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The process of insolvency is different for companies and people. A person must be given the resources to carry on living while the bankruptcy order is in force and the chance to rebuild their lives after the bankruptcy is discharged. A company exists only because the law recognises its existence. When a company goes insolvent all its property can be taken away and the company can be dissolved.
The four most common legal processes that can happen to an insolvent company are:
1. In the short term, a company can go into administration. This protects the company from creditors enforcing their debts (for example, by repossessing property) and allows independent professionals (‘administrators’) to control the company rather than the directors. The administrators can then decide whether the company or part of it is viable, and if it is not, then the administrators can decide what to do next.
2. The company can enter into a ‘company voluntary arrangement’ (CVA). This is like an individual voluntary arrangement, but for a company. It occurs when over 75% of its creditors measured by their debt agree to accept a smaller amount, or to postpone the debt. As a result of a CVA, the company is no longer insolvent, since it can presumably meet the new commitments. If it cannot, it is likely to enter into one of the other processes.
3. The company can enter into ‘creditors’ voluntary liquidation’ (CVL). ‘Liquidation’ refers to the process when the company’s assets are sold, and the company can then be dissolved. It is the first stage to the ending of the life of a company. Creditor’s voluntary liquidation is when the company decides to put itself into liquidation, but because it is insolvent the liquidation is controlled by the creditors and not the company’s shareholders.
4. The company can enter into compulsory winding up. This is the only insolvency process which a company can be placed into involuntarily, although it may agree to give certain creditors the power to apply to the court to put the company into administration. Compulsory winding up can only happen by order of the court, and it is described in more detail in Chapter 13.
These will each be described in more detail below. The two most common processes for SMEs are either voluntary or compulsory liquidation, since administration is expensive and CVAs are unpopular with creditors.
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If the other side is represented by a lawyer, there is a rule which says that all letters should be sent to their lawyers rather than to the individual directly. This can be frustrating, because often two individuals who know each other will be able to reach an amicable compromise; but if all the letters are sent via lawyers then this becomes more difficult. One solution is to suggest (via the lawyers) a face-to-face meeting between the debtor and creditor or a telephone conversation.
If the debtor has no lawyer it is fair to suggest that the creditor speak on a ‘without lawyers’ basis as well. However, a creditor may wish to have their lawyer present as a means of protecting themselves (or simply feeling important) and there is little that a debtor can do.
On the other hand, this is a rule which can be broken with relatively little consequence, provided it is only broken once or twice. It may be helpful to let a mutual contact know that the debtor wants to speak, and to ask them to contact the creditor directly. The worst that can happen, at least in the short term, is a cross letter from the creditor’s solicitors reminding the debtor of this rule. If, however, after being warned several times about the rule the debtor continues to flout it, it might be a matter relevant to an application for indemnity costs. The court is likely to sympathise with an unrepresented party and see the sense in a meeting without lawyers; and similarly the court is likely to look kindly on all genuine attempts to settle without going to court.
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Technically legal aid exists for bankruptcy cases when the individual’s estate includes their home: see paragraph 33(2) of Schedule 1 to the Legal Aid, Sentencing and Punishment of Offenders Act 2012. This legal aid, in theory, should pay for the debtor to get legal representation at the bankruptcy and subsequent possession hearings. The reader may wonder why a homeowner would receive legal aid, but an individual unable to afford their own home would not.
However, due to stringent eligibility criteria, homeowners are also unlikely to receive legal aid. Where an individual has disposable capital of more than £8,000 or a monthly disposable income of more than £733, they are ineligible to receive legal aid for this debt claim.
In the event that an individual is eligible for legal aid, the following website enables individuals to find a solicitor who will work for legal aid rates for a bankruptcy case: https://find-legal-advice.justice.gov.uk/. Since the amount given for legal aid is approximately £180 as the ‘Schedule Authorisation Standard Fee’, it might be doubted whether any professional solicitor would be prepared to offer significant help even to an individual who did qualify, although non-profit-making bodies like local law centres might be prepared to do the work at a loss.
It is unclear from the Legal Aid Authority’s statistics whether any individuals received legal aid in respect of a bankruptcy hearing in 2019.
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There is no concept in English law of a ‘common law wife’, i.e. that by living with a partner for a long period of time, someone can acquire legal status akin to that of a husband, civil partner or wife. The law does not recognise the development of stable long term relationships outside of the formal marriage/civil partnership process.
It may be sensible for the partner of someone with serious debt problems to get married in advance of any bankruptcy proceedings. Note that s336(1) of the Act provides that nothing occurring between the presentation of the bankruptcy petition and the making of a bankruptcy order can give rise to any home rights under the Family Law Act 1996. This means that it is too late to get married after the bankruptcy petition is presented (at least for the purposes of remaining in the property).
For a couple facing eviction this is very serious. There is a notice period required before couples can get married, either religiously or civilly. The precise waiting period depends upon the type of marriage. For a civil ceremony, it is a minimum of 28 days of notice (see s31(1) of the Marriage Act 1949). This means that waiting for the statutory demand to come may be too late, since a petition can be presented 21 days later. This period is unlikely to be waived by applying to the Registrar General: rules concerning waiver of the notice period apply to matters like mortal illness. A foreign wedding would be recognised under English law if it was legal in the place it was celebrated, which might be an alternative for some couples.
There are criminal offences which can be committed in relation to marriage, for example by making a false declaration relating to a marriage (see s3 of the Perjury Act 1911). These are not committed by a couple who decide to formalise their pre-existing relationship, even if it is done primarily for the positive legal consequences that marriage brings.
