BANKRUPTCY

 Creditors are increasingly turning to winding up petitions and county court judgements to recoup outstanding debts, according to new research monitoring companies in distress.

Begbies Traynor’s latest Red Flag update has found that the number of companies experiencing significant or critical financial problems has fallen year on year, although there has been a slight increase compared with the final quarter of 2009.

In the first quarter of 2010, there were 13,880 companies facing significant or critical difficulties, compared with 12,970 in the last quarter of 2009 and 15,451 in the first quarter of last year.

Companies with “significant problems” are those with either a court action or average, poor, very poor, insolvent or out-of-date accounts.

Companies with “critical problems” are those with county court judgments totalling £5,000 or more or wind-up petition-related actions.

Nationally, there are more than 160,000 companies experiencing significant or critical financial distress. Between them they owe more than £55 billion to creditors, suppliers and service providers.

Begbies Traynor said part of the rise in critical problems reflects a shift in trade creditor behaviour, with an increasing number willing to take court action against their debtors.

The remainder of the increase could be attributed to the normal seasonal uplift.

James Martin, a partner at Begbies Traynor in Birmingham, said: “While the economy appears to be showing positive signs of recovery, the magnitude of the liabilities still at risk of default represents a serious risk to creditors, indicating the potential far-reaching impact of these levels of distress.

“It is this ripple effect which represents a real threat to a sustained economic recovery.

“Faced with these risks, and a growing need to bolster their own funding for the recovery phase, trade creditors are increasingly seizing the opportunity to take action against their debtors in order to raise much needed working capital.

“This shift in behaviour heralds a new phase in the cycle, putting businesses experiencing financial problems at greater risk of failure.”

Interest rates will also have a role to play, with the latest Reuters poll of over 50 financial institutions predicting a rise of one per cent over the next 12 months, thereby tripling current base rate, with some banks forecasting a rise of as much as 1.5 per cent.

Mr Martin added: “Low interest rates have been one of the principal reasons why business failures have not yet reached the peak levels many feared this savage recession would cause.

“A rise may tip more struggling businesses over the edge later in the year and through into 2011, especially in the embattled but vital SME sector which cannot afford the protection of sophisticated interest rate hedging.”

It would seem that more Britons will be caught in the trap of not being able to pay off their debts, but not having enough money to go bankrupt, as the Government is set to increase its bankruptcy fees by £90.

As of April 6, the Insolvency Service will raise its bankruptcy petition fees to £450, from £360. An extra court fee of £150 brings the total cost of declaring yourself bankrupt up to a significant £600.
 
Although the extra court fee can be waived if a debtor is on benefits, those struggling with debt repayments will most certainly find it difficult to scrape together even more money for a bankruptcy petition.
 
It is thought that more people will end up in informal debt management plans (DMPs). There are currently no recorded or published figures for these.
 
Some debt campaigners have called the fee hike a cynical ploy by the Government to lower record-breaking high insolvency figures.
 
Kevin Still, debt expert and director of debt solution provider Atlantic Financial Management, has said: “We have found a significant rise in the number of people requesting bankruptcy assistance where they have very limited disposable income and rising credit card debts. The choice between a Debt Management Plan and going bankrupt is a personal one, but requires professional debt advice before making such a major financial decision that may have a long-term impact.”
 
A spokeswoman has defended the decision, saying: “Over the last year, the average unsecured debt in debtor petition bankruptcies has been around £33,000. Even with the new higher petition deposit cost, it is not unreasonable to expect those getting the benefit of writing off this debt to pay a proportion of the cost.” 
 
The Government has also proposed changes to debt relief orders, which could mean that Britons with small pension funds will be able to use this form of debt management in future.
 
The Department for Business is consulting on these changes, in order for people who were previously ineligible for debt relief orders (DROs) to now take them out and wipe out modest debts within a year.
 
