Part 10 Enforcing an IPA or IPO where the bankrupt or former bankrupt is not co-operating
Suggested scenarios which the trustee may consider as non co-operation requiring enforcement action may be deemed to have occurred where the bankrupt or former bankrupt:
An IPO is an order of the court requiring the bankrupt (or former bankrupt) to pay a set amount over a specific period. It may be enforced as such and any sums received under the IPO form part of the estate [note 1]. An order may also be enforced in the same way as a judgment [note 2], which means that any arrears arising as a result of non-payment under the IPO are enforceable like a debt. An IPA is a contract but may be enforced as if it were an IPO [note 3].
Various enforcement remedies are available to the official receiver acting as trustee following default in payment and/or non co-operation. The remedies most commonly followed by the official receiver (which are examined more fully in this part) are:
a. arranging for the payments to be deducted at source from income which would otherwise be paid to the bankrupt/former bankrupt; or
b. applying for a private examination under section 366 of the IA86 (where the bankrupt is discharged from bankruptcy) and any subsequent application to commit the IPO/IPA defaulter to prison arising from a failure to attend the private examination.
Other enforcement remedies which are available under Civil Procedure Rules [note 4] but not commonly used by the official receiver include obtaining:
ii. a third party debt order [note 8];
iii. a charging order, stop order or stop notice [note 9]; or
iv. the appointment of a receiver [note 10].
v. in a county court an attachment of earnings order (already provided for by the bankrupt giving his/her consent to deductions at source where an IPA as been signed or an IPO is in force containing a clause to require payment to be made by a third party, see (a) above and also paragraphs 31.7.191 [note 11]).
31.7.191 Enforcement action where bankrupt is not discharged from bankruptcy (attachment of earnings)
In the case of an undischarged bankrupt, an attachment of earnings order is an effective way to enforce compliance; realistically this can only be applied where the bankrupt is in employment. There is little practical difference between an attachment of earnings order and an IPO containing a clause to require payment to be made by a third party [note 12], or enforcement of the clause in an IPA requiring payment by a third party [note 13], both of which can be pursued by the trustee (or his/her agent) following default in payment, see paragraphs 31.7.192 to 31.7.198.
31.7.192 Direct payment from the bankrupt’s income by a third party
(Amended July 2014)
The Insolvency Act 1986 specifically provides for income which would otherwise be received by the bankrupt, to be paid directly to the trustee (or the official receiver and trustee in an IPA) by a third party [note 12][note 13]. This may be the bankrupt’s employer or another third party which may include the bankrupt’s pension provider.
31.7.193 Consent to contact employer following default included in form IPA
By signing form IPA, the bankrupt automatically gives his/her consent to the official receiver’s collection agent contacting his/her employer directly should he/she default in making payments on two consecutive occasions, to arrange for payments to be deducted from his/her salary at source. The bankrupt’s authority to his/her employer to make such deductions and remit monies to the collection agent is also included.
(Amended June 2014)
Following default in payment (see paragraph 31.7.193) The Insolvency Service’s agent Clarke Willmott may contact the bankrupt’s employer to arrange for payments to be deducted from his/her salary and paid directly to Clarke Willmott. This provision within an IPA is enforceable in the same way as if it were a provision within an IPO [note 3]. It will not be necessary to apply for variation of the agreement where payment is sought from an employer, as the bankrupt has already agreed this by signing the IPA form. Whilst payment of the monthly amount agreed in the IPA can be paid directly by the employer, it should be remembered that accrued payment arrears can only be collected under the IPA within three years from the date the IPA originally came in to force [note 14]. See paragraphs 31.7.229 to 31.7.232 regarding action to recover arrears outstanding at the expiry of an IPA or IPO.
(a) Applying to court for variation of an IPA
If the trustee seeks to obtain payment from a third party other than an employer, it will be necessary for the IPA to be varied, as form IPA only provides for the bankrupt’s consent for the agent to contact his/her employer directly, not a third party other than an employer, and an appropriate authority to collect a payment or payments is required. Where the official receiver or other trustee seeks to vary the IPA to include payment directly from a third party other than an employer, and the variation cannot be achieved by written agreement with the bankrupt/former bankrupt, then the trustee may apply to court to vary the agreement to collect payments directly from the relevant third party [note 15][note 16].
