As we indicated in our first bulletin, the bill proposes the introduction of bankruptcy restriction orders (and voluntary undertakings) in line with the provisions which have been in force in England and Wales since spring 2004.
The decision whether to apply for a bankruptcy restriction order (BRO) will be one for the Accountant in Bankruptcy and (unless a voluntary undertaking is agreed) the decision on whether a BRO should be imposed will be a matter for the discretion of the court, having regard to the conduct of the debtor.
The bill gives a number of examples of conduct, which are merely illustrative and are not an exhaustive list. These include :
- Conduct, such as gambling, which materially contributed to the insolvency or the extent of the debts
- Participating in transactions which are challengeable as an unfair preference or a gratuitous alienation
- Trading in knowledge that unable to pay debts
- Failing to keep records
- Failing to co-operate with trustee or to produce information to trustee on demand.
In common with the disqualification regime applicable in corporate insolvency cases, the minimum period of a restriction order is 2 years and the maximum is 15 years and a register is to be kept by the AIB of all orders and undertakings. There are provisions in the bill which enable a debtor to apply to annul the BRO or to have the BRO cease to apply on an earlier date.
While it will take some time to see how the Scottish courts will deal with these applications, we can obtain some guidance from our fellow practitioners south of the border. Examples of recent cases in England include :
- A 1.5 year BRO for a man who partially repaid a debt to his father shortly before applying for his own bankruptcy
- A 4 year BRO for a man who mis-stated earnings on a credit card application; used the credit card to repay a loan shark and had insufficient earnings to repay even the minimum payment on the credit card, leaving the credit card company with an outstanding debt when he applied for his own bankruptcy.
- A 6 year BRO for a man who made preferential payments to certain creditors amounting to approximately £10,000 at a time when he had further debts of around £40,000 and the following day gambling and losing £5,000.
- A 7 year BRO for a lady who sold two plasma screen TVs which were subject to finance, leaving the finance companies, loan companies and credit card companies as creditors.
- A 7 year BRO for a man who failed to disclose an asset worth £12,000 to the trustee and then proceeded to sell the asset and use the money to pay off connected persons.