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The terms of the bankrupt’s lease might contain provisions which determine what will apply if the tenant goes bankrupt. This is typically that the lease is forfeited. The landlord will then be able to apply for possession themselves. The general rule is that a creditor cannot take their own steps to enforce a provable debt, after the bankruptcy order is made (s285 of the Act). However, this does not include a claim for possession due to unpaid rent.
If the lease continues, the Trustee will have the power to end (‘disclaim’) the lease under s315 of the Act. A Trustee in Bankruptcy may permit a bankrupt to continue paying rent in the property the bankrupt previously lived in if they consider the rent to be reasonable expenditure. Rather than disclaim the property, the Trustee may simply decline to pay rent and allow the landlord to forfeit the lease.
Some types of tenancy do not fall automatically into the estate of the debtor, in particular, an assured tenancy, a protected tenancy and a secured tenancy (see s283(3A) of the Act). However, a Trustee can acquire these tenancies by serving notice in writing (s308A) if they do so within 42 days of learning about the tenancy. This may not apply if the tenancies contain prohibitions on assignment. Other types of tenancy, such as a statutory tenancy, are personal to the tenant and can never be disclaimed by a Trustee. A statutory tenancy is created if a person who previously held a protected tenancy remains in possession of property following the termination of the protected tenancy.
A Trustee cannot disclaim a lease jointly held between two tenants. There is also a process for an interested party to apply for a ‘vesting order’ which would allow another occupant of the property to take over the lease, to allow it to continue (s320 of the Act). In practice, a Trustee considering disclaiming a lease may consider simply giving (‘assigning’) it to the bankrupt’s spouse without a court application, if the spouse agrees to take on all the liabilities under the lease.
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By virtue of s266(3) of the Act, the court has the power to dismiss a bankruptcy
petition. This power is ‘quite unfettered’, i.e. there is no single list of reasons why
the court may dismiss a petition. However, typically the power is exercised on
one or more of the following grounds:
1. A serious procedural irregularity which prejudices the debtor
2. The debtor has no assets
3. Bankruptcy would be disproportionate
4. The debt is not for a liquidated sum
5. The debt is disputed
6. The debtor is able to pay their debts or has made an offer to secure or compound for a debt which was unreasonably refused
7. The petition is an abuse of process
8. The creditors are guilty of improper behaviour
9. Bankruptcy would have a serious psychological effect on the debtor
10. The petitioner does not attend the hearing
11. An IVA has been agreed
12. The court has no jurisdiction to make the bankruptcy order
13. The debtor lacks capacity
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The Trustee plays a crucial part in the life of the bankrupt. They can decide what the bankrupt can spend money on, what items they can keep and what is to be sold. They can apply for the bankruptcy to be extended beyond its usual length of a year. They decide whether they believe that the bankrupt has committed any misconduct. If the Trustee thinks the bankrupt has, the Trustee will be responsible for what happens next. If the Trustee feels they can rely on the bankrupt, they are less likely to dispute what the bankrupt tells them. For example, if the bankrupt has a good relationship with the Trustee, the Trustee will not be suspicious if the bankrupt says that an item is owned by the spouse of the bankrupt rather than the bankrupt themselves and so does not fall into their estate. It follows that it is vital for the bankrupt to get on with the Trustee at a personal level. A strong working relationship can be achieved by: 1) being open and cooperative when asked questions; 2) being realistic about what the bankrupt will be allowed to keep and not keep; and 3) not making any attempts to hide assets. If the Trustee is the Official Receiver, they are unlikely to care that the bankrupt opposed the bankruptcy petition, provided they acted honestly during the process.
It is difficult for the bankrupt to keep calm when a stranger has so much control over their life. A Trustee should do their best to explain what they are doing and why. Not all Trustees are diligent. However, although it will take a large amount of effort to be polite and courteous to the Trustee, the effort will be rewarded. Put differently: there can be serious consequences of the relationship breaking down. Chapter 8 discusses ways in which a bankrupt can control the Trustee's actions. These are challenging applications to make.
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A Trustee in Bankruptcy may find evidence that the bankrupt has
committed a criminal offence. For details, see Chapter 7. The Trustee
in Bankruptcy will not be the prosecutor. Instead, if the Trustee suspects
an offence has been committed, they will report it to the Insolvency
Service. The Insolvency Service will decide whether to forward
the case onto prosecutors.
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The fact that a bankruptcy is later annulled is no defence to the proceedings.
However, no proceedings can be commenced after the bankruptcy has been annulled (s350(2) of the Act). In contrast, there can be criminal proceedings for
a bankruptcy offence against an individual after their bankruptcy has been discharged, but it has to relate to behaviour before the date of discharge (s350(3)).
The difference between an annulment of a bankruptcy and the discharge of a
bankruptcy is discussed in Chapter 9.
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Legal advice organisations
There are many charities offering debt advice: National Debtline, StepChange,
the Debt Advice Foundation, and the Money Adviser Network all have national
coverage. These charities specialise in addressing problems before they escalate into insolvency proceedings. The equivalent for business debt is Business Debtline. Shelter and Christians Against Poverty are two other charities which have experience helping people in financial difficulty.