(b) Applying to court for variation of an IPO
(Amended June 2014)
Where the official receiver as trustee decides to pursue the arrears by making an application to court for the agreement or order to be varied, the application should seek to vary the order or agreement such that a third party makes the payments from the bankrupt/former bankrupt’s income directly to the trustee (when dealing with an IPO [note 12]) or the official receiver or trustee when dealing with an IPA [note 13].
The LTADT will liaise with the originating office for a court date. The official receiver must send notification of the hearing date to Clarke Willmott via the ‘instruct us’ screen on Debt View and the official receiver can obtain details of all payments made up to the date of the hearing on the Debt View ‘instalment’ screen . The local official receiver will be requested to attend court for the variation hearing but it will be for the LTADT to prepare and serve all necessary paperwork. See Part 7 of this chapter for further information on reviewing or varying an IPA or IPO.
Where the court orders the variation of an IPO or IPA requiring an employer or third party to make payments to the official receiver, the RTLU should send a copy of the varied order to the bankrupt and payor (employer or third party) [note 18][note 19]. Once the "payor of the relevant income" has received notice of the order, he/she is obliged to comply with it [note 20].
Receipt of the agreement/order is likely to be the first notice to the payor that he/she has become involved in the IPA/IPO. The Insolvency Rules 1986 allow the payor to deduct a clerical and administrative fee from the payment on passing it to the official receiver or trustee but he/she must provide written notice of the amount deducted to the bankrupt/former bankrupt [note 21][note 22][note 16]. When the person making the payment is no longer liable to pay the bankrupt/former bankrupt (so has no further liability for making the payments) e.g. where the bankrupt's employment has ceased or ceases, he/she is required to notify the official receiver/trustee as soon as is reasonably practicable [note 23].
The IPO may be set aside (or varied) by a without notice application [note 24]. This would cover the situation where an order has been inappropriately made or the payor is no longer liable to pay the bankrupt/former bankrupt.
Where it is not possible to deal with a default in payment by means of direct payment from a third party/employer (see paragraphs 31.7.192 to 31.7.198), and payments under the IPA/IPO have lapsed without any explanation, the trustee should ask the bankrupt/former bankrupt to complete a further income payments questionnaire (form IPOQ) to seek to establish why the default has arisen.
Where the IPA/IPO is in arrears and the trustee is concerned the matter cannot be resolved before discharge by variation of the agreement or order, or by payments being made directly by an employer/third party (see paragraphs 31.7.192 to 31.7.198), he/she retains the option to apply for an order suspending the running of the discharge period, on the grounds that the bankrupt has failed to comply with his/her obligations to make payments under an IPA/IPO[note 25][note 26][note 27]. The application may be further supported by additional misconduct on the part of the bankrupt, such as failure to provide information when asked to do so. Whilst suspension of the discharge period will not in itself affect the bankrupt’s ability to pay or the period of the IPA/IPO, reminding the bankrupt of the possibility of such an application may cause the bankrupt to comply with his/her income payments obligations, particularly if he/she is self-employed and therefore more likely to require access to credit terms in order to trade.
If the bankrupt is in a position to pay an income contribution but refuses to sign an IPA, the official receiver may still apply for an IPO. The application for an IPO can only be made be made by the trustee when appointed, and the application must be instituted (made) before the date of discharge. An IPO can be made after the date of discharge as long as the application and report to court (form IPORAC) are submitted to court before the date of discharge [note 28] (see paragraph 31.7.13).
31.7.202 Continuing obligations on a bankrupt following discharge
A former bankrupt who has received his/her discharge from bankruptcy still has a duty to attend upon the official receiver and provide information concerning his/her affairs when reasonably required to do so [note 29][note 30] [note 32][note 33]. The same obligations apply where a trustee is appointed [note 31]. This means that where a former bankrupt defaults in making payments under an IPA or IPO, the official receiver or trustee can still enforce his/her obligation to make payments and take recovery action to collect any unpaid monies.
