Creditors can often confuse (i) the outlawed practice of “phoenixing” with (ii) pre-pack administrations. The former is an abuse of the privilege of limited liability through (often repeatedly) liquidating a company laden with debts only to emerge shortly after under the guise of a new limited company, debt free, effectively carrying on the exact same business with the same name, premises and people.

Death does not release an individual from their debts and liabilities, nor does it allow transactions made to loved ones to escape challenge. This is so regardless of whether the transactions were made with the intention to defraud creditors.

Insolvency administration orders (IAOs)

This quarterly civil fraud update provides a summary of reported decisions handed down in the courts of England and Wales in the period April - June 2021.

CONTEMPT OF COURT

Section 284 of the Insolvency Act 1986 (the “IA86”) deals with the restrictions on a bankrupt in dealing with their property in the period between the making (practically speaking, the presentation) of a bankruptcy application and the vesting of the estate in the trustee. This period is defined as the “Relevant Period”. If a bankruptcy order is made, any disposition of property in the Relevant Period is automatically void. Any person in receipt of disposed property is treated as holding it on trust for the benefit of the bankrupt’s estate.

People get divorced for all sorts of reasons. What if the main reason for a divorce is to put assets beyond the reach of creditors? A quick divorce giving assets to the soon-to-be-ex spouse, followed by a declaration of bankruptcy can look incredibly suspicious, but if there’s a Court order granting the divorce and division of assets what can be done about it?

Transfer at an undervalue

The suggestion that the financially stronger party is at risk of bankruptcy is not a novel argument in financial proceedings following a divorce. In many cases, the threat of bankruptcy does not materialise and therefore has no bearing on the final outcome. In some, however, the risk of bankruptcy is used as an excuse for a breach of orders made in the family court and in the worst case scenario, the threat of bankruptcy can become a reality.

In the recent case of TMG Brokers Ltd (In Liquidation) (also known as: Baker v Staines) the High Court held a director of a company to be jointly and severally liable for payments made by his co-director out of the company’s bank account which were made without proper authority and amounted to disguised distributions of capital. The fact that he had placed trust in the other director for the company's financial affairs did not excuse him from performing his duties.

Background

…there is nothing to say that directors who genuinely believe that the clouds will roll away and the sunshine of prosperity will shine upon them again and disperse the fog of their depression are not entitled to incur credit to help them to get over the bad time”

The words of Buckley J, Re White & Osmond (Parkstone) Ltd (unreported)

For those of you hoping this article would be about chess or the wonderful Netflix drama of the same name, you will be sadly disappointed. If you came here for insolvency news then keep reading. This article will focus on Her Majesty’s Revenue and Custom’s (HMRC’s) “gambit” to gain an advantage over other creditors through the return of the “crown preference” from 1 December 2020. This article explores what HMRC’s status as a secondary preferential creditor means and its implications for insolvency practitioners and others going forward.

Let’s cut straight to the chase - despite the assurances of the man in the pub and the claims of some dubious “estate planning” outfits, you cannot effectively put your own assets beyond the reach of creditors on bankruptcy by wrapping them in a trust.