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Made a bankrupt
16/05/2006 The Star By BHAG SINGH
THE word “bankrupt” is used in more ways than one. Its general meaning
according to the Oxford Advanced Learner’s Dictionary is “completely lacking
in anything that has value”. Thus a person criticised may be said to be
bankrupt of ideas.
However, it is more in relation to money and ability to pay debts that the
word bankrupt and bankruptcy is used. Thus the same dictionary gives the
meaning of this word as “without enough money to pay what you owe”.
This state of affairs could also be described as insolvency. A person is
said to be insolvent when the debts exceed the liabilities and the person is
unable to meet his commitments to make payments. However insolvent a person
may be, there are likely to be no consequences if the creditors do not all
press for payment and the debtor is able to pay or allowed to pay when he
can. But a person who is insolvent and is unable to get out of his
insolvency state will likely head towards bankruptcy which is a state of
affairs created by law under the Bankruptcy Act 1967.
It is in this connection that a reader asks how and when a person becomes a
bankrupt and what the words such as bankruptcy notice, receiving order,
adjudicating order and the like mean.
It is the Bankruptcy Act 1967 which sets out the step that leads to a person
being made a bankrupt and the disabilities and restrictions that this
imposes. Of course, the Bankruptcy Act also sets out how a person may get
out of bankruptcy. But before that, when and where does all this start?.
The first event on the road to bankruptcy would be the committing of an act
of bankruptcy. Generally a variety of actions that are intended to treat
creditors unfavourably or to give preference to some others or to defraud
them would constitute an act of bankruptcy.
However, the most common and generally relied upon ground to establish an
act of bankruptcy is if a creditor has obtained a final judgement or final
order against such debtor for any amount the execution on which has not been
stayed and a bankruptcy notice is served on him requiring him to pay the
judgement debt or sum ordered to be paid in accordance with the terms of the
judgement or order, or to secure or compound for it to the satisfaction of
the creditor or the court.
If within seven days after service of the notice , the debtor does not
comply with the requirements of the notice or satisfy the court that he has
a counter-claim, set off or cross demand which equals or exceeds the amount
of the judgement debt, the debtor commits an act of bankruptcy.
However it may occur, there is always a need to establish that the debtor
has committed an act of bankruptcy. But the commission of bankruptcy does
not by the mere fact make a person a bankrupt. It becomes the basis on which
bankruptcy proceedings may be founded.
Without establishing that a person has committed an act of bankruptcy the
creditor cannot proceed to the next stage. On a different note a person may
have committed an act of bankruptcy but there will be no consequence if he
is able to pay up or arrange to resolve the matter.
If the matter is not resolved at this stage, then the creditor may move to
the next stage by filing a bankruptcy petition in court and it has to be
served on the debtor as well as appropriately advertised to bring the action
being taken to the attention of the public.
When such a petition is presented the court will usually make two different
but generally complementary orders. One is called the Receiving Order and
the other an Adjudicating Order.
Under the receiving order the Official Assignee is constituted receiver of
the property of the debtor, and, except as directed by the Act, no creditor
will have any remedy against the property or the debtor.
It will be seen that this order has the effect of depriving the debtor from
being able to deal with his property so that it is preserved for the benefit
of his creditors generally. The debtor is also liable to make full and frank
disclosure of his affairs as well as to be examined at a public sitting.
A receiving order does not by itself make the debtor a bankrupt but only
deprives him of the right to deal with his property. However, unless at the
time of making such an order the debtor can show the court that he is in a
position to offer a compensation or make an arrangement with his creditors,
the court will also make an adjudicating order. It is this which has the
effect of making him a bankrupt.
When a debtor is adjudged a bankrupt his property will become divisible
among his creditors and will vest in the relevant authority.
Of course the adjudication of a person as a bankrupt results in various
disabilities and restrictions that are imposed by law. Some such
disabilities are set out in the Bankruptcy Act and others in different laws
which refer to the disqualification.
The term “Creditors Petition” is perhaps more commonly encountered. This
phrase is merely used to indicate that the petition is presented by a
creditor as opposed to the debtor himself.
Bankruptcy is of course relevant to insolvency and inability to pay debts by
an individual or individuals. Where the debtor is a partnership, a receiving
order can be made against the firm but an adjudicating order can only be
made against the partners individually and personally.
The near equivalent approach where incorporated bodies are concerned would
be winding up. Its effect is in reality to wind up the management and
dispose of all its assets. The next step is to strike the company off the
register bringing its existence to an end, unlike in the case of
individuals. |