The court also has continuing power to review agreements/orders made when a former bankrupt defaults from making payments after receiving their discharge from bankruptcy [note 33]. An IPA is legally enforceable in the same way as an IPO and the court can review it both before and after discharge (see also Part 7 of this chapter).
Where a former bankrupt is discharged from bankruptcy, all enforcement options to recover unpaid IPA/IPO monies are available, (such as obtaining warrants, third party debt orders and charging orders etc., see paragraph 31.7.190) including enforcing the unpaid debt against property acquired by the (former) bankrupt post discharge. Deciding which will be the most effective will depend on a knowledge of the former bankrupt’s financial circumstances. If the former bankrupt does not provide this information via an IPOQ (see paragraph 31.7.199), then the trustee should seek to obtain this information post discharge by means of a private examination (see paragraph 31.7.204 and paragraphs 31.7.209 to 31.7.228) if it is not volunteered or obtained in another way.
Under IA86 section 363 [note 34], the court has the power to direct the bankrupt to do anything necessary for the purposes of the administration of the estate. Failure to comply is a contempt of court and is punishable as such [note 35]. This section applies both before and after discharge.
Prior to taking such action the trustee should have pursued all available non-court based options to encourage a former bankrupt to provide information and/or comply with his/her obligations to make agreed payments under an IPA or IPO. Where these have failed, in order to enforce the requirement on the former bankrupt to attend and provide information (see paragraphs 31.7.202 and 31.7.203), the official receiver or trustee may apply to the court to summon before it the former bankrupt (or other relevant persons, which can include his/her spouse, civil partner or employer) in order to privately examine them [note 36]. This power continues post discharge (see Oakes v Simms  B.P.I.R. 499 [note 37], and failure to answer the summons may result in a warrant for arrest being issued and detention in custody pending resolution of the issue [note 38][note 39].
When deciding whether to pursue the arrears outstanding as a result of non payment of an IPA or IPO, the official receiver/trustee will need to take into consideration various factors. Generally, the larger the amount to be collected, the longer the period of the agreement or order remaining, and the ability of the bankrupt/former bankrupt to pay, are key factors in deciding whether to seek compliance.
To be able to make a meaningful assessment, the trustee should establish whether the bankrupt/former bankrupt:
(i) is receiving correspondence
(ii) is (still) employed and, if so, is with the same employer or
(iii) is self-employed
Where information available to the trustee shows that the bankrupt/former bankrupt has moved, further enquiries should be made using checking services (for example, online services such as Experian, electoral roll etc.) and/or by using inquiry agents.
Where a new address is established following enquiries, the trustee should contact the bankrupt/former bankrupt to ascertain their current circumstances and whether (if they still have sufficient surplus income) they will agree to re-commence payments under the existing IPA/IPO or a varied agreement or order. Where the existing address is found to be valid, or a new address is established but the bankrupt/former bankrupt continues to refuse to co-operate or make payments under the IPA/IPO, the official receiver, as trustee, should consider taking action to enforce co-operation. Where a bankrupt remains undischarged from the proceedings and is not complying with the terms of his/her IPA/IPO, the official receiver can consider applying for him/her to be publicly examined to provide information concerning his/her affairs (see Chapter 14 and also Chapter 23, paragraph 23.32). Where the individual subject to the IPA/IPO has received his/her discharge from bankruptcy, the official receiver can make an application for a private examination under section 366 of the Insolvency Act 1986, see guidance at paragraphs 31.7.209 to 31.7.227.
If the bankrupt cannot be located, consideration will have to be given as to whether additional enquires are made or the case is discontinued/put on hold pending further information.
