Fraudulent Disposal of Property Before Bankruptcy: Actions with Grave Future Consequences
While the formal bankruptcy process begins with a bankruptcy order, bankruptcy law extends its reach to actions taken by an individual before they are declared bankrupt. One critical area is the Fraudulent Disposal of Property Before Bankruptcy, covered under Section 357 of the Insolvency Act 1986 (IA 1986). This is a severe criminal offence that directly involves fraud, as it targets dishonest attempts to strip assets in anticipation of insolvency and impending bankruptcy.
In my long career, having dealt with insolvency related cases for over 36 years, I’ve observed that individuals, foreseeing their financial collapse and potential bankruptcy, sometimes try to move assets out of their name. These actions, intended to shield property from creditors, almost always come back to haunt them, leading to criminal charges and prolonged personal distress.
What is Fraudulent Disposal of Property Before Bankruptcy?
Section 357 IA 1986 makes it a criminal offence for an individual who has been made bankrupt to:
- Conceal or remove any part of their property within the period of two months ending with the presentation of the bankruptcy petition.
- Conceal or remove any part of their property at any time after the presentation of the bankruptcy petition.
- Remove any part of their property which is worth £500 or more out of England and Wales at any time after the presentation of the bankruptcy petition.
The key element here is the fraudulent intent – the deliberate attempt to prevent the property from being available for distribution to creditors within the future bankruptcy estate, typically in the run up to bankruptcy. This differs from a simple preference or transaction at an undervalue in that it requires a proven intent to defraud. Examples include transferring property to family members for no or nominal value, placing cash into accounts not in the bankrupt’s name, or sending assets abroad. This offence is explicitly criminal and inherently involves fraud, specifically related to circumventing bankruptcy law.
Why is this Bankruptcy Offence so Important?
This provision is crucial because it prevents individuals from deliberately sabotaging the bankruptcy process before it even formally begins. Without this power, debtors could simply empty their accounts and transfer assets just before a bankruptcy petition is presented, leaving nothing for their creditors in the eventual bankruptcy. It ensures that the bankruptcy estate genuinely reflects what the bankrupt owned prior to their financial collapse.
Investigations into pre bankruptcy transactions are a standard part of the Official Receiver’s duties. If suspicious disposals are identified, they can be referred to specialist investigation teams at the Insolvency Service or the Police for criminal prosecution. I recall a particularly complex case where a client, fearing bankruptcy, transferred a significant sum of money to an offshore account months before his petition. He believed it was untraceable. However, working closely with forensic accountants and liaising with the Insolvency Service, we saw how their investigative powers could trace these funds, even across borders. The Official Receiver pursued this vigorously, leading to a criminal charge under this very section in connection with his bankruptcy. This demonstrated the futility of such actions, and the breadth of the authorities’ reach under insolvency law.
Consequences of Fraudulent Disposal of Property Before Bankruptcy
Being found guilty of Fraudulent Disposal of Property Before Bankruptcy carries extremely severe consequences in the context of bankruptcy:
- Criminal Conviction: As a criminal offence under bankruptcy law, it can lead to a substantial fine, imprisonment (up to 7 years in serious cases), or both.
- Extended Bankruptcy Restrictions: A conviction for this type of misconduct will almost certainly result in a Bankruptcy Restrictions Order (BRO) or Bankruptcy Restrictions Undertaking (BRU), which can extend the period of bankruptcy restrictions for up to 15 years.
- Recovery of Assets: The Trustee in Bankruptcy will pursue legal action to recover the disposed property or its value for the benefit of creditors in the bankruptcy estate, regardless of any criminal proceedings.
- Non-Dischargeable Debt: Any debt arising from the fraudulent act or disposal itself may not be discharged at the end of the normal bankruptcy period, leaving the individual still liable.
- Reputational Damage: A criminal conviction for fraudulent disposal in anticipation of bankruptcy will cause severe and lasting damage to an individual’s reputation, affecting future professional and personal opportunities.
My Guidance: Transparency is Key for Your Bankruptcy, Even in Distress
If you are facing severe financial distress and anticipate bankruptcy, it is vital to resist any temptation to move or dispose of your assets in a way that is not fully transparent and legitimate. My advice is to seek professional insolvency advice immediately and ensure all your actions are transparent and legally sound, even when faced with looming financial collapse and potential bankruptcy. Attempting to shield assets through dishonest means will only backfire, leading to severe penalties under bankruptcy law.
I can assist you by:
- Reviewing Pre Insolvency Transactions: Conducting a thorough review of any significant financial transactions or property transfers made in the period leading up to your financial difficulties and bankruptcy, advising on their potential implications under bankruptcy law.
- Navigating Investigations by the Official Receiver: Guiding you through the rigorous investigative process by the Official Receiver or Insolvency Service concerning your past financial transactions related to your bankruptcy, helping you prepare accurate explanations.
- Advising on Allegations of Bankruptcy Fraud: Providing clear, comprehensive advice if you are accused of fraudulent disposal or other bankruptcy offences, helping you understand the charges and formulating a robust response, including presenting any mitigating circumstances.
- Liaising with Legal Teams: Collaborating with legal professionals (e.g., solicitors) if criminal charges are being considered in relation to your bankruptcy, ensuring a coordinated defence strategy.
- Providing Crucial Support for Your Bankruptcy: Offering straight talking, supportive guidance during what is undoubtedly a highly stressful and challenging time leading to or during bankruptcy, helping you make informed, lawful decisions to protect your long-term future.
Do not let desperation to save assets lead you to criminal actions with long term, devastating consequences for your bankruptcy. Trust in a transparent process.
If you want to find out anything further about this topic then please feel free to call me on 0330 236 9937 or 07961 116321. All conversations will be in strict confidence. You can also email me vee@navigatebr.com.
Disclaimer
This article is provided for general information purposes only and does not constitute legal or financial advice. Each situation will depend on its own facts and specific circumstances, and you should not rely on the above without taking appropriate professional advice.
If you would like to discuss your situation in confidence, please contact:
Navigate Business Recovery Limited
Office: 0330 236 9937
Mobile: 07961 116321
Email: vee@navigatebr.com