What are the restrictions when someone goes bankrupt in the UK?
Upon the making of a bankruptcy order, for a period of twelve months thereafter the person declared bankrupt (the debtor) has certain obligations to his or her trustee in bankruptcy and certain restrictions placed on his or her actions and conduct.
These restrictions are summarised below. The debtor cannot:
- borrow more than £500 without telling the lender that he or she is bankrupt
- act as a director of a company or be involved in the formation, management or promotion of a company without the court’s permission
- carry on business in a name or trading style different to the one under which he or she was made bankrupt
- be a trustee of a charity
- work as an insolvency practitioner
- sit or vote in the House of Commons or the House of Lords
- be a school governor
- be a solicitor or accountant
How long do bankruptcy restrictions last?
In short, restrictions last until an individual’s bankruptcy ends. Provided the debtor cooperates with his or her trustee in bankruptcy and has not been dishonest, the debtor will usually be free from restrictions when twelve months have elapsed. If the debtor has not cooperated, the trustee in bankruptcy may apply to the courts to have the twelve months automatic discharge suspended until the debtor cooperates.
Furthermore, if upon investigation it comes to light that the debtor is found to have committed a bankruptcy offence then the Official Receiver (OR) may impose a Bankruptcy Restriction Order (BRO) or accept a Bankruptcy Restriction Undertaking (BRU) from the debtor.
Offences giving rise to a BRO or BRU include:
- gifting or transferring at an undervalue bankruptcy assets
- preferring one creditor over another
- borrowing money in the knowledge that it cannot be repaid
- neglecting business affairs and in so doing increasing the debts of the business
- not cooperating with the Official Receiver
- fraudulent or dishonest behaviour, for example providing false information to obtain credit
If a debtor willingly accepts the OR’s findings or wishes to avoid the time and costs of attending court by reaching an agreement with the OR, he or she may provide the OR with a BRU. Typically, this will increase the bankruptcy restriction period from twelve months to three to four years.
If no BRU is provided, the OR can make an application to Court for a BRO to extend the bankruptcy restriction period to between two and fifteen years. This effectively brings the bankruptcy restrictions regime in line with company directors disqualification guidelines in that a company director found guilty of an Insolvency Act or Companies Act offence can be disqualified from being a director for two to fifteen years.
About the author
Neil Dingley is restructuring and insolvency Partner at Moore Recovery Stoke on Trent and has a background in information technology and accountancy.