debt for purposes of the bankruptcy petition.

To show the court that the judgment debt has not been satisfied an enforcement officer's 'return' can be used. This is a statement showing how much was recovered and how much has been paid towards the judgment debt, costs, interest and the enforcement officer's charges. It sets out the amount of the court judgment and if this is not recovered in full, shows that the debtor didn't have enough assets that could be sold.

The petition

In England & Wales, while there is not a specific form for the petition, it must follow a certain format are prescribed and depend on what reasons the creditor is relying upon to prove that the debtor is unable to pay their debts or has no reasonable prospect to pay a debt that will fall due at some certain future time.

Once issued, the petition must be served personally on the debtor by giving them a sealed copy of it.

In Northern Ireland you must use a specific form for the petition depending on the reason you are relying on to prove that the debtor is unable to pay their debts:

  • If the debtor fails to comply with a statutory demand - Form 6.07.
  • If the debtor fails to comply with a statutory demand - Form 6.08.
  • If the enforcement of a judgment debt has been unsuccessful - Form 6.9.

The statement of truth

The petition must be verified by a statement of truth and this must be authenticated and dated by or on behalf of the creditor. The creditor will authenticate the statement by signing it above their name. If it is signed on behalf of the creditor, the signatory must not only sign it stating their full name and position or relationship to the creditor, but must also state that they have the required authority to sign on behalf of the creditor.

In England and Wales there are no prescribed forms, although the contents must comply with the law. The Insolvency Service has made an example document to to verify the bankruptcy petition available.

In Northern Ireland the Form 6.15 must be used as the statement of truth.

The searches

Before the creditor can present the petition to court they need to check with the Chief Land Registrar that the debtor is not already subject to any pending bankruptcy petitions. By completing Form K16 an official search can be done with the Chief Land Registrar in the register of pending actions for pending bankruptcy petitions presented against the debtor.

In Northern Ireland, before the creditor can present the petition to court a check needs to be done to make sure that the debtor is not already subject to a bankruptcy order or that there hasn't been any other bankruptcy petitions against the debtor in the past 18 months. This search can be done online at the court service website. There is a small fee to complete the search online. Alternatively, you can contact a law searcher to do this for you, although they are likely to charge you much more.

The petitioning creditor must at the end of the bankruptcy petition certify that this search was done within 7 days of the date that the petition is being presented to court. The certificate must state that to the best of the creditor's knowledge there are no prior petitions that are still pending against the debtor. If the creditor decides to proceed with presenting a bankruptcy petition where the search found a prior petition that may still be pending, the certificate must contain details of the prior petition and a statement that the creditor is issuing their petition at risk as to costs.

If a bankruptcy order is already in place it's best not to proceed with a new petition. Instead the creditor can register as a creditor in the existing bankruptcy. If there is an ongoing application for bankruptcy it would be cheaper to support that petition instead of continuing with a new petition.

Cost of the creditor's bankruptcy application

When presenting the bankruptcy petition to court both a deposit to cover part of the costs of administering the bankrupt estate and a court fee must be included. The amount of these costs and fees are available online both in online England & Wales and Northern Ireland.

Which court to apply to in England and Wales

If the application falls outside the London insolvency district

Bankruptcy petitions must be presented to the county court hearing centre dealing with insolvency applications that is closest to the place where the debtor lives or has a place of business. If the debtor has lived at more than one address or had a place of business in more than one location then it will be the one where they were for the longest during the preceding 6 months. For some county court hearing centres insolvency petitions have to be presented at alternative courts, so it would be best to use the Court and Tribunal Finder to make sure the correct court is used.

Where the debtor no longer lives in or carries on business in England or Wales but did so at some time during the preceding 6 months the petition can be presented either to the relevant county court (see above) or the High Court.

If the application falls within the London insolvency district

If the application is made by a creditor the petition must be presented to the county court at Central London if the unsecured liabilities are less than £50,000, otherwise to the High Court.

A debtor's affairs fall (or are deemed to fall) within the London insolvency district only if one of more of the following conditions apply:

  • Where the debtor is an English resident with a residence or business in London. This means that they live in England and Wales, and has lived or carried on business within the London insolvency district, either:
    • for the greater part of the 6 months before the issue of the bankruptcy petition; or
    • for more time in the 6 months before the issue of the bankruptcy petition than they have lived or carried on business anywhere else.
  • Where the debtor is an overseas resident with a residence or business in London or centre of main interests in England and Wales. This means that, either:
    • they have, in the 6 months before the issue of the bankruptcy petition against them, lived or carried on business in the London insolvency district; or
    • their centre of main interests (COMI) is within England or Wales.
  • Where the debtor's residence or place of business is unknown the debtor's affairs are deemed to fall within the London insolvency district.
  • Where the debtor is a member of an insolvent partnership. This means that they are a member of a partnership that is being wound up by the High Court in London or is the subject of a winding-up petition presented in the High Court in London.
  • Where petitions are presented by government bodies a debtor's affairs fall within the London insolvency district if a government department presents the bankruptcy petition after either:
    • an unsatisfied statutory demand, which stated that the government department would present a bankruptcy petition to a court within the London insolvency district if the debtor failed to pay the sum demanded; or
    • the unsatisfied execution or other process to enforce a judgment or court order in favour of the government department.

The London insolvency district

Barnet

Bow

Brentford

The County Court at Central London

Clerkenwell and Shoreditch

Edmonton

Lambeth

Mayor's and City of London Court

Wandsworth

West London

Willesden

Interim receiver (England and Wales only)

To protect the debtor's property in the period from when the bankruptcy petition is presented to court, (or the debtor's application for a bankruptcy order is made to the adjudicator) until the bankruptcy order is made, the court may, on application, appoint the OR or an insolvency practitioner as interim receiver. The court may limit the interim receiver's powers to specific property of the debtor. The interim receiver has the duty to take immediate possession of the debtor's property to which their powers apply.

The application for an interim receiver can be made by, amongst others, a creditor, the debtor or a temporary administrator.

The application must be supported by a witness statement containing prescribed information, such as:

  • the grounds for appointing an interim receiver;
  • whether the OR has been informed of the application;
  • whether there is an IVA proposal pending or an IVA in force;
  • the estimated value of the property over which the interim receiver is to be appointed; and
  • if the proposed interim receiver is an insolvency practitioner, that they have consented to act.

Copies of the application and the witness statement must be delivered to the OR and the proposed interim receiver. The proposed interim receiver must attend the hearing. The OR may do so as well and may make representations. The court will appoint the interim receiver where there are sufficient grounds to do so.

After the appointment of the interim receiver the debtor must provide such inventory and other information about the property falling within the powers of the interim receiver, and attend on the interim receiver at such times and do all such other things as the interim receiver may reasonable require for purposes of carrying out their functions.

After the appointment of the interim receiver no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall—

  • have any remedy against the property or person of the bankrupt in respect of that debt; or
  • before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt, except with the leave of the court and on such terms as the court may impose .

(The effect of the appointment of an interim receiver on enforcement procedures or the limited right to distress is not discussed here.)

When a bankruptcy application has been made or a bankruptcy petition has been presented to court any court may, on proof of it, stay any action, execution or other legal process against the property or person of the debt or it may allow any proceedings against the debtor to continue on such terms as it thinks fit.

The interim receiver's appointment terminates when the bankruptcy order is made or the bankruptcy application or petition is dismissed. The court may also terminate the interim receiver's appointment on application of the interim receiver or any person that could've applied for the appointment of the interim receiver.