There have been a string of high-profile celebrity bankruptcies over the decades, and most recently, Katie Price. A common theme among these celebrities, many of whom were former contestants on the ITV hit show “I’m a Celebrity,” is that they were bankrupted by HMRC for unpaid taxes.
The recent bankruptcy of Katie Price on 18 March 2024 was on an HMRC petition for failure to pay an alleged tax bill of circa £750,000. It was her second bankruptcy in 5 years. There are no reported judgments or public court filings available so the underlying background is as reported by various news articles. It is difficult to discern the genuine facts from salacious gossip but from what we do know the case raises some interesting insolvency law talking points and highlights the powerful tools available in an office holder’s arsenal.
Firstly, it is understood that following her first bankruptcy in 2019, Ms Price’s trustees utilised their powers under section 310 Insolvency Act 1986 (IA86) and obtained an Income Payment Order (IPO) against her. IPOs provide for the bankrupt’s surplus income i.e. income over and above the income required to meet the bankrupt’s and their family’s “reasonable domestic needs” to be claimed for the benefit of their bankruptcy estate. In the case of celebrities or high-profile individuals, this can be useful as their surplus income is usually very high and can go some way to satisfying creditor claims on its own. The flip side is that the debtor’s domestic needs and living expenses are usually very high too. IPOs are necessary as the bankrupt’s post-bankruptcy income does not automatically fall within the definition of their “estate” in section 283 IA86 and so does not automatically vest with the trustees to be made available to creditors.
Ms Price had allegedly agreed on an individual voluntary arrangement with creditors to repay £12,500 per month over 36 months but defaulted on that agreement. This forced the trustees to apply for the IPO which provided inter alia that 40% of Ms Price’s income from the adult entertainment website OnlyFans over the next 3 years was to be re-directed to the trustees’ account for the benefit of her bankruptcy estate. Similarly, it has also been widely reported that Ms Price had earned over £80,000 from TikTok videos in only 3 months. The recent bankruptcy court file shows TikTok is a respondent; we suspect for the purposes of obtaining an IPO against the lucrative TikTok earnings too.
Secondly, and this has most recently grabbed the tabloid headlines, the trustees utilised their powers under section 366 IA86 to force Ms Price to attend a private examination at Court. That hearing was listed to take place on 30 July 2024 and, apparently, despite several warnings, Ms Price did still not appear. According to some reports she absconded to Turkey on holiday to avoid the hearing whilst other reports claim she was in Turkey filming a documentary. Whatever the truth, ICCJ Burton held there was no reasonable excuse for her non-attendance and issued a warrant for her arrest. As soon as Ms Price stepped foot back on UK soil she was arrested at Heathrow airport and will now be forced to attend before the court to be examined at a future date. This power of arrest by the insolvency court is not exercised lightly and is reserved for the worst offenders. It is a power expressly preserved under sections 364 and 366(3) IA86. These powers are exercisable in several scenarios including under section 364(2)(a) IA86 where there are reasonable grounds for believing a bankrupt has absconded or is about to abscond with a view to avoiding or delaying the payment of his/her debts or his/her appearance to a petition or avoiding delaying or disrupting any bankruptcy proceedings against them or, specifically, any examination into their affairs.
Section 364(2)(e) IA86 also expressly refers to a failure without reasonable excuse to attend any examination ordered by the court. Other grounds for arrest include: where it appears to the court the bankrupt is about to remove goods to prevent or delay possession being taken of them or where the bankrupt has concealed or destroyed property which might be of use to creditors.
Thirdly, there have been rather tongue-in-cheek remarks and commentary about a future Netflix documentary or “tell all” interview in the future. If Ms Price is, as one might assume, paid handsomely for those publishing rights and comes into a windfall what are the trustees’ options? The starting point is that under section 278 and 279 IA86 Ms Price will be automatically discharged from bankruptcy on 18 March 2025, unless her discharge is suspended. Assuming automatic discharge occurs any payment made thereafter will be for Ms Price to keep. However, given her apparent unwillingness to cooperate with her trustees (which is a statutory duty- see sections 333 IA86 or 363(2) IA86, for example) evidenced by the issue of the arrest warrant it would appear there are strong prima facie grounds for a suspension order. That suspension could last for years pending her cooperation and compliance. It could arguably open the door to capture any future windfalls that fall into Ms Price’s hands.
Whilst the obvious route to acquire such monies may be applying for another IPO, another potential option that could be open to the trustees is an exercise of their powers under section 307 IA86 (after-acquired property). This allows a trustee to serve notice on the bankrupt (and a third party) within 42 days of becoming aware of such property to claim any property which has been acquired by, or devolved upon, the bankrupt since the commencement of the bankruptcy for the benefit of the bankruptcy estate. Upon service of such notice the property vests with the trustee. A section 307 IA86 notice would ordinarily capture the rare case of a bankrupt winning the lottery or, more commonly, where a bankrupt receives a significant payment or asset under a will from a deceased relative. Importantly this section 307 IA86 power will not vest any property that would not ordinarily fall under the definition of the bankruptcy estate under section 283 IA86 (i.e. trust assets) nor any property acquired post-discharge. It could theoretically be used to acquire for the benefit of Ms Price’s creditors any windfall lump sum that she receives in the future whilst her discharge from bankruptcy remains suspended. That is provided that such earnings are not ordinarily caught as “income” under section 310 IA86 – if it is then the remedy is an IPO. “Income” under section 310(7) IA86 is widely defined but there is doubt on whether it covers payment of one-off capital/lump sum payments or only regular payments. There is arguably a distinction between regular monthly payments from OnlyFans and TitTok which is “income” in the truest sense versus receipt of irregular, one-off payments, for example, one-off guest appearances or publication rights/image rights payments etc. It has been argued in case law under section 310 IA86 that such one-off payments could be defined as “a single surge of income” to be caught but, if such argument failed, they can arguably be caught by section 307 IA86 in the alternative. Either way, there is an array of powers for a trustee to acquire surplus and windfall assets for the benefit of creditors.