The law in England and Wales on bankruptcy was amended by the Enterprise Act 2002 s.267(1), amending Local Government Act 1972 s.80(1)(b) which replaced the existing system of automatic restriction on bankrupts serving as members of a local authority by one disqualifying those subject to a bankruptcy restrictions order. A person is disqualified if he is the subject of a bankruptcy restrictions order or interim order. A person is NOT disqualified because he has an Individual Voluntary Arrangement (IVA), consolidated loan or Debt Management Plan (DMP).
What is a Bankruptcy Restriction Order (BRO)
A Bankruptcy Restriction Order or BRO, is a court order made against a bankrupt once a court has decided that the bankrupt’s conduct has been culpable or dishonest.
When a court imposes a Bankruptcy Restriction Order (BRO) it will subject the debtor to certain restrictions for a set period of between 2 and 15 years.
The restrictions are the same restrictions as every bankrupt will experience during a normal bankruptcy period, which are set out in the insolvency law, however the Bankruptcy Restriction Order (BRO) will lengthen the time period of the bankruptcy restrictions, instead of allowing them to be lifted when the bankrupt is discharged, as is normally the case.
The restrictions which are set out in insolvency law that can expect during a bankruptcy are:
- You must declare you are bankrupt to a creditor if you are trying to obtain in excess of £500 credit
- You must inform potential business colleagues and associates the name, or trading style under which you were made bankrupt.
- You are restricted from acting as a company director, from taking part in its promotion, formation or management without the court’s prior permission.
- You may not act as an insolvency practitioner, or as the receiver or manager of the property of a company on behalf of debenture holders.
- You may not be a member of parliament in England or Wales.
Here are some examples of the actions that could attract a Bankruptcy Restriction Order (BRO), as listed on the insolvency services website
- Incurring debts that you knew you had no reasonable chance of being able to repay.
- Selling assets at under their market value or giving away these assets for free.
- Showing priority to certain creditors, such as family or friends in preference to others.
- Being unreasonably extravagant with your spending.
- Gambling or making rash speculations.
- Causing your debts to increase by neglecting your business affairs and responsibilities.
- Fraud or fraudulent breach of trust.
- Carrying on with your business when you knew, or should have known that you were insolvent.
The courts will decide on the length of time the Bankruptcy Restriction Order is to be imposed, but it is generally accepted that the length of the Bankruptcy Restriction Order will be influenced by the amount of financial harm your behaviour has caused your creditors.
And finally, the power of a Bankruptcy Restriction Order (BRO) is not to be underestimated, for if you are found guilty of breeching your BRO you commit a criminal offence, and therefore if found guilty you could be fined or imprisoned.
The Official Receiver will continue to look at the facts in appropriate cases and will identify the dishonest, who then may become subject to certain restrictions, such as a Bankruptcy Restriction Order (‘BRO’) or Bankruptcy Restriction Undertaking (‘BRU’)Bankruptcy Restrictions Undertaking (BRU)
A bankruptcy restrictions undertaking has the effect of prolonging the restrictions of bankruptcy for between 2 and 15 years. It is the same as a bankruptcy restrictions order except:
- No application to the court is necessary
- The duration that the restrictions are in force may be shorter as you are accepting the allegations made against you.
During the investigation of your affairs the Official Receiver may consider you to be blameworthy, reckless or culpable. As such, he/she may consider a bankruptcy restrictions order to be appropriate. To avoid the matter going to court you will be given the opportunity to accept the allegations against you and state your willingness to enter a bankruptcy restrictions undertaking.
Before submitting your papers to court you should know how bankruptcy will affect you. The bankruptcy restrictions undertaking is just one consequence of bankruptcy that can affect you for years to come.
How long is a bankruptcy restriction undertaking?
The actual length of the bankruptcy restriction undertaking will depend on your behaviour. If you are guilty of fraud or a criminal activity then you can expect the term of the undertaking to be 11 to 15 years. If you have just been negligent then you can expect less than 11 years. The length will depend on your circumstances.
What happens if I do not accept the undertaking?
A bankruptcy restrictions undertaking has the same effect as a bankruptcy restrictions order but without the need to go to court. If you do not accept the bankruptcy restrictions undertaking then the Official Receiver may proceed to apply to the court for an order. On the flip side, if you do accept, the term that you are subjected to restrictions may be discounted.
In Scotland, the equivalent legislation is for Sequestration
JB November 2011