If a court hearing is listed, a reader’s starting point is likely to be a local branch
of Citizens Advice: https://www.citizensadvice.org.uk/. Citizens Advice can also
be contacted through its national phone line service: 0800 144 8848 (England)
and 0800 702 2020 (Wales). They also have a special debt helpline: 0800 240
4420. The Citizens Advice based in the Royal Courts of Justice (rcjadvice.org.
uk) is particularly good, and can be accessed by emailing debt@rcjadvice.org.uk
or by phoning 0203 869 3195 on Thursday or Friday.
Alternatively, there may be a specialist legal advice centre able to offer support.
These can be found via the LawWorks website: https://www.lawworks.org.uk/
legal-advice-individuals/find-legal-advice-clinic-near-you. In particular, Mary
Ward Legal Centre in London specialises in bankruptcy matters.
The flagship organisation offering free legal advice by barristers is Advocate.
Advocate has a partner scheme specifically for bankruptcy cases, known as
PILARS. Advocate does not accept self-referrals, but an application for help can
be made through the RCJ Advice Bureau, Citizens Advice, National Debtline or
Business Debtline.
There are organisations like PayPlan which will offer advice and help organise
an ‘individual voluntary arrangement’ for no upfront fee. If the arrangement is
successful, they will take a cut of the funds from the creditors. These organisations can also provide useful advice.
The Samaritans will not offer legal or financial advice, but they do provide critical
emotional support to anyone having a difficult time.
Further reading
Although this is the only in-date book on insolvency law guide for litigants in
person, Muir Hunter’s Going Bust (2007) offers an alternative perspective. Robin
Meynell’s Book of Bankruptcy (2009) also has further information about bankruptcy, focussing on what happens after the bankruptcy order is made.
The main textbook a professional lawyer would consult is Sealy & Milman. This
is an annotated guide to the Insolvency Act and the Insolvency Rules with commentary under each section explaining how the provisions apply, and what the key cases are. It costs Åí350, which is cheaper than going to a lawyer.
However, unlike a professional lawyer, it does not tell you what the answer is: it simply sets out what the law is, and it is up to the reader to apply the law to the situation they are facing. The book is also not designed to be read by someone without a working knowledge of insolvency law and so it may be impossible for a lay reader to use, unless they are comfortable with the technical language.
Resources online
There are many useful resources online which can be accessed by simply typing
in the key legal terms on Google. For example, professional lawyers frequently
publish short articles about the law in order to attract potential clients. Although
it seems obvious, make sure that the article is about English law. The same keywords can attract articles on bankruptcy law in other countries. In general, it
will not be useful to rely on any authority from any other country’s law.
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An alternative procedure for the bankrupt to challenge the Trustee’s
fees is under r18.35. This route requires the permission of the court. In
order to receive permission, the bankrupt must show that there is, or
will be (or would be, but for the fees) a surplus to which they are entitled.
The difference between this application and one under r10.35 is
that it can be made even if not all the creditors are fully paid. It therefore
requires the permission of the court, because otherwise bankrupts
might complain about their Trustee’s expenses even when the
creditors are the ones paying. The court has discretion about whether
or not to grant permission. If permission is granted, the review process
is the same.
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Like a statutory demand, the sealed bankruptcy petition must be personally
served onto the debtor. The rules are similar, but they are applied more strictly
because a petition has more serious consequences than a statutory demand.
Although the rules for service of a demand have been set out in Paragraph 4.3
above, it is worth providing more detail in the context of a petition.
The petitioning creditor has to arrange for the papers to be physically handed
to the debtor. The creditor will then have to certify when service was affected.
Process servers are typically used (as mentioned earlier, a process server is
someone whose job it is to serve documents). Where applicable, the petition
must also be served on the supervisor of the debtor’s IVA (r10.14(2)). If the
debtor physically refuses to take the papers given to him, the server must tell
the debtor what the documents are, and the document must be left with or near the debtor. Anything less than this is not personal service. A solicitor cannot
accept personal service of a bankruptcy petition, although they can for a statutory
demand.
The court has broad discretion to waive defects or irregularities in insolvency
proceedings under r12.64. Where an attempt to personally serve the debtor has
been made, the court may waive this as a defect. However, if there was a complete failure to attempt personal service this is a fundamental error: see Gate
Gourmet Luxembourg IV SARL v Morby [2016] EWHC 74 (Ch) at [55]. In Gate
Gourmet, the debtor was accompanied by a friend and the process server gave
the paperwork to the friend. The friend and the debtor discussed the petition,
tried to return it to the process server, then put it in the rubbish bin. This was
held to be sufficient service, since the debtor was personally made aware of what
the paperwork contained. However, the judge held that even if he was wrong
about that, he would waive the error using his discretion.
If the creditor is unable to serve the petition personally, the creditor must apply
to the court for an alternative form of service (often known as ‘substituted service’).
This is a key difference with the service of a statutory demand, where the
creditor can take the view independently that personal service is not practicable.
The creditor must file evidence which sets out what steps have been taken to
serve the petition. The court will order substituted service if it is satisfied that
the debtor was keeping out of the way to avoid service of the petition: i.e. that
the debtor was deliberately evading service. The court will then permit or direct
alternative forms. The court probably can allow an alternative means of service
retroactively.4 If the court does permit alternative service, the certificate of service
must be accompanied by the sealed copy of the order permitting it (para
6(3) of Sch 4 to the Insolvency Rules). The usual order for substituted service is
service by post – or potentially email – with the deemed date of service seven
days later.
The court will only hear an application for substituted service if service has been
properly attempted. It will expect the steps set out in PDIP para 12.7.1 to have
been followed:
Where personal service of the bankruptcy petition is not practicable,
service by other means may be permitted. In most cases, evidence that the
steps set out in the following paragraphs have been taken will suffice to justify an order for service of a bankruptcy petition other than by personal service:
(1) One personal call at the residence and place of business of the debtor.
