The law relating to bankruptcy is now governed by the Insolvency Act 1986.

The principal aims of this Act were:

1. to professionalize bankruptcy administration by ensuring that it is in the hands of the
official receiver or insolvency practitioners,
2. to simplify bankruptcy procedure and to bring it into line with company insolvencies,
3. to encourage settlements by way of voluntary arrangements in order to avoid the
complications of formal bankruptcy proceedings.
Insolvency practitioners are people licensed to act as nominees, supervisors of voluntary
arrangements, or as trustees in bankruptcy.

There are two types of proceedings: voluntary arrangements and bankruptcy proceedings.

Voluntary arrangements
An insolvent debtor may decide to make a voluntary arrangement; that it, a composition with
his creditors. A composition is an arrangement between the debtor and his creditors whereby
the compounding creditors agree with the debtor and between themselves to accept from the
debtor payment of less than the respective amounts due to them in full satisfaction of the
whole of their claim.
The usual form of a scheme of arrangement is an assignment by the debtor of all of his
property to a trustee for distribution of the proceeds of sale among the creditors, rateably or in
agreed proportions.
The first step for a debtor who wishes to make a composition or scheme of arrangement of his
affairs is to apply to the court for an interim order. This order has the effect of preventing a
bankruptcy petition from being presented.
In this application the debtor must:
- state that he proposes to make a voluntary arrangement
- name a “nominee” (an insolvency practitioner)
Within 14 days, the nominee must submit a report to the court stating whether a meeting of
the debtor's creditors should be called to consider the proposal. If the court is satisfied that
such meeting should be held, the court will direct that the interim order be extended for a
specified period. Thereafter the nominee must summon the meeting. The chairman of the
meeting must report its deliberations to the court and, assuming that the court approves the
proposal, every creditor who had notice of the meeting and was entitled to vote is bound by
the arrangement whether or not he attended the meeting or voted in favour of the proposal.
After the report to the court the interim order continues in being for a further 28 days. This is
to allow the arrangement to be challenged by the debtor, any creditor entitled to vote, the
nominee, or (where the debtor is a bankrupt) the trustee of his estate or the official receiver.
After the 28 days no challenge is allowed. If the challenge is successful the period of the
interim order will be extended. If there is no challenge, or the challenge is unsuccessful, after
the 28 days the arrangement becomes binding and it is then for the nominee (thereafter known
as the “supervisor”) to assume responsibility for the implementation of the arrangement.

Bankruptcy proceedings

(1) Bankruptcy orders

The bankruptcy petition
Bankruptcy proceedings are initiated by a petition upon which the court may make a
voluntary order. A petition may be presented by:
(a) a creditor or creditors
(b) the debtor
 (c) the supervisor of a voluntary arrangement or any person other than the debtor who is
bound by the scheme
(d) the official petitioner or any person specified by the court as having suffered loss
where a criminal bankruptcy order has been made against the debtor.
Where a petition has been presented, it can only be withdrawn by leave of the court. A
petition may only be presented if, on the day upon which it was presented, the debtor:
(1) is domiciled in England or Wales
(2) is personally present in England or Wales
(3) has been ordinarily resident or has had a place of residence in England or Wales
during the previous three years, or
(4) has carried on business in England or Wales during the previous three years.

Creditor's petitions
A creditor’s petition may only be presented subject to the following conditions:
- the amount of the debt or the aggregate amounts of the debts must at least come up to
the bankruptcy level
- the debt, or debts, must be such that the debtor appears, either to be unable to pay or to
have no reasonable prospect of doing so.
There must be a statutory demand (a written demand by the creditor for payment). This must
be made in a prescribed form and must usually be served upon the debtor personally, allowing
a period of at least three weeks for payment. Within 18 days of service of this demand the
debtor may apply to the court to have it set aside upon sufficient grounds.

Debtor’s petitions
A debtor may present a petition to the court simply upon the ground that he is unable to pay
his debts.

Voluntary arrangements
Where there has been a composition or a scheme of arrangement any creditor or the
supervisor may present a petition for a bankruptcy order upon the following grounds:
- that the debtor has failed to comply with his obligations under the scheme,
- either that the debtor’s statement of affairs, or information given by him at a creditors’
meeting was false or misleading, or was subject to omissions,
- that the debtor has failed to comply with reasonable requirements of the supervisor.

The bankruptcy order

A petition is presented in the High Court where:
- the debtor has resided or carried on business within the London insolvency district for
the greater part of six months immediately preceding the presentation of the petition
- the debtor is not resident in England or Wales
- the petitioning creditor is unable to ascertain the residence or place of business of the
debtor
- the petition is presented by a minister of the Crown or a government department

Otherwise petitions are presented in certain county courts having bankruptcy jurisdiction.
On a creditor’s petition an order can only be made if the court is satisfied that the debt, or one
of the debts, on which the petition was founded has not been paid, secured or compounded;
or, in the case of a future debt, that there is no reasonable prospect that it will be paid when it
falls due.
On a debtor’s petition the court must not make an order if it appears that:
 - the total unsecured debts would be less than the “small bankruptcy level” and
- the value of the estate would be equal to or more than the “minimum amount” and
- during the five years prior to the presentation of the petition the debtor has not been
adjudged bankrupt nor entered into a composition with his creditors or a scheme of
arrangement of his affairs, and
- that it would be appropriate to appoint a person to prepare a report on the possibility of
the debtor entering into voluntary arrangements.
The "small bankruptcy level” and the “minimum amount” are amounts designated by
statutory instrument from time to time.
As a general rule a creditor’s petition must not be heard until at least 14 days after service.
The debtor, the petitioning creditor and any other creditor who has given appropriate notice
may appear at the hearing. And a debtor who wishes to oppose the petition must file a notice
specifying his grounds of objection. On the hearing of the petition the court may make a
bankruptcy order if it is satisfied that the statements in the petition are true and that the debt
has not been paid, secured or compounded.
A debtor’s petition must identify the debtor and admit insolvency and must contain a
statement of affairs. The bankruptcy order is settled by the court.

Protection and investigation of the bankrupt's estate

Protection of the estate

The receivership - The court has power to appoint the official receiver as interim receiver of
the debtor's property at any time after presentation of the petition before the bankruptcy order
is made if such appointment is necessary for the protection of the property. After the
bankruptcy order is made and before the estate becomes vested in the trustee, the official
receiver becomes automatically receiver and manager of the estate. The functions of the
official receiver are to protect the estate. He has power to sell perishable goods the value of
which is likely to diminish. However, a special manager may be appointed (a person with
particular expertise) where it appears to be advisable, when the official receiver has become
interim receiver, after adjudication, or after the property has become vested in the trustee.

Investigation -

Within 21 days of the bankruptcy order where the petition was presented by someone other
than the debtor the latter must submit a statement of affairs to the official receiver and the
official receiver must then send a summary of it to the creditors. A debtor who fails to submit
a statement