The Compendium

A Comprehensive Companion for All in the Insolvency and Restructuring Profession

Annulment

The Annulment of the Bankruptcy Order is to treat it as if the Order never happened and the Bankruptcy never took place. In this situation, creditors will have been paid (or secured for), all remaining assets will re-vest in the debtor and the Trustee in Bankruptcy will leave office.

The Insolvency Act 1986 sets out three grounds for the annulment of a Bankruptcy Order:

  1. The Bankruptcy Order ought not to have been made. This is where there was some deficiency in the making of the Bankruptcy Order. Could this be that the debt was not actually due and payable by the debtor? The Bankruptcy process was not followed correctly? The petition was not served properly, etc.?
  2. All debts and expenses have been paid or secured for, to the satisfaction of the court.
  3. Where an undischarged Bankrupt has an Individual Voluntary Arrangement (IVA) approved. Even after a person is made Bankrupt, they are able to propose an IVA (but only before their discharge). If the IVA is accepted, either the Bankrupt or the Official Receiver is able to apply to court to annul the Bankruptcy.

This usually happens when someone finds out about the Bankruptcy when it is too late, or realises the consequences of Bankruptcy once it is too late. There could be a viable business that the Bankrupt trades or significant assets that the Bankrupt would want to protect.

In practice the Official Receiver will often tell a Bankrupt, at the initial interview, that they may wish to pursue an annulment as a way of preserving assets.

The IVA does not have to pay 100p in the pound, but the assessment must be accepted by creditors, so it will need to achieve a better result than Bankruptcy.

Historically, one the of the big advantages of an IVA compared to a Bankruptcy was the fact that the assets are realised in the IVA, which has no requirement to operate an Insolvency Services Account, and therefore there was no requirement to pay the old Secretary of State fee.

[See ‘Bankruptcy’, ‘Bankruptcy Order’, ‘Trustee in Bankruptcy’, ‘Insolvency Act’, ‘Individual Voluntary Arrangement’, ‘IVA’, ‘Official Receiver’ and ‘Insolvency Services Account’.]