31.7.209Recovering arrears where the bankrupt is discharged, by applying for a private examination - initial procedure (letters 1 & 2)
Once the official receiver decides that he/she will pursue arrears under an IPA or IPO by applying for a private examination, this should be commenced by sending two letters to the defaulter before any application is made to the court. The consecutively numbered letters should set out the amount of the arrears and the date by which payment is due. Copies of previous correspondence (which has not been replied to) should also be sent to the former bankrupt, particularly where he/she has changed address since agreeing to the IPA/IPO. Sample wording for these letters is provided at Annex D for letter 1 (initial contact (1)) and Annex E for letter 2 (initial contact (2)). This pro-forma wording can be incorporated into the generic standard letterhead document (in ISCIS) containing the case details for the relevant insolvency case.
The ‘final contact before making application’ letter 3 (at Annex F) should be sent before the application to court for the private examination is made, and includes a reminder to the former bankrupt of his/her duties under IA86 section 291 [note 40] and section 333 [note 31]. Sending this letter may prompt him/her to agree a repayment schedule for the arrears before the application to court is made.
Following the expiry of the 14 days specified in letter 3 (at Annex F), if no satisfactory response has been received from the former bankrupt, an application should be made to the relevant (county) court for a private examination under section 366 of the IA86 [note 36].
Whilst the general rule in court proceedings is that applications are to be made on notice (i.e. following notice to the respondent), Rule 9.2(4) of the Insolvency Rules [note 41] does provide that an application under section 366 may be made without notice being given to the respondent, although it does not specify in what circumstances the application can be made. Legal advice received by The Service states there is no specific case law to assist with applications under section 366 of the IA86 (although there is some authority dealing with the comparative application for an examination under section 236 IA86 (inquiries into a company’s dealings). The relevant case law is Hill v Van Der Merwe 2007 EWHC 1619 [note 42]. See also Chapter 23 Part 2, particularly paragraph 23.22, and also refer to paragraph 31.7.212, for suggested reasons as to when a “without notice” application may be appropriate.
A without notice application will save time and costs. Also, legal advice suggests that where it can be shown the official receiver will be unfairly prejudiced by giving notice (such that it will cause a delay in progressing the private examination, or increase the risk of the respondent absconding), which outweighs any injustice to the respondent in not providing notice, then an application for a private examination should be made without notice.
Whilst the official receiver’s application is normally made without notice to any other party, the final decision as to whether to allow an order listing the private examination without notice rests with the court. If the court lists the application for an ‘on notice’ hearing, the official receiver will need to attend before court in order to obtain the order listing the private examination.
When an application is made without notice the respondent should be given the right to apply to set the order aside under Civil Procedures Rules part 23. This has been provided for in Order A (draft available at Annex K) by including the optional wording at note 2 on the draft order, concerning the respondent’s right to apply to set aside or vary the order within 7 days of service of the order, where the application has been made without notice. This statement should always be included in the order where the application is made without notice. Legal advice received indicates that if the respondent is allowed to set aside the order before they are required to comply, this minimises the risk of any injustice to the respondent.
If the application is made without notice the following documents should be filed at Court (and further copies for service);
To assist the court it is helpful to explain the procedure in a covering letter. Pro-forma wording for this letter addressed to the court (letter 5) is included at Annex H.
The official receiver can apply in his/her capacity as official receiver but in most cases will be applying for a private examination once he/she is trustee. Any background information should be included in the official receiver’s report (draft report at Annex J).
Form PVTEXO Bkrpy (Private examination, application and order, bankruptcy) is available via ISCIS as a word document, and can be adapted if required, to include the pro-forma wording provided in the documents at Annexes I and K.
If the official receiver/trustee decides to proceed with the application on notice (i.e. following notice to the respondent), or if the court requires the application to be heard on notice, then the application should be served on the respondent by post in the usual way and the official receiver will attend the hearing of the application and obtain the order listing the private examination. A ‘Certificate of Service’ (Court Service Form N215 available here) should be completed to evidence that the respondent has been served notice of the application.
Where the court has ordered the examination of a bankrupt under section 366, and it appears to the court that the examination was necessary because information had been unjustifiably refused by the bankrupt, it may order that the costs of the examination be paid by the bankrupt [note 43] as well as the costs in making the application. A costs order may be possible even if the private examination does not go ahead or is adjourned, for example, if the bankrupt starts to co-operate after the private examination application has been initiated. Whether costs are claimed in any particular case may depend on the circumstances of the bankrupt and, in particular, the costs/benefit assessment made in the light of the bankrupt’s financial situation.
