The rule that can catch people trying to make a fresh start
Bankruptcy does not always mean a person stops wanting to work, trade or rebuild. In fact, many people who become bankrupt are desperate to get back on their feet as quickly as possible. That instinct is understandable. The danger comes when someone tries to restart quietly, using another trading name or business identity, without understanding the disclosure rules that apply while they are still an undischarged bankrupt.
The relevant provision is Section 360 of the Insolvency Act 1986. This is the section that deals with obtaining credit or engaging in business without the required disclosure. It is a practical rule, but it carries serious consequences if ignored.
What does the rule require?
In simple terms, an undischarged bankrupt must be very careful when obtaining credit or carrying on business under a different name. If they are trading under a name other than the one in which they were made bankrupt, they must disclose the name in which they were made bankrupt to those with whom they deal.
The rule is about transparency. The person dealing with the bankrupt should know who they are really dealing with and should be able to make an informed decision before providing goods, services, credit or commercial support.
This can catch people who think they are being clever, but it can also catch people who are simply confused. For example, someone may start trading through a spouse’s surname, a new brand name, an online shop name or a family business name. They may think that because they are not using their own name, the bankruptcy is irrelevant. That is precisely where the risk arises.
Why this matters in practice
Bankruptcy restrictions are designed to protect creditors and the public. If a person has been made bankrupt, those dealing with them are entitled to know the position before extending credit or entering into commercial arrangements that may expose them to risk.
Failure to disclose can make the situation look dishonest, even where the person says they were only trying to move forward. The Official Receiver or Insolvency Service may view the conduct as an attempt to operate under the radar. That can lead to criminal investigation, extended bankruptcy restrictions and serious reputational damage.
There is a very human side to this. People often feel ashamed of bankruptcy. They do not want customers, suppliers or new contacts to know. But embarrassment is not a defence to a disclosure obligation. If the law requires disclosure, avoiding it can make the position far worse.
Acting as a director during bankruptcy
A separate but related issue is company management. A person who is bankrupt is generally restricted from acting as a director or being involved in the formation, promotion or management of a company unless they have permission from the Court. This is an area where people can get into difficulty by thinking they are not officially a director, but still making decisions behind the scenes.
Using a family member, friend or employee as the named director does not solve the problem if the bankrupt is still effectively controlling the business. The substance of what is happening matters.
The consequences of getting it wrong
Breach of these restrictions can lead to criminal consequences, including a fine, imprisonment, or both. It can also lead to Bankruptcy Restrictions Orders or Bankruptcy Restrictions Undertakings, which may extend the restrictions for up to 15 years.
There may also be practical commercial consequences. Suppliers may withdraw support, banks may close facilities, customers may lose confidence and the person may find that what started as an attempt to rebuild has created a second and more serious problem.
What should someone do instead?
The best approach is to take advice before trading, obtaining credit, using a different name, becoming involved in a company, or allowing someone else to front a business. It may be possible to trade lawfully, but the rules must be understood and followed.
If the person has already started trading or dealing with others without making the required disclosure, they should take advice quickly. The priority is to understand the breach, stop the risk continuing and consider how best to regularise the position.
How I can help
I help individuals understand what they can and cannot do during bankruptcy, how to respond to questions from the Official Receiver, and how to deal with allegations that they have breached bankruptcy restrictions.
A fresh start is possible, but it has to be built on transparency. Trying to hide the bankruptcy or trade through another name without proper disclosure is not a shortcut. It is a trap.
Need help with this?
If you are facing bankruptcy, director disqualification, an Insolvency Service investigation, or difficult questions from a liquidator or Trustee, early advice can make a real difference. Do not wait until the position has escalated.
You can book a confidential discussion with Navigate Business Recovery here: https://www.navigatebr.com/contact-us/
Disclaimer
This article is for general information only and does not constitute legal, financial or insolvency advice. Every case turns on its own facts, documents, timings and conduct. You should take professional advice before making any decision or responding to any formal request, allegation, claim or Court process.
Vee Bharkhada is the Founder and Managing Director of Navigate Business Recovery Limited. Navigate Business Recovery provides practical support to directors, individuals and business owners facing insolvency related disputes, bankruptcy issues, liquidator claims and Insolvency Service investigations.