Annulment of a bankruptcy order

If you are entitled to have your bankruptcy annulled, this option is attractive as if your application is successful you will avoid the onerous restrictions that come with bankruptcy (which can, by way of example, prevent or hinder you from borrowing money, holding a directorship or working in certain professions).  You can also seek to limit the stigma of bankruptcy and impact on your long-term credit record.

Below we summarise the grounds, procedure and effect of applying to the court for an order annulling a bankruptcy order under the Insolvency Act 1986 (the ‘Act’) and the Insolvency (England and Wales) Rules 2016 (the ‘Rules’). This introduction is not intended as a substitute for legal advice.  The process is complicated, with potentially serious consequences if a mistake is made.  We therefore recommend that you seek specialist legal advice before taking any steps.  Our solicitors will be happy to help you with the process.

Do I have grounds to annul a bankruptcy order?

In short, you may be able to annul a bankruptcy order which has been entered against you on one of the following grounds:

• In circumstances where it ought not to have been made (on any grounds existing at the time) pursuant to section 282(1)(a) of the Act. If you find yourself subject to a bankruptcy order and it is your belief that it shouldn’t have been made as you can either pay your creditors or if the Judge at the hearing failed to consider factual circumstances (which existed at the time of the petition hearing) correctly or otherwise where there was a procedural irregularity (for instance, where service of the bankruptcy petition was defective or incomplete etc) then you can apply to annual pursuant this ground. This is by no means an exhaustive list of grounds under section 282(1)(a) of the Act;
• The bankruptcy debts and expenses have all satisfactorily been paid or secured to the extent required by section 282(1)(b) of the Act; or
• Otherwise, a further ground exists if you are an undischarged bankrupt and you have entered into an Individual Voluntary Arrangement (“IVA”) with your creditors under section 261 of the Act.

The most common ground is when all the debts and expenses (including the trustee’s administrative fees and disbursement costs) of the bankruptcy have been paid in full bringing creditor liability to nil. If this ground is being relied upon, the application will need to be made by you, as the debtor. This ground ultimately exists to provide an incentive to bankrupts to co-operate with the trustee and also deters a bankrupt to try to conceal assets at the outset so that they can try to escape the severe consequences of bankruptcy sooner.

Are there any time constraints with bringing an annulment application?

There is no time limit prescribed in the legislation within which an application must be made, but applications must be made promptly and practically speaking should be made before you are discharged from bankruptcy.

What will happen if I don’t seek an annulment of my bankruptcy?

Without seeking to annul a bankruptcy order, usually you will be declared bankrupt for a period of 12 months until you are automatically discharged. However, this is not always the case as a trustee or Official Receiver can bring an application prior to this time to suspend your discharge. This would only usually occur in circumstances where you have failed to comply with your obligations under the Act and Rules and/or have failed to disclose assets to a trustee in attempt to deliberately prevent prompt realisation of the asset/s for the benefit of the creditors.

Who can bring the annulment application in Court?

Aside from a bankrupt, an application can also be made by the trustee-in-bankruptcy/the Official Receiver or by a third party who has been affected by the bankruptcy order (for example, your spouse in circumstances where you have jointly owned assets etc which have been caught up in the administration).

What is the court process?

The court procedure you take is dependant on the ground you seek to rely upon.

Applications made under section 282(1)(a) of the Act (ought not to have been made)

This application must be supported by a substantive witness statement and evidence which:

• Set out the details of the bankruptcy order and the circumstances in which it was made, including the bankrupt's involvement at the hearing and details of any applications previously made to set aside an underlying statutory demand or appeal.
• Set out the grounds on which the order should be annulled. Where these rely on facts not already before the court, they should be set out as fully as possible.
• Set out the stage reached in the administration of the bankrupt's estate. This may be done by including any reports prepared by the trustee (or might just be a list of known creditors and their debts if the bankruptcy is at an early stage).
• Explain any reasons for a delay in applying if this is relevant.

Applications made under section 282(1)(b) of the Act (debts and expenses paid in full)

Before you can bring an application pursuant to this ground, it will be necessary to identify all those debts which must be repaid and to have put in place the funding arrangements (which should correspond with the creditors' Proofs of Debts).

If there are known ‘non-proving creditors’, they should have been approached by the trustee to seek their Proofs or confirmation they do not intend to prove.  Where a debt is disputed or a creditor who proved can no longer be traced, the court may still annul on the provision upon requiring the bankrupt to secure for such a sum as the court thinks is adequate to satisfy any debt which may be found due and costs, if appropriate.

Details of the trustee’s costs and expenses should also be sought before making the application as these sums will need to be paid in full.

Not less than 21 days before the date fixed for the hearing, the trustee must file with the court and deliver to the applicant a report under rule 10.133 of the Rules. The trustee's report will summarise the circumstances leading to the bankruptcy, assets and liabilities (at the date of bankruptcy and at the date of the report), any known creditors who have not proved as well as details of their remuneration and expenses. A copy of the report must be delivered to the applicant as soon as reasonably practicable after it is filed with the court and you, as the applicant may file a further witness statement in response. You would normally only need to do this if the trustee’s report did not support your annulment.

In this application, if advised to, you may also seek to challenge a trustee’s remuneration and expenses if you believe they are disproportionate/excessive.

Some practical points

As you can see from above, an application for the annulment of a bankruptcy order can be made in a variety of ways by a variety of applicants. It is a very useful tool to keep in mind to escape bankruptcy consequences early.

If you believe you have grounds to annul a bankruptcy order, as a first measure (depending on the circumstances of the case), it is usually best to instruct your solicitors to inform the trustee that you are intending to bring an application and ask them what their position is (i.e. are they also of the view that if you pay a certain sum of money, you will have in fact satisfied all debt/expenses etc).  Without seeking such confirmation, there could be a real possibility that your application will be opposed or may not succeed.

How to instruct Brett Wilson LLP

If you are seeking the annulment of a bankruptcy order, contact our specialist insolvency solicitors or to find out how we can support you. Please send us an email, complete our online enquiry form or call us on 020 7183 8950 to arrange a preliminary consultation. If emailing or using the online form, please provide a short outline of your situation.

Where possible, we recommend that you contact us before taking any formal steps yourself.

Costs information will provided following your enquiry.