Property in bankruptcy - know the facts

It is incorrect to assume that once discharged, if part of the bankruptcy estate has not been realised then it will be conveniently forgotten.

Over the past two months, the Insolvency Service has written to over 6,000 people who were made bankrupt in the late 1980's/early 1990's, in order to realise their interest in the former bankrupt's home. These unfortunate people have been told that they need to either raise enough money to buy out the bankruptcy estates' interest or face the consequences of possession proceedings being commenced by a Trustee in Bankruptcy.

As a direct result of provisions within the Enterprise Act 2002, BRI has been warning clients of this possibility. In fact, recently we dealt with a man who had been made bankrupt in 1992 and found that the Trustee wanted to realise his interest in his house.

At the time of his bankruptcy, the house had £30,000 of negative equity. His share in the equity now stands at £23,000, which he has to either pay in full, negotiate a settlement or face the Trustee selling it. Unfortunately, like many others in the same position, costs and statutory interest were added to the bankruptcy debts and took the total balance required to pay everyone off far beyond his interest in the property.

However, it is not all doom and gloom, the insolvency profession has now agreed to a protocol for dealing with people who find themselves in this distressing situation. If you have a client in this situation, please contact one of the management team at BRI.

You are what you say you are!

When contacted for advice, BRI have often come up with solutions to problems even before Directors realise they had them. For example, the accuracy of company stationery and, in particular, letter headed paper can often be overlooked, leading to problems if something were to go wrong in the future.

At BRI we know of a company which had been incorporated for over a year but had only recently been experiencing financial problems. Unfortunately for them, they still had plenty of their old partnership headed paper left and so, rather than go to the expense of ordering new letterheads, they continued to use the partnership paper unmodified. However, in the eyes of their creditors, the business set-up was unchanged and, in the event of an insolvency, would try to claim against the partners in the former partnership.

At BRI, we came across a company who had spent valuable time and money designing a new logo and strapline for their businesses headed paper. Whilst the result was fabulous and eye-catching, the paper did not make reference to the company's registered number, registered office or include the words Limited or Ltd. This blatant failure to disclose all the facts can expose directors to personal liability should a problem ever arise.

Finally, many people love to see the word "Director" on their business card even though they are not an actual director of the business. In a recent case, BRI helped a sales representative who was being treated by the liquidator of his former employer as a "de facto" director, who should face the same financial consequences as a properly appointed director. Although BRI won the case, it took over a year to achieve and all because his business cards said he was a director of the company!

Other areas that can give rise to personal liability include:

What can you do now?

If you have any queries on the above information or on any insolvency related matter, please contact a member of the BRI Management Team. Offering the best advice to every client regardless of his or her situation remains BRI's number one priority.

If you have any queries on any issues arising from this Briefing or on any insolvency related matters please contact a Member of the BRI Management Team here

Important Note: The above is background information for the general professional adviser and is not a comprehensive statement of the law - we recommend that expert advice be taken on specific issues arising in practice