DROs were introduced in April 2009 and are an alternative to bankruptcy, debt management plans and individual voluntary arrangements. Designed for people with assets worth less than £300, this used to disqualify people with pension funds.
 
In order to use a DRO, people must have debts of under £15,000 and have less than £50 extra income each month after paying tax, national insurance and other household expenses. In the first nine months of DROs being introduced, almost 12,000 Britons have used them.  
 
Business Minister Ian Lucas told the BBC: “Following representations from independent money advisers, I’m proposing a common sense change to ensure that vulnerable people with a very small pension pot are treated fairly.”  

CARDIFF Devils have pledged business will continue as usual despite millionaire owner Matt Burge being made bankrupt.

Australian entrepreneur Mr Burge was declared insolvent in London’s High Court over an unpaid personal tax bill of £305,000.

He has resigned as chairman of the Elite League side as demanded by companies law and stepped back from day-to-day involvement with the club.

But the Devils’ director of hockey Shannon Hope said the club would continue with their plans for the future, which includes trying to raise finance for a new two-rink ice stadium in Cardiff Bay to replace the team’s temporary home.

“We just crack on,” said former Devils player Mr Hope.

“It’s never a good thing. It’s probably more difficult for Matt but it’s one of those things that can happen. As far as I go, we crack on.”

All Mr Burge’s assets have been placed in the hands of insolvency practitioners based in Bristol whose role is to recoup the debt owed to Her Majesty’s Revenue and Customs.

In a statement issued yesterday, the 40-year-old businessman assured fans of the team that it would not affect the Cardiff Devils.

He said: “Regardless of the negotiations and discussions I am undertaking personally, I can assure all Devils supporters that the club will not be affected in any way.

“The company is structured correctly to be completely independent and a great deal of effort has gone into the financial model to create a self-sustaining business that runs independently of anything else and this has essentially been achieved already.

“Our increased attendances, improved sponsorship, tight control of costs and cash flows have set up a bright future for the club and a strong management team is now positioned to move the club forward with strength and confidence.”

Mr Burge said he was working hard with his lawyers to have the bankruptcy annulled.

It is understood negotiations have been going on for several months with the taxman and that Mr Burge, who lives in a £1.6m home in Penarth’s exclusive clifftop Marine Parade, is trying to have business losses offset against the tax bill.

Among his losses are around £1m invested in Cardiff mobile phone firm CommsDirect which went into administration just before Christmas and has now been partly bought by doctor turned financier Jeremy Stone, who has set up a new company, Veraco.

Mr Burge has resigned as the director of a number of companies but said he was not intending to leave South Wales and return to his native Australia.

He said: “This is a challenge of doing business and is not much fun. It is extremely distracting and annoying but we will get through this.”

He added:“Entering into a individual voluntary arrangement is still a possibility, as is paying the bill. We are keeping an open mind on things.”

Mr Burge took over the ownership of the club from then owner Bob Phillips and his family at the start of the 2008/9 season.

Several factors affect the length of your bankruptcy in UK. Your bankruptcy ends when you receive a discharge, the event that actually cancels your debts.

Most bankrupts in the UK are eligible for discharge after the minimum period of 12 months. Your bankruptcy will last for more than 12 months if the bankruptcy court orders your bankruptcy extended.

Here are the conditions that could prolong your bankruptcy:

Do you have surplus income?

If your income is considerably higher than the limits set by the government, it is possible that your bankruptcy will be extended for longer than 12 months.

Is this your first bankruptcy?

If you have been bankrupt before, you are not eligible for an automatic discharge from bankruptcy in 12 months. Your bankruptcy will be extended for a period of time that will be determined by a Judge or Registrar of the bankruptcy court.

Have you completed all your duties as a bankrupt person?

If you have failed to complete one or more of your duties in bankruptcy, then your discharge will be delayed. The delay will depend on the seriousness of the failure and how soon you complete the missing duties.

If your discharge opposed?

The discharge is usually granted if you are earning only enough income to keep yourself and your dependants reasonably provided for, and if you have received credit counseling.

