ANNEX 1
(May 2008)
Transitional provisions on discharge from bankruptcy
(Under schedule 19 of the Enterprise Act 2002)
1. When transitional provisions are applicable
The provisions in this Annex should be applied to those cases where the individual had a bankruptcy order made against him/her before 1 April 2004 and he/she remained undischarged from the bankruptcy at that date [Note 1].
If the bankruptcy order was made on or after 1 April 2004 the provisions of section 279 of the Insolvency Act 1986 (as amended by section 256 of the Enterprise Act 2002) should be applied. Details are provided in Parts 1 - 5 of this chapter.
Commencement – this term refers to the commencement of the new discharge provisions introduced under section 256 of the Enterprise Act 2002 and the transitional provisions under schedule 19 to that Act on 1 April 2004.
Pre-commencement bankrupt – this term applies where an individual had a bankruptcy order made against him/her before 1 April 2004 and he/she remained undischarged from the bankruptcy at that date.
2. Duration of bankruptcy - transitional provisions
Prior to the commencement of the new provisions, section 279 of the Insolvency Act 1986 stated that, except where an individual was subject to a criminal bankruptcy order or was a second time bankrupt, a bankrupt would be discharged after the relevant period, as follows:
a. Where a certificate for the summary administration of the bankrupt’s estate has been issued and is not revoked before the bankrupt’s discharge, the period of 2 years beginning with the commencement of the bankruptcy, and
b. In any other case, the period of 3 years beginning with the commencement of the bankruptcy.
Following the commencement of the new provisions on 1 April 2004, the relevant periods above disappeared, except insofar as the period was required for calculating the correct date of discharge under the transitional provisions in paragraph 4 of schedule 19 of the Enterprise Act 2002.
The transitional provisions provide that, subject to the exclusions detailed at paragraph 3 below, a pre-commencement bankrupt is discharged from bankruptcy at the earlier of:
a. The end of one year beginning with the commencement (i.e. discharge occurred on 1 April 2005).
b. The end of the relevant period applicable to the bankrupt under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately before commencement. If the individual's automatic discharge would have occurred before 1 April 2005 discharge would occur on that earlier date.
3. Exceptions to transitional provisions applying
The provisions detailed in paragraph 2 do not apply where the individual is not entitled to an automatic discharge because;
a. the court ordered a suspension of discharge prior to 1 April 2004 (see paragraph 4)
b. an order for suspension of discharge is obtained on application made on or after 1 April 2004 (by either the official receiver or an insolvency practitioner if he is trustee)(see paragraph 7)
c. the individual is a second-time bankrupt (see paragraphs 10 and 11)
d. a criminal bankruptcy order has been made against the individual on a petition presented under section 264 (1)(d) (see paragraph 16)
4. Order suspending discharge obtained prior to 1 April 2004
When a pre-commencement bankrupt is subject to an order suspending his/her discharge from bankruptcy and the order was obtained prior to 1 April 2004 the order continues to have effect after commencement. The order may be varied or revoked after 1 April 2004 under section 279(3) of the Insolvency Act 1986, as amended [Note 2].
Where the suspension of discharge was lifted before 1 April 2005, the bankrupt would have obtained his/her discharge on 1 April 2005 at the latest. An earlier discharge date may be applicable to bankrupts who, at the date the order of suspension was imposed, had less than 12 months remaining of their original pre-commencement discharge period. If the balance of time remaining was less than the period from the lifting of the suspension to 1 April 2005, discharge would take effect at an earlier date when the balance of the original period expired after the suspension was lifted.
Where a pre-commencement bankrupt subsequently cooperates and obtains a lifting of the suspension of discharge at any time after 1 April 2005, the bankrupt will be discharged a maximum of one year after the suspension is lifted. An earlier discharge date is applicable to bankrupts who, at the date the order of suspension was imposed, had less than 12 months remaining of their original discharge period. In those cases, the shorter (remaining) period to discharge is preserved. When the suspension order is lifted, discharge will take effect after the balance of the original period has expired [Note 3]. (See paragraph 5, examples 1 and 2 below).