Where it is known that the debtor has more than one residential or business
addresses, personal calls should be made at all the addresses.
(2) Should the creditor fail to effect personal service, a letter should be
written to the debtor referring to the call(s), the purpose of the same, and
the failure to meet the debtor, adding that a further call will be made for
the same purpose on the [day] of [month] 20[ ] at [ ] hours at [place].
Such letter may be sent by first class prepaid post or left at or delivered to
the debtor’s address in such a way as it is reasonably likely to come to the
debtor’s attention. At least two business days’ notice should be given of the
appointment and copies of the letter sent to or left at all known addresses
of the debtor. The appointment letter should also state that:
(a) in the event of the time and place not being convenient, the debtor
should propose some other time and place reasonably convenient for the
purpose;
(b) in the case of a statutory demand as suggested in paragraph 11.2 above,
reference is being made to this paragraph for the purpose of service of a
statutory demand, the appointment letter should state that if the debtor
fails to keep the appointment the creditor proposes to serve the demand
by advertisement/ post/ insertion through a letterbox as the case may be,
and that, in the event of a bankruptcy petition being presented, the court
will be asked to treat such service as service of the demand on the debtor;
(c) (in the case of a petition) if the debtor fails to keep the appointment, an
application will be made to the court for an order that service be effected
either by advertisement or in such other manner as the court may think fit.
(3) when attending any appointment made by letter, inquiry should
be made as to whether the debtor is still resident at the address or still
frequents the address, and/or other enquiries should be made to ascertain
receipt of all letters left for them. If the debtor is away, inquiry should also
be made as to when they are returning and whether the letters are being
forwarded to an address within the jurisdiction (England and Wales) or
elsewhere.
Failure to follow these steps means that the court will not grant permission,
prospectively or retrospectively, for substituted service.
A debtor might be tempted to try to avoid service by (for example) refusing to
open a door to a process server and pretending they are not in. This is unlikely
to help the debtor in the long term. A petitioning creditor will, with relatively
little inconvenience, be able to obtain an order permitting substituted service.
However, there is the risk that the judge will view an order for substituted service
as an indicator that the debtor is unreliable, and discount their future arguments
accordingly.
The petition may not be heard until at least 14 days have elapsed after service,
and so the petition must be served at least 14 days before the dated listed for the
hearing (r10.21).
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As a general rule, most bankrupts do not automatically lose their jobs if they are employed. If the bankrupt is a regulated professional – for example, an accountant or an architect – it may be necessary for the bankrupt to tell their regulator of the bankruptcy order, and their regulator would decide what happens next. Some employment contracts have a clause which says that the employee going bankrupt is a ground for automatic dismissal, although the employer is likely to have discretion about whether to use this right. In general, if an employee is dismissed automatically because they go bankrupt, this may be a ground for a claim for unfair dismissal in the Employment Tribunal. The reader is directed to David Curwen’s ‘Employment Claims Without a Lawyer’ for more information. Most bankrupts do not have to tell their employer about their bankruptcy, but this will depend on the terms of the employment contract.
In general, the Trustee in Bankruptcy will want the bankrupt to keep working. The bankrupt will sign an ‘income payment agreement’ (see below), and the bankrupt will need a job in order to be able to make the payments. A Trustee might even be prepared to write a reference to reassure a nervous employer or prospective employer.
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An individual can voluntarily apply to an adjudicator to have themselves made
bankrupt. A voluntary bankruptcy leads to the same outcome as being made
bankrupt on a creditor’s petition. It is quicker and so cheaper for the individual.
A debtor interested in this voluntary bankruptcy must fill in the form on
the Online Debt Solutions website run by the Insolvency Service: https://apply-for-bankruptcy.service.gov.uk/ and pay an adjudication fee of £130 and
a deposit of £550. The website is clear and easy to use. The debtor must provide
evidence of their insolvency to an adjudicator, who is an official employed by
the Insolvency Service. The adjudicator makes a single decision: whether they
satisfied that the debtor cannot pay their debts.
It is a criminal offence to knowingly or recklessly make a false representation or
omission in a bankruptcy application, for example, not disclosing an extra bank
account. Note that making a false representation is a particularly bad idea given
that the OR is going to review the debtor’s paperwork and is likely to find the
relevant undisclosed or misleading evidence. The OR is a professional who is
used to looking at financial information and identifying irregularities.
An adjudicator must make a bankruptcy order within 28 days of the debtor
making the application (r10.40) unless they request further information, in
which case they have 42 days from receipt. If the adjudicator refuses to make
the order, a debtor has 14 days to request a review. If the review is unsuccessful,
the adjudicator will give their reasons, and the debtor has 28 days to appeal to
the court. In all instances, the deposit money, but not the adjudication fee, is
returned if the application is unsuccessful.
The vast majority of applications are successful: it is not difficult to demonstrate
insolvency. The main reasons why applications are declined are technical ones,
such as failure to pay the deposit correctly. In practice, debtors who wish to use
this route can do so quickly and efficiently. There are roughly 12,000 applications for bankruptcy each year.
