January 2008
Section 2:
Restrictions applicable in BROs/IBROs and BRUs
Part 4 - Restrictions imposed on individuals subject to BROs/IBROs and BRUs by insolvency legislation (including CDDA86)
IMPORTANT: This part must be read in conjunction with the schedule included at the Annex to this chapter.
When an individual is subject to a BRO/IBRO or a BRU, he or she is subject to a range of disabilities or restrictions until the BRO/IBRO or BRU has expired. The court will grant a BRO if it thinks it appropriate to do so having regard to the conduct of the bankrupt. A BRU does not require a court order, the bankrupt offering an undertaking to the Secretary of State by which he/she agrees to be bound by the restrictions. An interim bankruptcy restrictions order (IBRO) is an order made by the court at a time between an application for a BRO and the determination of the application. An application for an IBRO may be appropriate where the one year period of the bankruptcy will expire before the application for a BRO can be determined and the nature of the misconduct alleged in the BRO report is such that the public needs interim protection. An IBRO has the same effect as a BRO. [Note 1]
25.69 Post bankruptcy protection of the public
The change made by EA2002 means that such restrictions will apply to those individuals who, as a result of their misconduct, have been made subject to a BRO/IBRO or BRU, even though they may have been discharged from bankruptcy.
The restrictions will apply for a specified period between 2 years and 15 years from the date of the BRO or any IBRO, whichever is the earlier, or from the date that a BRU is accepted by the Secretary of State. A register of BROs, IBROs and BRUs is maintained by the Secretary of State.
The disabilities or restrictions are imposed by a variety of legislation, regulations and bye-laws, including the IA86, CDDA86 and other Acts of Parliament. EA2002 reduced the standard period of bankruptcy from three years to one year, but introduced BROs/IBROs and BRUs to protect the public and business community against the minority of bankrupts who have committed significant misconduct. See Part 5 and Annex for details of the restrictions applied by non-insolvency legislation to individuals subject to BROs, IBROs and BRUs.
25.71 Obtaining credit when subject to a BRO/IBRO or BRU
In the event that an individual is discharged from bankruptcy but subject to a BRO/IBRO/BRU, he/she must inform any person from whom he/she seeks credit that there is a BRO/IBRO/BRU in force against him/her [Note 2] [Note3]. Failure to do so means that he/she will be guilty of an offence.
25.72 Operating a bank account when subject to a BRO/IBRO/BRU
A discharged (or undischarged) bankrupt subject to a BRO/IBRO/BRU is not prohibited by law from operating a bank account but the restrictions on obtaining credit (see paragraph 25.69) would apply. That is not to say that such individuals will find it easy to open or operate a bank account. Banks make their own commercial decisions and may have a policy of refusing to operate accounts for those subject to a BRO/IBRO/BRU. If requested to do so, the official receiver may write to a bank to confirm that he/she has no objection to the individual operating a bank account but he/she must not sign any disclaimer relating to the operation of the account.
25.73 Engaging in business following a BRO/BRU
If an individual subject to a BRO/IBRO/BRU wishes to engage directly or indirectly in any business under a name other than that under which they were adjudged bankrupt, to avoid being guilty of an offence he/she must disclose the name under which he/she was adjudged bankrupt to all persons with whom he/she enters into business transactions, even though he/she may have been discharged from bankruptcy.
The individual is not prohibited from trading in partnership, although he/she must still disclose the name in which they were adjudged bankrupt, during the period that they are subject to a BRO/IBRO/BRU.
25.74 Restrictions on holding office whilst subject to a BRO/IBRO/BRU
Once an individual becomes subject to a BRO/IBRO/BRU there are various offices which the the individual must not accept, or must vacate if already held. Restrictions on holding office after becoming subject to a BRO/IBRO or BRU imposed by non-insolvency legislation are outlined at Part 5 and in the Annex attached to this chapter.
25.75 Insolvency practitioner – prohibition from acting whilst subject to a BRO/BRU
Where there is a BRO/IBRO/BRU in force , section 390(5) [Note 4] prohibits the individual subject to the BRO/IBRO/BRU, from acting as an insolvency practitioner.
25.76 House of Commons/ House of Lords s426A and s426B
Section 426A IA1986 [Note 5] disqualifies those persons who are subject to a BRO/IBRO/BRU from membership of the House of Commons, sitting or voting in the House of Lords, or sitting or voting in a committee of the House of Lords or a joint committee of both Houses. If an existing MP becomes subject to a BRO/IBRO/BRU, his/her seat is vacated . If an individual is returned as a member of the House of Commons and he/she becomes subject to a BRO/IBRO/BRU, his/her return becomes void.
If a BRO or IBRO is made in respect of a member of either House, the court must inform the relevant Speaker of that House. If the Secretary of State accepts a BRU made by a member of either House, the Secretary of State must inform the relevant Speaker of that House.
The provisions also apply to members of the Scottish Parliament, the Northern Ireland Assembly and the National Assembly for Wales. The court must inform the presiding officer of the relevant body if a BRO or IBRO is made against a member. The Secretary of State must inform the presiding officer of the relevant body if he/she accepts a BRU made by a member. [Note 6]
All of the provisions above take effect irrespective of any Parliamentary privilege.[Note 7]
25.77 Prohibition from representing a member of a liquidation committee
An individual subject to a BRO/IBRO or BRU may not represent a member of a liquidation committee. [Note 8]
25.78 Prohibition from representing a member of a creditors’ committee
An individual subject to a BRO/IBRO or BRU may not represent a member of a creditors’ committee. [Note 9]
25.79 Promotion, formation and management of a company – CDDA86
EA2002 applies the prohibition contained within section 11 CDDA86 (which prevents a bankrupt from acting as a director, or directly or indirectly taking part in or being concerned in the promotion, formation or management of a company, except with the leave of court ), to include a discharged bankrupt who is the subject of a BRO/IBRO/BRU (see also paragraph 25.18 regarding applying for leave to act etc.). [Note 10]
25.80 Limited Liability Partnerships
Regulation 4(2) of the Limited Liability Partnership Regulations (SI 2001/1090] [Note 11] applies the CDDA86 to limited liability partnerships (LLPs), all references to a company are to include an LLP and all references to a director include a member of an LLP. As a result of the application of section 11 of the CDDA86, an individual subject to a BRO/IBRO/BRU cannot be a member of an LLP. [Note 12]
[Back to Section 1 Part 3] Other considerations concerning restrictions against undischarged bankupts
[On to Part 5] Restrictions imposed on individuals subject to a BRO/IBRO or BRU by other legislation