PERSONAL INSOLVENCY | INSOLVENCY ACT 1986
When is an Individual Insolvent?
IA 1986, s267(2) – Two tests:
a) The debt is payable immediately and the debtor does not have sufficient funds to do this, even
though he may at some point in the future
b) The debt is payable at some specified point in the future and the debtor has no reasonable
prospects of being able to pay
Bankruptcy
‘Bankruptcy’ applies to individuals (including partners), but not to companies or limited liability
partnerships.
Bankruptcy is a judicial process whereby all assets of the bankrupt are passed to a third party, the
trustee in bankruptcy. The trustee pays of as many debts as possible in the statutory order. Any debts
that remain unpaid in full are usually then discharged.
The process of bankruptcy begins upon the presentation of a petition to the court or by the debtor
making an application online himself.
Creditors Petition for Bankruptcy
IA 1986, s264
A creditor may present a petition to the court is the debtor owes £5,000 or more.
The creditor must also claim that the debtor is unable to pay the debt or has little prospect to do so
i.e. is insolvent. This is shown if the creditor has followed one of the methods set out under s268.
IA 1986, s268 – A Creditor can show inability to pay debts by –
a) Serving a statutory demand (formal, written demand) on the debtor for a liquidated debt of
£5,000 or more AND wait 3-weeks to see whether the debtor pays the sum or applies to court
to set aside the demand
b) Serving a statutory demand on the debtor in respect of a liability to pay the creditor a sum of
£5,000 or more on a future date AND wait 3-weeks to see whether the debtor shows a
reasonable prospect of paying the sum or applies to court to set it aside
c) Obtaining a court judgment for a debt of £5,000 or more AND attempt execution of that
judgment debt (e.g. sending enforcement officials to collect debt) and execution fails.
If a single creditor is owed less than £5,000, he cannot present a petition. However, if the cumulative
total of debt owed to multiple creditors is £5,000 or more, they can petition together.
When is an Individual Insolvent?
IA 1986, s267(2) – Two tests:
a) The debt is payable immediately and the debtor does not have sufficient funds to do this, even
though he may at some point in the future
b) The debt is payable at some specified point in the future and the debtor has no reasonable
prospects of being able to pay
Bankruptcy
‘Bankruptcy’ applies to individuals (including partners), but not to companies or limited liability
partnerships.
Bankruptcy is a judicial process whereby all assets of the bankrupt are passed to a third party, the
trustee in bankruptcy. The trustee pays of as many debts as possible in the statutory order. Any debts
that remain unpaid in full are usually then discharged.
The process of bankruptcy begins upon the presentation of a petition to the court or by the debtor
making an application online himself.
Creditors Petition for Bankruptcy
IA 1986, s264
A creditor may present a petition to the court is the debtor owes £5,000 or more.
The creditor must also claim that the debtor is unable to pay the debt or has little prospect to do so
i.e. is insolvent. This is shown if the creditor has followed one of the methods set out under s268.
IA 1986, s268 – A Creditor can show inability to pay debts by –
a) Serving a statutory demand (formal, written demand) on the debtor for a liquidated debt of
£5,000 or more AND wait 3-weeks to see whether the debtor pays the sum or applies to court
to set aside the demand
b) Serving a statutory demand on the debtor in respect of a liability to pay the creditor a sum of
£5,000 or more on a future date AND wait 3-weeks to see whether the debtor shows a
reasonable prospect of paying the sum or applies to court to set it aside
c) Obtaining a court judgment for a debt of £5,000 or more AND attempt execution of that
judgment debt (e.g. sending enforcement officials to collect debt) and execution fails.
If a single creditor is owed less than £5,000, he cannot present a petition. However, if the cumulative
total of debt owed to multiple creditors is £5,000 or more, they can petition together.