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A less commonly used alternative to serving a statutory demand is proving that the creditor has a judgment in their favour and execution of that judgment has returned unsatisfied in whole or in part. It is common for creditors to have judgments in their favour. These creditors are also likely to try to enforce their debt, for example by sending round a bailiff (or a High Court Enforcement Officer) whose role is to seize goods or repossess property. If the bailiff is successful, they will be able to sell these goods on to satisfy the debt. If the bailiff is unsuccessful, either because there is nothing to take, or because the assets were not worth the full amount, then they can provide a witness statement to that effect and this proves the insolvency of the debtor under s268(1)(b) of the Act.
This route has the advantage to the creditor of cutting through the need to issue a statutory demand and risk a set aside application. Nonetheless, this route is less commonly relied on by creditors in insolvency proceedings. This is partly due to the speed and ease of using a statutory demand. It is also because a mere visit by a sheriff and a report of their inability to gain access is insufficient: the sheriff must make a serious attempt to execute the debt. The court treats this process extremely cautiously and is reluctant to waive mistakes (‘cure defects’).
For an illustration, in Re Debtor (No. 340 of 1992) [1996] 2 All E.R. 211 the debtor owed the creditors £910,071. A sheriff twice visited the debtor’s home, but he found no one at home and so he was unable to gain access. The sheriff certified that his writ was unsatisfied in whole, but the sheriff had failed to ‘levy execution’, i.e. to see if there were any goods which could be sold, and if there were then to sell them. It was not said that the debtor had any goods of that high a value sitting in his house. This means that it was not disputed that, if the sheriff had managed to access the property, he would have been unable to levy execution.
Nonetheless, since the sheriff had not gained access, the statutory condition was not met. However, the court held that it had no power to waive the failure to meet the requirements of the Act. As a result of failing to gain entry, there was no presumption that the debtor was unable to pay their debts.
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A statutory demand is a formal request for money. There is an example of a statutory demand at the end of this chapter. A statutory demand must satisfy the rules in r10.1 of the Insolvency Rules 2016. There are templates which are frequently used; they are also routinely used incorrectly.
The rules which are most often broken are:
• r10.1(1)(c): The demand must state the name and address of the creditor. A statutory demand should use the creditor’s name and address, rather than the name and address of the representative of the creditor (for example, their solicitor). This may sound obvious, but it is often mistaken.
• r10.1(1)(l): The demand must name the court to which, according to the present information, the debtor must make an application to set aside the demand (i.e. the High Court, the County Court at Central London or a named hearing centre of the County Court as the case may be). Demands often name the wrong court. The correct court is typically the nearest hearing centre to the debtor, but see Paragraph 4.6.1 below.
• r10.1(7): If a statutory demand includes additional charges such as overdue fees, or interest, then the demand must be clear about what was the initial debt and what was the subsequent debt. Frequently statutory demands bundle the sum together into one single amount. This is incorrect.
• r10.1(8): The amount claimed for such charges must be limited to that which has accrued at the date of the demand. It is incorrect to include expected future charges.
• r10.1(10): Where the statutory demand is to be served outside of England and Wales, different time limits apply. The statutory demand must be amended to show the correct time limits. For details, see Box 12 on page 49.
If the statutory demand does not comply with these rules, it is ‘defective’. The implication of a defective statutory demand is discussed in Paragraph 4.6.2 in the context of when the court will set aside the statutory demand. A statutory demand is not itself a court document and so there is no form creditors must use. Any document can be a statutory demand, provided the Insolvency Rules at r10.1 are satisfied. It is quick to prepare a statutory demand since it does not require involvement from the court. There are no statistics on how many statutory demands are made because it is, at least initially, a private matter between the creditor and the debtor.
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Some debtors may wish to go bankrupt for the advantages it brings. Others have an alternative to bankruptcy, for example if the creditors prefer to settle the claim out of court or if they qualify for a niche alternative. Creditors may prefer to settle the bankruptcy claim out of court, frequently because they prefer a smaller sum now to an uncertain sum in the future. Nothing stops a debtor informally agreeing with a creditor to pay less debt, or to have more time to pay. However, the Insolvency Act creates certain structures which can be helpful to give a debtor an alternative to bankruptcy. This chapter discusses these alternatives.
1.1 Individual Voluntary Arrangements
An important alternative to bankruptcy is an ‘Individual Voluntary Arrangement’ (IVA). An IVA is a type of contract between the debtor and their creditors. If an IVA is passed it binds all known creditors who were entitled to vote in the arrangement, or would have been if they had notice of it. This includes creditors who voted against the arrangement.
WHO IS BOUND BY AN IVA?
An IVA binds all creditors, except:
An IVA will bind ‘contingent’ and future creditors, i.e. those whose debts are not currently owed but might be. An example of a future creditor is where a purchaser buys an item and agrees to pay for it in future monthly instalments. A contingent creditor is where the debt depends on an external event, for example if someone is being sued – the potential damages which the court might award is a contingent debt. An IVA does not bind contingent creditors if the debt is wholly prospective, i.e. too unlikely to arise.
Since an IVA binds future creditors, those creditors are likely to take steps to minimise their exposure to the debtor. For example, an individual might be tied into a gym membership for 24 months, and so, in theory, the gym is a future creditor for 24 months’ worth of monthly fees. However, the gym is more likely to end the contract and will participate in the IVA only to the extent of the historic unpaid amount.
Typically IVAs are agreements where the creditors agree to receive a smaller sum, and the debtor agrees to pay the creditors the money they are owed. An IVA could include a commitment to sell specific property, or for a connected party like a family member to pay money into the IVA, on the condition that the creditors accept a smaller sum. An authorised professional (a qualified Insolvency Practitioner) supervises the debtor’s implementation and compliance with the terms of the IVA.
