Part 2Business organisations
102
3 The creditor, to show that this is so, and if the debt is
now due, sends Fred a further demand asking for pay-
ment. If the demand is not complied with within three
weeks, the court will accept that Fred cannot pay the debt.
4 The debt is a future debt, such as a loan repayable in
the future. The creditor(s) must send Fred a demand
asking him to give evidence that he will be able to pay
it. If Fred does not provide satisfactory evidence within
three weeks of the demand that he will be able to meet
the debt when it is due, the court will accept that there is
no reasonable prospect that it will be paid.
5 The debt is not secured, as by a charge on Fred’s
property. A secured creditor cannot present a petition
unless he is, for example, prepared to give up his secur-
ity. In any case, secured creditors, such as banks who
have taken a security in return, say, for giving Fred
an overdraft facility, will normally get their money by
selling that property of Fred’s over which they have a
charge. Any surplus of the sale price, after payment of
the debt to the bank and the cost to the bank of selling
the property, is returned to Fred’s estate for distribution
among his other creditors. If there is a shortfall in the
sale price, the bank will have to prove in the bankruptcy
as an unsecured creditor for the balance but will only
receive the same dividend, as it is called, as other unsec-
ured creditors on this balance, e.g. 25p in the £.
Schemes of arrangement under
the Deeds of Arrangement Act
1914This is an alternative procedure to bankruptcy under
which Fred would not become bankrupt at all. Deeds of
arrangement are unaffected by the Insolvency Act 1986.
Such a deed has advantages in that no applications to
the court are required butcreditors who do not accept
it may petition the court within one month of it being
made asking that Fred be made bankrupt. The fact that
the deed has been entered into is the ground for the peti-
tion. A possible practical scenario appears below.
1 Fred may wish to put a proposal to his creditors
under which he will hand over his business to a trustee
for the benefit of his creditors. The trustee will be an
independent person such as an accountant who may be
able to deal more expertly with the sale of Fred’s busi-
ness or the running of it and so pay the creditors off. If
the creditors are willing to go along with this, Fred will
not be made bankrupt.
2 Alternatively, Fred may wish to put up a scheme of
arrangement by way of compromise of his debts. This
would involve the creditors accepting final payment
of, say, 50p in the £, which they may feel will be a better
deal than bankruptcy, particularly if the cost of the
bankruptcy proceedings is likely to be high.
3 These schemes need the consent of a majority in
number and value of the creditors. For example, if there
are 100 creditors and A is owed £901 and the other 99
are owed £1 each, the rest cannot force a scheme on
A because he has the majority in value, although the
others have a majority in number. Equally, A plus 49 of
the rest cannot force the scheme on the others. A plus
49 creditors have a majority in value but not in number.
However, A plus 50 of the rest could force the scheme
on the others; they have a majority in number of 51 per
cent and a clear majority in value.
However, as we have seen, dissentients can petition
the court for a bankruptcy order so really all of the cred-
itors need to be happy with the scheme, or at least too
apathetic to petition.The interim order and voluntary
arrangement under the Insolvency
Act 1986This is another alternative to bankruptcy. It involves an
application to the court but once accepted by 75 per cent
in value of the creditors it is binding on the dissentients
who cannot petition for a bankruptcy order. A possible
practical scenario appears below.
1 It would, of course, be difficult for Fred to make pro-
posals for a scheme if a particular creditor (or creditors)
had presented a petition to bankrupt him and was pro-
ceeding with it.2 Therefore, if Fred wants breathing space to try a
scheme to prevent his bankruptcy, he may, when a cred-
itor presents a petition (or, indeed, if he thinks a scheme
might be acceptable after he has presented a petition against
himself), apply to the court to make what is called an
interim order.