Annulment of a Bankruptcy Order – Raising Your Company From the Dead

Annulment of a Bankruptcy Order – Raising Your Company From the Dead

Bankrupt?  Act Fast and it May Not be Too Late

Has there been a bankruptcy order made against you which you think should not have been granted?  If so you need to consider whether there are grounds for this to be annulled.  This is known as a ‘Bankruptcy Annulment’ and, as with any major financial problem with your business, time is of the essence and you need to act now with the help of a practitioner who specialises in this area.

What is Possible?

The Insolvency Act 1986 sets out that the bankrupt, or indeed any other interested party, can apply to the Courts to have an annulment of the bankruptcy order under the following circumstances;

  1. The bankruptcy order was not made properly, and the right process was not followed. In this case proceedings will need to be halted and if appropriate started afresh.
  2. There were factors that were not considered when the Order was made which meant it should not have been granted.
  3. All of the debts, fees and expenses associated with the bankruptcy Order have been paid in full or to the satisfaction of the Court.
  4. An Individual Voluntary Arrangementhas been arranged with your creditors

It is important to realise that only the Courts have the power to grant a Bankruptcy Annulment.

The bankruptcy order ought not to have been made

Looking at the first two of these together the Court must consider:

  1. What were all the grounds existing at the time the Order was made, not just those that were presented?
  2. Whether, on those grounds, an order ought not to have been made; and
  3. If an Order ought not to have been made, the Court should exercise its discretion to annul it. 

The Courts have considerable discretion to take another look at whether the debt which led to the bankruptcy was legitimate. In this situation the bankrupt needs to provide substantial new evidence that this was not the case although it is not required to show that this debt was not owed at all.  This new evidence can be information that was either not available at the time or just not given to the Court.  If there is no new evidence then only in very exceptional circumstances will the Courts be prepared to look at the case again.

The bankruptcy debts and expenses have been paid or secured

A bankruptcy order can be annulled if it appears that all the bankruptcy debts have been paid or secured (backed by collateral) to the satisfaction of the Court.  These debts can have a degree of complexity as they will need to cover:

  • The debts that the Courts accepted as proven which still exist at the date of the hearing of the annulment application
  • Expenses have been paid or secured to the satisfaction of the Court
  • If there are known to be non-proving creditors, namely a creditor who has failed to make a claim to prove their debt, despite knowing of the annulment through both being written to or responding to an advertisement in the London Gazette within 28 days.  In these circumstances their claims will not affect the annulment.
  • If a debt is disputed or a proving creditor cannot be traced, the bankrupt may be required to provide such security to satisfy any debt which might subsequently be proved.
  • Trustee’s fees and expenses. The trustee is the person appointed to look after the assets of the Bankrupt and there can be scope to negotiate these when an annulment is sought. 
  • The Secretary of State’s fees. They do not have to be paid if third party funds are used to settle the debts and expenses.

The bankrupt has entered into an Individual Voluntary Agreement (IVA)

Where an undischarged bankrupt’s creditors accept an IVA proposal, the Court can annul the bankruptcy order.  The application to annul can be made by the bankrupt or alternatively the Official Receiver.

Applying for an Annulment

  • An application for annulment should be made as soon as possible after the bankruptcy Order was made.
  • The bankrupt must complete a detailed application together with the supporting evidence and the Trustee has to prepare a report covering the facts surrounding the bankruptcy together with the financial position (assets and liabilities)
  • The hearing requires the Trustee to be available, but if the application is straightforward this only need be by telephone
  • The Official Receiver should be consulted as to whether they wish to attend but this is optional on their part.

What is the Effect of Annulment?

If an annulment Order is made, it is designed to put the bankrupt, as much as is possible, in the position they would have been had the bankruptcy order never have been made. 

  • This means the bankruptcy estate (Property, Goods and Money etc.) is returned to the debtor.  However, it is important to note that any valid sale or disclaimer of property which occurred in the estate remains valid after annulment
  • Following successful annulment, your status will be returned to pre-bankruptcy with all of your creditors
  • If a bankruptcy is cancelled or reversed due to the payment of debts or the making of an IVA, the record of the bankruptcy annulment will take two years to be removed from the public register from the cancellation date
  • If a bankruptcy is cancelled because it should not have been made, the record will be removed immediately. To avoid the public register altogether, a request for a ‘stay of advertisement’ can be made with the Courts even before the application for annulment has been made. This will prevent Courts advertising the fact that bankruptcy proceedings ever took place

Next Steps

If this complex issue is relevant to you then time is of the essence and you will need experienced legal assistance.  So for an initial chat please contact me on: 01494 786 000 or 07961 116 321 or email me vee@navigatebr.com

DISCLAIMER This blog / article is for information and interest only. It is not a substitute for full professional advice, which will take account of the specific and individual circumstances surrounding your matter. Navigate Business Recovery Limited cannot accept any responsibility for any loss arising as a result of any person or organisation acting or refraining from acting on any information.

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T: 01494 786000 - M: 07961 116321