A reference to an application for costs is included in Letter 3 (Annex F), the official receiver’s report (Annex J), order B (Annex L) and order C (Annex M) which may be included, as appropriate. If a costs claim is to be made, it is necessary to let the bankrupt know the appropriate level of costs being sought prior to the hearing.
Once the court has made the order listing the private examination, the following papers should be served on the respondent ((former) bankrupt) personally, to ensure that a warrant of arrest can be obtained as required, if he/she does not attend the hearing:
Form PVTEXO Bkrpy (Private examination, application and order, bankruptcy) available through ISCIS can be adapted and used as necessary to reflect the pro-forma wording provided in the documents at Annexes I and K.
The documents can be served under the cover of Letter 4 (pro-forma available at Annex G) and should be served as soon as possible [note 44] with a completed certificate of service a partially completed pro-forma Word version of this form is available at Annex N to this chapter.
The documents must be served on the bankrupt at least 14 days before the date fixed for the private examination. If, exceptionally, this timescale cannot be met, the court may be contacted to request that the private examination hearing be relisted to a later date to allow for service to be properly effected.
To ensure the most up to date information is available, the (former) bankrupt should be sent a copy of the IPOQ to complete prior to, or at, the hearing (see pro-forma letter 4 Annex G). The completion of the IPOQ may not be necessary in all cases so a decision should be made depending on the circumstances of each case.
The following are the most likely scenarios that will be faced by the official receiver or trustee at the private examination hearing:
(i) (Former) bankrupt attends with all documentation
(ii) (Former) bankrupt attends but without relevant documentation
(iii) (Former) Bankrupt does not attend.
The subsequent action by the official receiver/trustee following each of these scenarios is outlined at paragraphs 31.7.220 to 31.7.228 as follows:
If the former bankrupt attends the private examination hearing with all the required documentation (including the completed IPOQ, see paragraph 31.7.218), or provides that information at the hearing, then the private examination procedure will be effectively concluded, other than seeking an order as required, see paragraph 31.7.221 for suggestions as to the likely order(s) that may be requested.
Some of the suggested information to be established by the official receiver at the hearing (if not already known) should include:
(i) the bankrupt’s address;
(ii) his /her employment position (employed, self-employed, unemployed, retired);
(iii) his/her current income and expenditure; and
(iv) his/her interest in property or other assets.
Following the attendance of the former bankrupt at the private examination hearing, the official receiver should either already have/will have established at the hearing, all necessary information to assess whether the IPA/IPO should be continued with and/or whether further enforcement procedures may be necessary.
The official receiver may:
(i) seek an adjournment to consider the position; or
(ii) seek a direction under section 363 [note 34] that:
a. the bankrupt pays a given amount of arrears within a given period and/or
b. the bankrupt pays a given amount under the order for a specified period; or
(iii) seek a variation of the order under section 310(3)(b) [note 12] or the agreement under 310A(6)(b) [note 15] that the former bankrupt’s employer or a relevant third party makes the payments and/or pays the arrears direct to the OR as trustee; or
(iv) seek such other order (for enforcement) as may become apparent from the hearing.
A draft order (Order B) to be used where a former bankrupt attends the private examination is available at Annex L.
If the former bankrupt attends but without the relevant documents, then the private examination can either be adjourned to a further date or adjourned generally with liberty to restore and an order can be made by the Court for the production of documents. A draft order (Order B) to be used where a former bankrupt attends the private examination is available at Annex L.
Where a former bankrupt either fails to attend the adjourned hearing, or attends an adjourned private examination but fails to bring documents or information ordered by the court, consideration can then be given to making an application for committal for breach of the order. The wording of Order C (draft order C available at Annex M) can be adapted for this purpose. The former bankrupt’s circumstances and his/her reasons, if any, for non-compliance should be taken into account when deciding whether such an application should be made and/or at what point in the process an application for committal should be made.