There are many private providers of IVAs. Some debt charities such as StepChange will also organise an IVA. Insolvency Service statistics show that the most popular provider of IVAs in 2019 was Creditfix, followed by Hanover Insolvency. Providers advertise the ability to write off large proportions of debt. IVA providers will be able to deliver on this promise – but only if the creditors agree.
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To read more buy the book here.
]]>My book Insolvency Law Made Clear: A Guide for Debtors addresses the main questions debtors need to know. Should they go bankrupt? What does bankruptcy mean? How can it be avoided? What about debts owed by a company, and not by a person? What is “winding up”?
Unfortunately, for many, finding answers to these questions will be increasingly important in the next few months as the country returns to normality.
Daniel Kessler is a barrister at 4 Stone Buildings specialising in insolvency and commercial litigation
]]>More videos on hot topics covered in the new edition of Breaking Law are available on Stephen's blog, breakinglaw.co.uk
]]>This post was first posted on the author's blog breakinglaw.co.uk. Visit the site to keep up to date with all of Stephen's latest legal tip and tricks
]]>Like non-narcissists, narcissists do not like rejection.
But if you are planning to leave a relationship with a narcissist, be prepared for the fallout. Because narcissists (and by that I mean those who qualify for the diagnosis of Narcissistic Personality Disorder as defined in the DSM-5) will do quite a bit more more than simply throwing their toys out of the pram upon being left. And if you were ever in any doubt about whether your beau or belle was a true narcissist, you will most certainly know once you’ve walked away, in the most unequivocal terms.
You see, rejecting a person with narcissistic personality disorder triggers a variety of highly predictable responses, born out of what is termed ‘narcissistic injury.' As we have discussed in other articles, although certain types of narcissists (the overt types) may appear to have high self regard and self-esteem, in actual fact all narcissists actually suffer from highly unstable self-esteem.
Healthy adults derive their feelings of self-esteem largely from their own intrinsic sense of self-worth (around 70%), with much less coming from what other people think of them (external validation), at around 20%, and from how they feel they compare to others (10%).
But narcissists show a very different pattern - with a very much reduced sense of intrinsic self worth. A much greater proportion of their self esteem comes from external validation and also from how they feel they compare to others.
This is why they need to appear perfect, or to appear to have the perfect life. This is why they have to believe themselves (overtly or covertly) to be superior to others. This is why they often have to believe that others are envious of them, and that those who are not, simply do not understand their brilliance and uniqueness.
A narcissist will have become used to wearing whatever mask works best for them, to ensure they get the right kind of attention as their source of ‘narcissistic supply.’ (‘Narcissistic supply’ being the sustenance that their self-esteem requires). That could be the mask of the altruist, the grandiose superior being, or the vulnerable victim. Narcissists have often been compared to mythical vampires, the difference being that where a vampire needs feeding with blood to survive, the narcissist needs feeding with narcissistic supply just to feel whole and alive.
Although a narcissist may be predominantly one of the 3 types above for the majority of their life, it is very possible for a narcissist to play all these roles in varying amounts at different times in their lives, depending on what their situation calls for. These roles are simply strategies to enable them to top up their shaky, continually draining self-esteem. It’s like their self-esteem is contained within a bucket with a hole in it, constantly needing a steady stream of narcissistic supply gained from admiration, attention, jealousy etc to stay full.
But one thing is common to all types of narcissists - when you reject them, their already fragile, artificially propped up self esteem takes an enormous beating, and they spectacularly fall off their own self-made pedestals. And what happens next, which can last for months or even years, is a desperate attempt to claw-back their sense of self worth. When a narcissist is rejected, and their supply is withdrawn, they are suddenly forced to actually feel their own pitifully lacking low self esteem and their shame, and this unbearable for them - the avoidance of it being the whole reason why they constructed their protective false persona in the first place. It is this intense emotion that the narcissist feels as ‘narcissistic injury’. It’s even worse if they suffer the humiliation of being left publicly.
But before you feel too sorry for them, just be aware that the callous, cold, manipulative, controlling, vindictive behaviour that results from narcissistic injury can be so shocking that you may find it hard to believe that any human being could be capable of it.
Very often people who have been in long-term relationships with narcissists find this the hardest to believe, incredulous that after years of loyal servitude, they could be treated which such ice-cold heartlessness. Of course, due to arrested emotional development, the narcissist has never developed the ability to feel genuine empathy (although most can convincingly feign so-called ‘cognitive empathy,’ if it is in their interests to do so). This explains why they simply cannot care about the pain that they are inflicting on you as a result of their response to their narcissistic injury. Your pain is irrelevant, unreal, and if it is real, deserved. And most importantly, they can’t feel it, and therefore can’t feel guilt or remorse about it.
In addition, narcissists have a problem with ‘whole object relations’. What this means is that they are unable to see people (and themselves) as having a mixture of good and bad attributes. They are only able to you as being ‘all good’ or ‘all bad’ at any one time, depending how they perceive you are acting towards them. Obviously, if you have left them, you will have severely slighted them, and this will make them see you as ‘all bad,’ meaning that any punishment they inflict upon you as a result of their narcissistic injury will be entirely justified.
Even more sadly, the narcissist is not capable of loving in the unconditional, accepting, reciprocal way that typifies healthy love, no matter how convincing their love seemed at times. There is no sweetening this - the love for you that you thought you saw was never real. It was merely your own love reflected back at you by the narcissist. The narcissist did not adore or love you, she adored or loved the way you made her feel, and what you did for her. And that is another reason why the narcissist’s reaction to you leaving can seem so inhumane and cruel.