5. Examples - suspension of discharge obtained prior to 1 April 2004
Example 1. Where suspension of discharge was obtained after 34 months, the relevant period, under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately prior to commencement, is 2 months. The period to discharge is preserved.
Bankruptcy order: 1 February 2000
Suspension of discharge: 1 December 2002
Lifting of the suspension: 1 June 2008
Discharge date: 1 August 2008
Example 2. Where suspension of discharge was obtained after 10 months, the relevant period, under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately prior to commencement, is 26 months and the shorter 12 month period to discharge is therefore applicable.
Bankruptcy order: 1 February 2000
Suspension of discharge: 1 December 2000
Lifting of the suspension: 1 May 2008
Discharge date: 1 May 2009
6. Application for suspension of discharge after 1 April 2004
Since 1 April 2004, an insolvency practitioner who has been appointed as trustee is eligible to make an application for a suspension of discharge
in addition to the official receiver [Note 4].
The official receiver or trustee may apply for an order suspending the discharge of a pre-commencement bankrupt at any time before his/her discharge. Any such application made on or after 1 April 2004 should be made under the provisions of section 279(3) to (5) of the Insolvency Act 1986 (as amended by the Enterprise Act 2002). For guidance on the making of such an application, see part 4 of this chapter.
7. Suspension of discharge obtained after 1 April 2004
When a pre-commencement bankrupt is subject to an order suspending his/her discharge from bankruptcy and that order was obtained on or after 1 April 2004, the transitional provisions for discharge set out in paragraph 2 above apply the appropriate transitional period should thereafter be used in calculating the date of discharge.
Where at 1 April 2004 a pre-commencement bankrupt had less than one year remaining under their original discharge period, a suspension of discharge obtained after 1 April 2004 will suspend the running of this period. When the suspension order is lifted, discharge will take effect after the balance of the original period has expired. (See paragraph 8, example 1 below).
Where at 1 April 2004 a pre-commencement bankrupt had more than one year remaining under their original discharge period, the transitional provisions [Note 5], provide that the bankrupt is discharged from bankruptcy after one year. When the suspension order is lifted, discharge will take effect after the balance of the one year period since 1 April 2004 expires. (See paragraph 8, example 2 below).
8. Examples - suspension of discharge obtained after 1 April 2004
Example 1. Where the relevant period applicable to the bankrupt, under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately before commencement, is less than one year.
Bankruptcy order: 1 June 2001
Suspension of discharge: 1 May 2004
Lifting of the suspension: 1 January 2008
Discharge date: 1 February 2008
Explanation: at 1 April 2004 there were only two months remaining until discharge, under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately before commencement, which is less than the alternative transitional provision of one year and it is therefore the appropriate period until discharge.
When the order suspending discharge was obtained on 1 May 2004 one month had already expired since commencement on 1 April 2004, therefore upon lifting of the suspension, only one month remains until discharge.
Example 2. Where the relevant period applicable to the bankrupt, under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately before commencement, is more than one year.
Bankruptcy order: 1 December 2003
Suspension of discharge: 1 November 2004
Lifting of the suspension: 1 January 2008
Discharge date: 1 June 2008
Explanation: at 1 April 2004 there were twenty two months remaining until discharge, under section 279(1)(b) of the Insolvency Act 1986 as it had effect immediately before commencement, which is more than the transitional provision of one year. It is therefore appropriate to use the shorter transitional period of one year until discharge.
When the order suspending discharge was obtained on 1 November 2004, seven months had already expired since commencement on 1 April 2004 therefore, upon lifting of the suspension only five months remain until discharge.
9. Application to lift suspension of discharge
Where the bankrupt is subject to an order suspending his discharge from bankruptcy, he/she may apply at any time for the order to be discharged (see Part 4, paragraph 22.37) [Note 6].
10. Second time bankrupts - general
Where an individual (who was adjudged bankrupt before 1 April 2004 and remains undischarged on that date) was also an undischarged bankrupt at any time during the 15 years before the second or subsequent bankruptcy order was made, the transitional provisions outlined in paragraph 2 will not apply and the guidance in paragraph 11 should be followed.
Throughout the remainder of this Annex, such an individual is referred to as a “pre-commencement second time bankrupt”.