Occasionally, creditors or the trustee Bankruptcy oppose a bankrupt’s discharge. When this happens, the matter goes to mediation or is heard before a Registrar or a Judge.

Q&A

1. What is bankruptcy annulment?

Bankruptcy annulment is a way of cancelling a bankruptcy, at the discretion of the court using grounds specified in the Insolvency Act 1986. It can only be used in limited circumstances and you should always seek specialist advice before considering your options.

2. Where can I go for help and advice?

Citizens Advice

For advice and information on debt and other topics, visit your nearest Citizens Advice Bureau – check the phone book for the address.

National Debtline

If you live in England, Wales or Scotland phone 0808 808 4000 or visit the National Debtline website for debt advice and information.

Consumer Credit Counselling Service

For debt advice throughout the UK – including Northern Ireland – phone 0800 138 111 or visit the Consumer Credit Counselling Service website.
 

The OFT has a duty to protect the interests of consumers by ensuring the fitness of those holding or applying for consumer credit licences. The OFT also has a duty to monitor social and commercial developments relating to the provision of credit and related activities.

The OFT is monitoring the lending and broking of secured loans to consumers that have recently gone bankrupt where the purpose of the loan is to annul the bankruptcy.

Background

Where an individual has become bankrupt, the Insolvency Act 1986 allows the individual to apply to court to have the bankruptcy ‘annulled’ in certain circumstances. One of the ways in which a bankruptcy may be annulled, subject to the discretion of the courts, is where the bankruptcy debts and expenses of the bankruptcy have been paid off.

There is a small but growing market in the UK of lenders and brokers that approach recently bankrupted homeowners offering short-term loans secured on the property in order to annul the bankruptcy before arranging for a remortgage.

A short-term loan is used to repay all outstanding unsecured debts and other costs and an application is made to annul the bankruptcy. Once the bankruptcy is annulled, a remortgage is entered into in order to repay the short-term loan.

Request for information

The OFT is interested to hear about consumers’ experiences of such services as part of its ongoing research into this market. We would be particularly interested to hear from consumers who have experienced problems in this area, for example, who may have taken out a short-term loan to finance a bankruptcy annulment, and were then unable to remortgage to pay off the short-term loan.

The OFT would also welcome further information from other interested parties, trade bodies, debt advisers and licensees.

If you have any comments, information of submission that you would like to make to the OFT to assist us in this research, please contact the Secured Lending Team:

Secured Lending Team – 2N18
Fleetbank House
2-6 Salisbury Square
London
EC4Y 8JX

Email: secured.lending@oft.gsi.gov.uk

Responses by 30 October 2009 would be appreciated.
 

 Who is the official receiver?

Official receivers are civil servants in The Insolvency Service and are officers of the court. The court notifies them about a bankruptcy. Your local official receiver is responsible through his or her staff for administering the initial stage, at least, of your insolvency case. This stage includes collecting and protecting any assets and investigating the causes of the bankruptcy. continue

With the credit crunch effecting everyone property repossession cases are back in the headlines again and dominating the bankruptcy courts’ dockets as they did in the early nineties, but they continue to be filed with great frequency in UK. At its essence, the property repossession is a two party dispute between mortgagee and mortgagor. Repossession cases are typically filed before or after a bankruptcy. Upon learning of the bankruptcy filing, a secured creditor has a number of available options, all or some of which are exercised, depending on the facts of the case, to maximise loan recovery. continue

No. This is very rare and only after certain bankruptcy offences such as hiding assets from the Trustee.

In bankruptcy, co-signors are not protected by the automatic blocking of your creditor’s collection efforts; creditors are free to go after your co-signer(s).

No. They may stall the repossession. It is vital to maintain payments on your home in order to avoid repossession. A bankrupt’s equity will fall into the bankruptcy however. Equally an IVA may provide that equity is liquidated for the benefit of creditors.