If the former bankrupt does not attend the private examination, legal advice received by The Service suggests the official receiver should ask the court for an order adjourning the private examination and requesting for it to be listed with an application for committal (which the official receiver agrees to file) before a circuit judge (see draft Order C at Annex M). Where the former bankrupt fails to attend a private examination it is possible for a warrant to be issued for their arrest. Form PEWA should be used where the bankruptcy petition was presented before 6 April 2010, or form N40A, County Court civil form, for cases where the petition was presented after 6 April 2010 can be used (see paragraph 23.67). However, legal advice received by The Service suggests it is preferable to proceed with an application for committal instead as outlined at paragraphs 31.7.223 to 31.7.228. Draft order C available at Annex M can be adapted for this purpose.
Any notice of an adjourned private examination application hearing date or order should be personally served on the former bankrupt if a committal application is likely to be included.
31.7.226Application for committal following non-attendance
Following the non-attendance of the former bankrupt at the private examination hearing an application for committal can be made in the usual way, see paragraph 31.7.227. For details of the procedures to follow and forms to use where a warrant for arrest is applied for following non-attendance, please refer to Chapter 23, paragraphs 23.67 and 23.68.
Once the application for committal has been made, precedent cases progressed by The Treasury Solicitor indicate that the court will agree to make orders adjourning the committal hearing pending compliance with specific orders and/or the co-operation of the former bankrupt with the official receiver. For example, an order may be granted committing a former bankrupt to prison for a period of time but suspended on the basis that he/she attends an interview/interviews with the official receiver.
There may be some occasions where a private examination is likely to achieve little, for example, where the official receiver is aware of the former bankrupt’s financial position but he/she is flagrantly refusing to make payments or otherwise to co-operate. In such circumstances it may be possible to progress straight to a committal application on the basis of the bankrupt’s non co-operation under the Insolvency Act 1986 section 291(4) [note 29] or section 333(1) [note 31]. The Service has been advised that in some cases, where a former bankrupt is not co-operating, and there is sufficient evidence to show he/she has tried to evade service, the District Judge may take the view that this is an appropriate case in which to proceed to a committal application, alongside the private examination.
31.7.229Arrears outstanding at the expiry of the IPA/IPO, seeking a voluntary payment
If a shortfall against the originally agreed total to be collected under the IPA/IPO (or a shortfall against the revised total, if applicable) still remains at the end of the three year period of the agreement/order, the debt outstanding is still enforceable against the (former) bankrupt. As an alternative to enforcement action being taken (see paragraph 31.7.230), in the first instance, the official receiver may wish to consider negotiating with the (former) bankrupt to set up voluntary payments to clear the outstanding balance.
31.7.230Arrears outstanding at the expiry of the IPA/IPO, applying for judgment
If it is not possible to agree a voluntary payment of the arrears outstanding at the end of the three year period of an IPA or IPO (see paragraph 31.7.230), the trustee can apply to court for a judgment against the (former) bankrupt for any outstanding arrears remaining at that date under the (expired) IPA/IPO, and then apply to court for an attachment of earnings order to recover the judgment debt from the former bankrupt [note 45] or issue a statutory demand for payment of the outstanding arrears subject to the outstanding amount meeting or exceeding the required statutory demand limit (£750 as at April 2011).
An IPA is a contract but may be enforced as it if were an IPO, namely as an order of the court [note 3]. So payment of arrears can be enforced as a debt. The threat of issuing these legal proceedings alone may have the desired effect of causing the (former) bankrupt to comply and make payment of the arrears.
31.7.232Petitioning for further bankruptcy following discharge
Where there are arrears owing under an IPA or an IPO, these are debts for which a statutory demand can be presented, subject to the outstanding amount meeting the minimum bankruptcy level. This procedure may be taken either to enforce a judgment of the court (see paragraphs 31.7.230 and 31.7.231) or in order to avoid the need to seek alternative enforcement action as detailed at paragraphs 31.7.209 to 31.1.228. It should be noted that it will be necessary to know the bankrupt’s whereabouts in order to serve the statutory demand.
[Back to Part 9 Enforcing an IPA or IPO following default – recovery action where bankrupt co-operates]