BANKRUPTCY RESTRICTION ORDERS/UNDERTAKINGS (BRO/BRU)
A BRO is a court order imposing certain restrictions on a bankrupt for between two and 15 years.
A BRU has the same effect as a BRO but does not involve going to court.
They have been introduced to ensure the small minority who are reckless or dishonest are subject to the restrictions for between two and 15 years.
A breach of a BRO or BRU is a criminal offence.
What are the restrictions imposed by a BRU/BRO?
They are the same as those that apply to an undischarged bankrupt, namely:
* The person must disclose their status to a credit provider if they wishes to obtain credit of more that £500.
* The person must disclose their status to those they wish to do business with the name (or trading style) under which they were made bankrupt.
* The person must not act as the director of a company or take part in its promotion, formation or management unless they obtain permission from the court to do so.
* The person may not act as an insolvency practitioner or as receiver or manager of the property of a company on behalf of debenture holders.
In addition to the above the person also:
* May not be a Member of Parliament in England and Wales
* May not act as a local councillor
* May not hold the office of school governor
* May not hold other positions as contained in other legislation (The Insolvency Service has no control over the restrictions contained in other people’s legislation or in the rules of associations or governing bodies or professions).
Previously all the above additional restrictions also applied to undischarged bankrupts but the Enterprise Act changed that, so now most only apply where a BRO or BRU is made.
It is an offence for an undischarged bankrupt, or someone subject to a BRO or BRU, to do any of these things. Therefore, breach of the BRO/BRU may lead to a prosecution.
Other consequences of a BRO/BRU
A new report to creditors is issued giving details of the BRO or BRU (as with disqualifications) – creditors who have assisted in the investigation can learn that their help has led to the BRO/BRU.
A press notice is issued which local papers can publish should they choose to do so.
When a BRO has been made notification goes automatically via The Insolvency Service's internal database to the Bankruptcy Restrictions Register, which is part of the Individual Insolvency Register.
This is a register that can be searched by the public in the same way as they can search for details of bankruptcy orders. It is available to search on the internet and the public is encouraged to use this method.
What is the process for making a BRO?
Basically a report is submitted by the AOR/OR (assistant official receiver/official receiver) to Enforcement Section within nine months of the bankruptcy order. If Enforcement accepts the report the OR can proceed and make application to court (application must be made within 12 months of the bankruptcy order). The court fixes a hearing date.
The OR sends a copy of the report and application to the bankrupt. The bankrupt, within 14 days of receipt, files acknowledgement of service at court. If contesting, the bankrupt should file an affidavit in support and send a copy to the OR. Two weeks before the hearing a reminder letter is sent to the bankrupt.
The court may make a BRO, dismiss the application or adjourn the hearing. A BRO may be made whether the bankrupt attends or not. The court may ask the OR for a suggested period.
If a BRO is made, a copy is sent to the bankrupt and to Enforcement and the order will be publicised.
What is the process for a BRU?
The bankrupt may offer to enter into a BRU after the BRO application is issued. The OR agrees to a period of restrictions. The BRU must be signed, is publicised and entered onto the public register. Basically discounts in the period of restriction are offered to the bankrupt if a BRU is entered into – six months discount for a BRU of less than five years and 12 months discount for a BRU of more than five years.
What is an interim BRO?
Due to delays in investigating a case or because the court may not be able to fix a hearing for some time, there may be cases where the bankrupt will receive his automatic discharge before the BRO application can be heard.
In these cases, so that the public continues to be protected, the OR will apply for an interim BRO so that the restrictions on the bankrupt’s behaviour will continue until the court makes its decision on the OR’s application for a BRO.
What conduct may lead to a BRO/BRU?
NB All applications for a BRO must consider the Public Interest Test. This is the overriding factor in deciding if an application for a BRO should be put before the Court.
In every case the OR must ask her/him self, does the public need protecting from this person?
The Public Interest Test considers:
Afford protection to business and consumers from potential future losses or damage
Act as a deterrent
Apply the public purse in an effective manner
Observe the integrity of the Secretary of State in bringing proceedings
Observe the human rights of individuals and the justice and equity of proceedings
BRO criteria
* Failing to keep or produce records which would explain a loss of money or property.
* Giving away assets or selling them at less than their value.
* Deliberately paying off some creditors in preference to others.
* Failing to supply goods or services which have been paid for (taking deposits).
* Carrying on a business when he knew or ought to have known he could not pay his debts (trading with knowledge of insolvency).
* Incurring debts which he knew he had no reasonable chance of repaying.
* Gambling or making rash speculations or being unreasonably extravagant.
* Causing his debts to increase by neglecting his business affairs.
* Behaving fraudulently, e.g. making a false claim to obtain credit.
* Not co-operating with the OR or Trustee.
* Being bankrupt for a second time in six years is also a matter of conduct to be considered but is not, in itself, sufficient reason to apply for a BRO.
NB. Failure to keep proper accounting records and increasing the extent of insolvency by gambling are no longer criminal offences, but are included in the schedule of conduct in the Act.
The schedule in the Act is not exhaustive, so any behaviour that the OR considers to be suspect may be the subject of a BRO application and should be investigated.
The fact that someone has done one of these things doesn’t mean that they will be subject to a BRO, but it does mean that the OR needs to look at the conduct and decide whether the public needs protecting from that person. This will depend on the extent to which creditors have lost out, how aware the bankrupt was of her/his situation at the time, and the likelihood of them doing it again.
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