Chapter 5Non-corporate organisations – sole traders and partnerships2 Any payments made must be authorised by BERR
and the right to recover the sums payable are transferred
to BERR so that it can try to recover from the assets of
the bankrupt employer the costs of any payments made,
but only up to the preferential rights the actual employees
would have had. What can be recovered from BERR
may, in fact, be a higher sum than the preferential pay-
ments in bankruptcy allow.
3 Major debts covered are as follows:
(a)arrears of pay for a period not exceeding eight weeks
up to a rate prescribed annually by statutory instrument
and currently £310 per week. Persons who earn more
than £310 per week can only claim up to £310;
(b)pay in respect of holidays which has not been paid in
respect of holidays actually taken and holidays due but
not taken up to a rate again of £310 per week with a limit
of six weeks;
(c)payments promised to an employee instead of giving
him notice but not paid at a rate not exceeding £310 per
week;
(d)any payment which Fred may not have made in
regard to an award by an employment tribunal of com-
pensation to an employee for unfair dismissal.
4 Claims on BERR will not normally be allowed if the
trustee can satisfy the Department that the preferential
payments will be paid from funds available in the bank-
ruptcy and without undue delay.
Trade creditors
If all the preferential creditors have been paid in full,
payments can then be made to the ordinary unsecured
or trade creditors. If these claims come in total to, say,
£12,000 and the trustee has only £4,000, each trade cred-
itor will get one-third of what is claimed and the deferred
creditors will get nothing.
Deferred creditors
If all the unsecured creditors can be paid, the deferred
creditors come next. These are, for example, debts owed
by Fred to, say, his wife. They are not paid until all other
creditors have received payment in full.Discharge of the bankrupt
The Enterprise Act 2002 is designed to promote enter-
prise by minimising the effects of business failure. In this
connection the Act differentiates between ‘culpable’
bankrupts who set out to run a business in a way that
would mislead the public and other businesses and the
‘non-culpable’ bankrupt who for reasons beyond his
or her control and despite best efforts has suffered busi-
ness failure. The position regarding discharge is now as
follows:■there is automatic discharge from bankruptcy on the
12-month anniversary of the bankruptcy order. For
non-culpable bankrupts, this will be the end of the
undischarged bankrupt’s disabilities, e.g. there is no
credit restriction;
■for the culpable bankrupt, there will normally be a
bankruptcy restriction order in place that contains
such restrictions as are contained in the order.Bankruptcy restriction orders
(BRO)The Official Receiver may consider applying to court
for a bankruptcy restriction order (BRO) to be made
if the conduct of a bankrupt has been dishonest or
blameworthy in some other way. The court will consider
this report and any other evidence put before it, and
decide whether it should make a BRO. If it does, the
bankrupt will be subject to certain restrictions for the
period stated in the order: this can be from two to 15
years. The application to the court can be made within
12 months of the bankruptcy order although an exten-
sion of time can be applied for if, e.g. new evidence of
reprehensible business conduct emerges. It is necessary
for the Official Receiver to show to the court that the
bankrupt’s conduct has been sufficiently reprehensible
for the public interest to require that bankruptcy restric-
tions, e.g. in terms of credit, should continue to apply.
Schedule 4A to the Insolvency Act 1986 (as inserted
by the Enterprise Act 2002) sets out reprehensible
behaviour, e.g. failure to keep proper accounting and
other business records and entering into transactions at109