If the earlier bankruptcy order was annulled the transitional provisions in paragraph 2 will apply [Note 7].
11. Second time bankrupts – duration of second bankruptcy
A pre-commencement second time bankrupt who has not been discharged (either absolutely or conditionally) from the second bankruptcy before 1 April 2004 is discharged under the transitional provisions;
a. at the end of the period of five years from 1 April 2004, or
b. earlier if the court makes an order under section 280 of the Insolvency Act 1986 after 1 April 2004 (see paragraph 13) [Note 8].
12. Second time bankrupts - discharge obtained before 1 April 2004
Where a pre-commencement second time bankrupt obtained an order discharging him/her absolutely under section 280(2)(b) or conditionally under section 280(2)(c) of the Insolvency Act 1986, the discharge order shall continue to have effect. This includes any order made by virtue of section 280(3) of that Act. [Note 9]
13. Second time bankrupt - application for discharge after 1 April 2004
A pre-commencement second time bankrupt may apply after 1 April 2004 for discharge before 1 April 2009 provided that the application is made more than 5 years from the date of the later bankruptcy order. Guidance on dealing with an application by the bankrupt is given in Annex 2 [Note 10].
14. Second time bankrupts – suspension of discharge period
Under section 279 of the Insolvency Act 1986, as it had effect immediately before commencement, the official receiver was unable to obtain a suspension of discharge against a pre-commencement second time bankrupt. The reason for this was that prior to commencement, a second time bankrupt was not entitled to an automatic discharge and only received discharge from the second bankruptcy order following an application made under section 280 of the Insolvency Act 1986. The official receiver was required to file a report including details of the conduct of the bankrupt and this was considered when the court decided whether to grant discharge or not. There was no need therefore for the official receiver to obtain a suspension of discharge in such cases as discharge could simply be denied.
The transitional provisions contained within schedule 19 of the Enterprise Act 2002 introduced an automatic discharge date, in pre-commencement second time bankruptcies, of 1 April 2009. In addition, as a precaution, the provisions enable the official receiver or trustee, in the period between commencement on 1 April 2004 and automatic discharge on 1 April 2009, to apply to the court for an order under section 279(3) to (5) of the Insolvency Act 1986 suspending the pre-commencement second time bankrupt’s discharge, in appropriate cases. (For further information on making such an application see Part 4 of this Chapter) [Note 11].
15. Second time bankrupts - recent order post-commencement
Where a bankruptcy order is made against an individual after 1 April 2004 and that individual has also been an undischarged bankrupt at any time during the 15 years before the post-commencement bankruptcy order was made, the bankrupt will be discharged from the post-commencement bankruptcy one year after the making of that order, in accordance with section 279, as amended. It is therefore possible, although rare, to encounter a bankrupt with three or more bankruptcy orders against him/her, who is discharged from a post-commencement bankruptcy order prior to obtaining their discharge from a pre-commencement second bankruptcy order.
16. Criminal bankruptcy orders
A pre-commencement bankrupt, who was adjudged bankrupt on a petition under section 264(1)(d) of the Act, will not be discharged under the transitional provisions detailed in paragraph 2. Instead the bankrupt will need to apply to the court for his/her discharge (see Annex 2 and Chapter 35)
The power to make criminal bankruptcy orders was abolished on 3 April 1989, however there are still a few such cases where discharge has not yet been obtained [Note 1] [Note 12].
17. Income payments orders and discharge
Where a pre-commencement bankrupt has consented to payments being made under an income payments order until discharge from bankruptcy he/she may consider that the obligation to pay ends once they are discharged under the transitional provisions as detailed at paragraph 2 above. In fact the income payments order may refer to a specific date when payments will cease and not to "the date of discharge". The bankrupt may argue that the order does not reflect the consent given, however, it would be unlikely that the court would accept that argument as when it was signed the bankrupt was aware of a later date of discharge and that date is reflected in the income payments order.
If the income payments order does refer to discharge rather than to a final payment date, then the official receiver could consider making application to court to amend the order so that payments continue as originally envisaged.
(See paragraphs 31.7.57 and 31.7.58 for further detail) [Note 13].