Charges do not automatically go away in bankruptcy; a bankruptcy discharge does not extinguish a charge on property.

A charge is a claim by your creditor against some continue

Yes. Typically many bankruptcy cases involve individual debtors having no assets to satisfy any portion of a creditor’s claims (called no-asset cases).

Generally, you might lose the following items of property: your principal home your second residence your second car stamp, coin and other collections and heirlooms share certificates and other securities deposits of money (e.g. bank accounts, escrow accounts, money market accounts) property you are entitled to receive at some future date (e.g. tax refunds) your part of marital estate.

Typical examples of property that you can keep: a car, if subject to finance and with little equity clothes household goods and furniture appliances your principal home, if and only if there is little or no equity personal effects jewellery professional tools income from social security, disability, public assistance, unemployment some pension funds, child support and maintenance.

Please note that in all of the above cases property can be retained where it is the subject of a Charge or is purchased on hire purchase (for example a car) and if there is no or little equity in the property. In addition, it should also be noted that if any of the above listed items are of particular value, for example valuable jewellery or furniture then they will properly fall into the bankruptcy.

In relation to matrimonial homes, it should be stressed that even if there is substantial equity in the property, the Trustee in bankruptcy cannot ordinarily repossess the property within one year of the making a Bankruptcy Order. This will not however prevent a charge holder (i.e. the mortgagee) commencing repossession proceedings. In many cases property will be co-owned by the debtor’s spouse. The Trustee in bankruptcy will ordinarily approach the debtor’s spouse in order to ask whether he or she wishes to purchase the interest of the debtor’s failing which, possession proceedings will ordinarily commence after the one year time limit as set out above. Neither the bankruptcy nor an IVA will prevent a lender from repossessing your home if it is subject to a mortgage charge.

During the course of the life of the interim Order, it is possible that the Courts will prevent repossession proceedings from continuing. An IVA may be a better way forward as it will provide a greater recovery for creditors than would have been the position in a bankruptcy. They will also usually make provision such that the mortgage lender is paid in full.

In the case of a bankruptcy, whilst you may be able to remain in possession of the matrimonial home for a minimum of one year, after that year has expired, possession proceedings are likely unless either there is no equity in the property or a third party such as a spouse could buy out the Trustee in Bankruptcy’s interest i.e. the debtor’s equity in the property. Following a discussion of the difference between a bankruptcy and IVA in relation to a matrimonial property is tape stops here.

The most common debts that you may get rid of are: back rent utility bills some court judgements credit and charge card bills loans from family and friends newspaper and magazine subscriptions legal, medical and accounting bills most unsecured loans (e.g. debts for which there is no collateral)

Parliament has determined that the following types of debts are not dischargeable for public policy reasons (e.g., the nature of the debt or the fact that the debts were incurred due to the debtor’s improper behaviour.)

Criminal government fines, penalties Family maintenance payments Child support Secured debts Gambling debts for last-minute purchases of luxury goods or services are also nondischargeable.

Another class of debts or claims (called charges) that are backed by property also survive.

Debts are divided into two categories: dischargeable and nondischargeable. Dischargeable debts are those that the debtor is no longer personally liable to pay after the bankruptcy proceedings are concluded. Nondischargeable debts are those that are not cancelled because of the bankruptcy proceeding. This means that you are still responsible for payment them.

A Discharge in bankruptcy means that you are no longer subject to the Bankruptcy Order. The creditor no longer has any right to collect debt. The debtor no longer has any obligation to repay it. The timing of the discharge varies, depending on the circumstances. (Normally 12 months)

Which type of procedure really depends on your financial picture. Each has pros and cons.

An individual struck with serious financial difficulties most likely will continue

There is a bankruptcy court for each judicial district in the country.

The Insolvency Rules 1986 (“the Rules”) govern the procedural aspects of the process.

The procedure begins with the filing of a Petition and a cheque in the sum of £450.00 (this comprises £150 Court Issue Fee and £300 for continue