If a bankruptcy petition has been presented against you, there are a number of factors to consider when deciding how best to respond to it.
Effect of the bankruptcy petition
Once a bankruptcy petition has been presented against you, aside from the obvious risk of you being made bankrupt, the following consequences will arise:
- Any transactions you make will be potentially void in the event you are made bankrupt unless the transaction is approved by the court (see the section on validations orders). This can have serious implications if you are running your own business or are about to sell a property or other asset.
- The court notifies the Chief Land Registrar that the petition has been issued. Your name will then be added to the Land Charges bankruptcy register as a pending action. Not only could this alert other creditors or result in your bank accounts becoming frozen, but it could halt the transfer of any property by you
- The petition cannot be withdrawn without the permission of the court which is not likely to be given until the petition has been heard. Therefore, if for any reason the petitioning creditor seeks withdrawal or dismissal of the petition, there is opportunity for any other creditors to attend the petition hearing and apply to take over carriage of the petition in connection with the debt owed to them.
Deciding what to do
There are a number of options available to you when considering how best to address the petition. These include the following:
- If you do not accept that you owe the money, you may want to challenge the petition on substantial grounds
- You may be able to seek dismissal of the petition on procedural grounds. A bankruptcy order is a draconian remedy and the court is only likely to make it if it is satisfied that the petition is procedurally correct, has not been made for a collateral purpose and does not amount to an abuse of process
- Pay the petition debt and thereafter seek dismissal of the petition at the hearing. However, beware of the possibility of supporting creditors who may wish to take over carriage of the petition.
- Offer to make payment of the debt in instalments or offer security in respect of the debt. The court has the power to dismiss or even adjourn a petition if you make a reasonable offer to make payment of the debt in instalments or offer suitable security.
- Consider an IVA. For further information please see the “Entering into an IVA” webpage.
Challenging the petition
If you intend to oppose the petition, you are required by the rules to file with the court a notice of the grounds of objection and send this to the petitioner. This must be done 5 business days before the hearing. If you do not file this notice, there is a risk that the court will not give full consideration to your grounds of challenge. You may challenge the petition on the same grounds as a statutory demand – Challenging a Statutory Demand – and there may be other points that the court will be willing to take into account at this stage.
Taking legal advice
The consequences of being made bankrupt are potentially very serious. You and your family may lose your home. You may lose your business. You may have to stop being a director of a company. You will be subject to restrictions as to what you can do during bankruptcy and your credit rating may be badly affected in the future. However, for some people bankruptcy may be the best way out of their financial problems. If you are in business or in the middle of a property transaction you may need to apply to the court for an order allowing you to carry on with these things without the risk that they will subsequently be undone. If you want to propose an arrangement to all of your creditors with a view to avoiding bankruptcy, you will need the assistance of an insolvency practitioner. If there are grounds on which to challenge the bankruptcy petition, you should take legal advice on this at an early stage so that your prospects of success can be assessed and, if necessary, other options can be considered in the time available. It will be apparent from what we say above that there are many legal issues that arise when a bankruptcy petition is issued and taking legal advice may be essential in order to protect you and your family from the potentially serious consequences of this. This can include:
- Advising on whether you need to apply to court to validate transactions prior to the hearing of the bankruptcy petition
- Advising on whether there is a genuine dispute on substantial grounds
- Advising on whether you have a counterclaim, cross-demand or set-off that is equal to or exceeds the debt
- Ensuring that the documents are properly prepared and issued in time
- Corresponding with the creditor and their solicitors
- Preparing your legal arguments
- Representing you before the court.
Our solicitors are happy to advise on these and other legal issues in connection with the presentation of a bankruptcy petition against you. For more information proceed to Issuing a bankruptcy petition
For more information, please contact our team of experts by emailing insolvency@bankruptcy-solicitors.com or call 020 8308 3610 today.