In short, if you leave a narcissist, expect no mercy.
Which type of narcissist they predominantly are (covert, overt, altruistic) dictates which (and how many) of the following strategies they will employ in response to their being left by their significant other.
So, here are the 9 behaviours of the rejected narcissist you can expect:
The narcissist is a natural master manipulator, and will often threaten suicide or even carry out an act of deliberate self harm, to make you feel guilty for thinking about leaving. They are keen to make you think that their blood will be on your hands if you go through with abandoning them.
They can use out quite high drama tactics in front of you - examples include actually taking an overdose, jumping into traffic so that you are forced to hold them down, repeatedly punching walls with their hands until they bleed, or even head butting walls until they injure themselves.
They will often tell you that they have been suffering with undiagnosed depression or stress, and that that is the true reason why have they have been difficult to live with.
If you are married, they may pull the ‘in sickness and in health vow card’ in conjunction with this last ploy.
They may go through the motions of having therapy to appease you, or suggest couples therapy. Reading self-development books is another manipulative method they use to try to show that they have changed.
If you have children they will use this to their advantage, most likely telling you that leaving will ruin the children’s lives. (It is ironic that many people leave their narcissist partners to improve their children’s lives).
Guilt tripping is classic of the victim (covert) narcissist, although all types can use it.
A common strategy to make you rethink you position is to threaten to make you suffer financially, or in some other way, if you go through with walking away. Custody threats regarding any children or pets, threats to smear your name, threats to destroy your possessions (eg to burn down your house) are all common, and delivered which such conviction that you will find them believable and scary. Unfortunately, these threats may not be empty, and you should consider legal advice regarding them. Although you may be expecting such threats, they can still come as a big surprise to many.
If you’ve had a relationship with a narcissist you will be familiar with the 'idealize, devalue, discard cycle' that all narcissists employ to keep you off-balance, hooked into the relationship and unsure of what is coming next. If you look back, this is the pattern that will been present throughout the bulk of your relationship.
When you threaten to leave a narcissist they quite often tend to ramp up these cycles to quite alarming levels, so you may find yourself in the ‘devalue’ stage once more.
Here the narcissist may play on your insecurities, by telling you that you will be alone forever if you leave them and that you are unlovable, unattractive, boring, unintelligent, fat or whatever else they have learned you may be insecure about.
This is the term used for when the narcissist tries to suck you back into the relationship by promising to change, and showering you with love and affection.
This is when the narcissist revisits the ‘idealise phase’ of the narcissistic abuse cycle of 'idealise, devalue, discard'. They will pull out all the stops to suck you back in, on the grounds that they love you so much that they cannot live without you.
You will doubtless have tried to explain to the narcissist what it is about the relationship that you cannot live with anymore, and they will be able to change some of these things in the short term to demonstrate their love for you, so great is their fear of abandonment.
These tactics are often hard for the victim to resist, and you may well be drawn back into the relationship, pulled by the magnetism of the empty promise of true love, and the demonstrable improvements that the narcissist has been able to make.
The inevitable demise of the relationship will not be far away however, when the devalue phase is upon you once more.
Most narcissists will already have a number of adoring fans waiting in the wings, who they have been triangulating you with during your relationship. This stems from their insatiable need for admiration and attention, as a source of narcissistic supply (see above). It is simply impossible for one person to be enough to provide all that the narcissist needs supply-wise, so the more people they have orbiting around them, ready to jump into their arms, the better.
The absolute hallmark of the narcissist is their inability to be relationship-less for any length of time, as without a relationship their narcissistic supply needs are simply not being met. They cannot run the risk of having to feel the reality of their empty self-esteem, and so you will be replaced instantly, sometimes within hours of you saying that you are leaving.
Expect your narcissist to be on a dating website within hours, dating within days and in another relationship within weeks, no matter how long or serious you thought your relationship with them was. And do not expect subtlety. You may well know about their new relationship, and how perfect it is, practically from the outset.
This is behaviour common to all types of narcissists, so I urge you to mentally prepare yourself for it. Of course, a leopard cannot change its spots, and you can be sure that once the initial lovebombing phase is over with the new source of supply, they will be being devalued, just like you were, regardless of the image that is bring portrayed to the outside world.
If you have a joint mortgage or bank accounts, tell your bank or mortgage lender that you’re relationship is ending and that you would like the accounts frozen, so that money cannot be withdrawn without both parties consent, and mortgage loan amounts cannot be increased to free up cash for the narcissist to take.
It is almost standard for narcissists to try to buy expensive new cars or similar, or to simply withdraw huge sums of moneys from accounts as soon as they catch wind of your impending desertion. They will also attempt to cut you off from the finances as soon as possible, so you need to be ready well in advance.
If you have a joint credit card for which you are liable, make sure that the narcissist cannot max these out, by informing the credit card company of the split.
Change all your passwords for your online bank accounts well before you tell the narcissist you are leaving.
Take any treasured belongings and photographs to a safe place, even ones that the narcissist has never liked, as you can be sure that they will try to take anything from you of sentimental value or that you hold dear.
Before you mention leaving, make sure you have enough funds in your bank account, so that when you actually leave you can swiftly separate everything you need to before the narcissist can steal from you.
The narcissist will also attempt to financially abuse you in indirect ways, as well as in the direct ways above. For example:
They may stop paying their share of the children’s school fees or for extracurricular activities, so that you will have to pay them, thus reducing your available funds. Using the children in this way is typical narcissistic behaviour, and clearly separates them from healthy, loving parents.
