We referred a long-standing friend of ours to a Liverpool bankruptcy specialist just recently. He had a business in Liverpool city centre that ran into problems and he was considering closing it down and filing for bankruptcy. Naturally, he was concerned about losing his house and told us that bankruptcy might be a deal-breaker if he needed to sell it. We knew the bankruptcy advisor would be able to fill him on the detail and take a look at an IVA if bankruptcy was going to end up too punitive for him and his family.
HIs situation is that his house is jointly owned with his wife. It is just a small 2 bed town house in Widnes and worth around £120,000 or so. The property has an interest only mortgage on it of £110,000. So, all in, there’s about £10k equity in the property. The personal insolvency specialist went through the figures with him and his wife and explained to them that in bankruptcy the Official receiver would only be concerned about his half share and not his wife’s. So that means in terms of the bankruptcy the Official Receiver (OR) or Trustee would have an interest of £5k if the valuation proved to be correct. I should say at this point that the Official Receiver would want to see a current professional valuation and mortgage statement to show whether the figure are correct. He would also carry out a Land Registry search to check the property is jointly owned as well and to see if there are any other mortgages and charges on the property.
Our friend was still worried at this point because he was still concerned he would have to sell his house or face repossession so that the Official receiver could get his £5k interest in the equity. He was advised that this would not have to be the case at all. It is quite normal for the joint owner to put forward an offer to the OR for his interest. So in other words, if the wife is able to raise £5k or in fact even a bit less, then she could offer it to the OR and keep the property. It is therefore something of a bankruptcy myth that you will lose your house automatically in bankruptcy.
It’s much easier for the OR to agree to a proposal like this than go to the trouble of possession and sale which results in some considerable expenses, including legal and court costs and agent’s fees to sell. Then of course in a distressed sale the property would probably sell for less than the open market value. So all in all it’s easy to see that a deal with the wife is much better all round. My friend was rather pleased to hear about this possibility and even happier to learn that in the first 12 months of bankruptcy the OR can’t even take any action against the property anyway. A bankrupt and his family has that initial 12 months to sort themselves out and formulate an offer to the OR.
Of course, every individual case is different, and you should always seek professional guidance if you are facing personal insolvency.
Here in England and Wales, insolvency practitioners, often abbreviated to IPs, take control of insolvency cases for both limited companies and individuals. Generally speaking, insolvency practitioners are accountants who have chosen to specialise in insolvency and they must be licensed to carry out their work. Usually, they will be licensed and regulated by the same professional body with which they qualified as an accountant.
Insolvency in the North West region
In Manchester insolvency practitioners often work right across the north west of England dealing with a rich and diverse workload of cases. Some specialise in personal insolvency whilst others tend to focus on insolvent company cases. As Manchester has become something of a northern hub for insolvency work, Insolvency practitioners Manchester are frequently appointed to cases in Liverpool, Wirral, Wigan, Widnes and further afield into Lancashire and the southern reaches of Yorkshire. Don’t be surprised to find your insolvency practitioner is from Manchester if you live in any of those areas.
What is the difference between bankruptcy and insolvency?
There is often some confusion as to the difference between bankruptcy and insolvency. In other countries, particularly the USA the term bankruptcy and insolvency are interchangeable and mean the same thing. In England and Wales the two terms have rather different meanings. Bankruptcy applies only to individuals, not limited companies, whilst the term insolvency is a very broad umbrella term covering individuals and limited companies.
What are the different types of cases, insolvency practitioners deal with?
If an IP is dealing with someone who is personally insolvent, he may be acting as a trustee in bankruptcy if the person has been made bankrupt or as a supervisor if the person has avoided bankruptcy by entering into an Individual Voluntary Arrangement (IVA). The Greater Manchester area is home to many specialist IVA firms who do nothing other than individual voluntary arrangements and debt management work.
Where an IP is dealing with an insolvent company it might be as liquidator in a creditors’ voluntary liquidation (cvl) or as an administrator in a pre-pack administration or as a supervisor in a company voluntary arrangement. Alternatively, he may have been appointed receiver of a company by the company’s bankers.
Do insolvency practitioners only close down companies and make employees redundant?
It is fair to say that many people see the role of the insolvency practitioner in a very dim light indeed. The reputation of IPs is therefore not so great in a lot of people’s eyes. It needs to be said though that whilst being insolvent may well end up in bankruptcy or liquidation, Manchester insolvency practitioners are very keen to turn around the ailing condition of businesses and at the same time preserve the jobs of the employees. IPs generally enjoy good relationships with creditors, including HMRC, and work hard to implement debt repayment agreements agreeable to the creditor and affordable to the struggling business. In other situations an insolvency practitioner may oversee the sale of a business so that it benefits from the expertise of new owners, perhaps with new investment as well.