A bankruptcy horror story (that could have been avoided)
I was contacted by a solicitor friend of mine the other day. He had a client who had been made bankrupt after taking an ostrich-type approach to an unpaid tax bill. The client was able to pay the bill in full but he'd procrastinated for so long that HM Revenue and Customs had successfully petitioned for bankruptcy. As the client is a businessman with relatively complex financial affairs, the Official Receiver immediately appointed an insolvency practitioner from a top-10 Leeds firm to act as the Trustee in Bankruptcy. The solicitor had agreed with the client that he would immediately pay the debt in full and apply for an annulment of the bankruptcy order - reasonable advice, given the fact that the client had sufficient funds to cover the debt. However, payment wasn't made immediately and in the five days that it took the client to get the cash together to pay off the debt in full, the Trustee had accumulated fees of over £20,000. Now, these fees will be disputed, but I'm sure that the Trustee will be able to justify taking the steps that he did to begin his administration of the bankrupt's estate, to protect the interests of creditors.
All in all, an expensive mess.
And it could have been avoided.
A similar case cropped up just a few weeks ago. A bankruptcy order had been made against the client and whilst he had sufficient assets to pay all his debts in full, the assets weren't liquid and would take some weeks or months to sell. We immediately contacted the Official Receiver, who was poised and ready to appoint a Trustee in Bankruptcy. As we had already been instructed, the Official Receiver agreed to hold off for two days, during which we prepared a proposal for an Individual Voluntary Arrangement ("IVA") which provided for all debts to be paid in full, once a property had been sold and the equity released. In the current climate, we don't know exactly how long this might take, so the client has agreed that as soon as it is sold, all creditors will be paid in full with interest. We then applied to the court for an Interim Order, preventing any further legal action (like a Trustee in Bankruptcy being appointed and racking up fees) and a meeting of creditors was organised to approve the IVA, which they happily did, as they were getting paid in full with interest.
This way, we've saved the client many thousands of pounds of fees (and also any other costs of the bankruptcy, such as ad valorem fees which are payable at a rate of 17% on assets that fall into the Trustee's hands). The client has a manageable strategy for repaying the debts in an orderly and structured way, not a "fire sale" for a fraction of the true value. In addition, the bankruptcy order will be annulled in the next few days, on the basis that creditors have opted for the IVA instead. All in all, a job well done.
So if you are approached by a client who has just been made bankrupt - call me straight away. We can discuss the case and decide the best way forward. For a no-obligation, impartial and free chat, call me on 01709 331300. It's good to talk.