They may stop paying their share of the mortgage again, forcing you to pay it.
If you are divorcing, they may try to make unreasonable requests of you via their lawyers so that you spend a huge amount on lawyers fees replying to these requests.
It is a standard ploy for narcissists to deliberately and significantly reduce their earnings as soon as they get wind of your dissatisfaction with the relationship.
Also, attempting to hide and sell off assets is very common.
Once the narcissist has spent or given away money, it has gone. UK courts generally don’t include it in the financial pot when deciding on the final financial settlement, so be aware of this, so you can protect yourself early.
Narcissists do not play by the rules, even the rules of the court, so be aware that in divorce cases the narcissist is likely to lie or twist his or her financial statement, hiding assets and lying about, or deliberately reducing, income. They may delay returning forms, and drag out procedures, so that you are emotionally drained further.
If you have moved out, they may make a point of slowly driving past your new house, so that you can see them. This can progress to proper stalking, and you may well need to seek legal advice on this.
They often threaten to bug, or actually do bug the house/car of the partner who left.
It is common for narcissists to threaten to take their ex-partners pets, so be prepared.
Expect the narcissist to leave abusive messages for you, send abusive texts and emails and ring you repeatedly. It is best to avoid all direct communication with them in these cases, ignoring all but written communications from their lawyer.
A bizarre, but oddly common tactic the narcissist may use to destabilise the person who is leaving is to deliberately spell your name wrongly in communications.
If you are getting divorced, expect the narcissist to try to convince you to go to meditation with them for your own best financial interests - but be aware that unless your mediator understands NPD, this may not work for you, as the narcissist will be good at wearing you down emotionally, pushing all your buttons, and misinforming and influencing the mediator with characteristic charm and lies. If you do have to go to mediation, you may wish to ask for 'shuttle mediation', where you do not sit in the same room as the narcissist, but the mediator goes between you in different rooms.
If the narcissist moves out and you are remaining in the former home, be prepared for them to come and go as they please, taking with them whatever possessions they want. I suggest changing the locks early in these circumstances, for your own peace of mind.
The narcissist may tell you that they have called the police and told them that you have been physically abusive, and you that should leave the house if you want to avoid arrest. (They may be lying, or they may indeed have done so. If you need to stay, and it is safe for you to stay, then do so, and present yourself calmly in the event that the police do arrive).
This is another expected narcissistic move, which most types of narcissists will pull. You may find it difficult to believe, but these happen consistently and predictably.
Expect to be labelled a prostitute, drug addict or alcoholic.
Expect the word on the street to be that you were having an affair, or several affairs, and that was the reason for the split. Any infidelities of the narcissist will be absolutely denied (See The Narcissist's Prayer Blog Post).
Expect to be called an inadequate or abusive parent and to potentially have a custody fight on your hands. Sadly, the narcissistic parent will sacrifice what is in the best interests of the children, in order to exact revenge on the non-narcissistic parent. You will need to stay calm in the face of this, as the narcissist will be able to appear to be the rational, caring parent in court, whilst your fear could make you appear less stable. Document everything, including the narcissist's text messages to the children, all late and cancelled pick ups of the children, all inappropriate behaviour towards the children and the all ranting communications that you will be receiving from the narcissist. This hard evidence will stand you good stead should you need it in court.
Expect your family and friends to be contacted and lied to about you, with characteristic convincingness. The narcissist will play the victim here, and crocodile tears will fall.
The narcissist will also badmouth you to work colleagues and acquaintances.
Expect to lose friends, and respect in the community initially.
Expect the narcissist to recruit his 'flying monkeys' to help with the smear campaign (the flying monkeys are the narcissist’s fan club, who would do anything to curry favour with him or her, including spreading malicious gossip). They are usually subordinates, as narcissists are usually unable to sustain meaningful friendships with people at the same intellectual level as them, who generally do not provide them with enough unconditional admiration or attention.
If you share children with the narcissist be prepared for them to attempt to alienate the children from you with a mix of charm, victimhood and lies about you. This is a particularly challenging thing to deal with, particularly if the children are not old enough to understand the narcissist's true personality. Take heart - all will become clear to them in the fullness of time.
Narcissist's often call the police and try to have you arrested for 'physically abusing them'. Particularly if you are male, it is not uncommon for the police to believe the narcissist, and in many cases you may even find yourself in police custody for a night or so. Sadly, this is far too common an occurrence, sadly.
If the narcissist has a history of being physically abusive and, sometimes, even if they do not, this is a very real danger. You will need to remove yourself from the situation immediately and involve the police.
In summary, leaving a narcissist may be one of the most traumatic experiences of your life, but it can be one of the most worthwhile. If you can avoid triggering narcissistic injury in the narcissist, this may make the process less painful for you, but this may come at a cost. The narcissist may exhibit less of the behaviours above if you allow them to discard you first, by withdrawing slowly from them and giving them less and less of your attention and energy (i.e. your narcissistic supply), so they move on to another source. Using the Grey Rock Technique can help with this.
Know that if you can prepare for the worst in the ways above, you will survive it, although it is rare to emerge unscathed. Leaving a narcissist can rock the very foundations of your world, but it is possible to grow and reconfigure from the experience (so called ‘post traumatic growth’). Seek professional help, rely on those close to you, and try to stay strong in the face of adversity.
There is a price for freedom, but it's a price well worth paying.
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