The bankruptcy process can appear intractable. Once a bankruptcy order is made, a statutory procedure is commenced which sets our how the bankrupt's affairs are to be administered and how the bankrupt's assets are to be treated.
This process will be overseen by the Official Receiver or a Trustee in Bankruptcy, who are under placed under obligations to perform their duties in a timely fashion.
An annulment is an order of the Court which has the effect of restoring the bankrupt's position to the position it would have been had the order never been made. The Court has the discretion to grant an annulment order under two grounds:
- that the order ought never to have been made
- that the bankruptcy debts, costs and expenses have been paid or secured to the satisfaction of the Court.
Where an application is made on the grounds that the order ought never to have been made, the burden is on the bankrupt to show a defect in the bankruptcy petition proceedings, or in respect of the debt which forms the basis of the petition. For example, bankruptcy orders have been annulled on this ground where the petition debt was shown not to exist, where the petition was not properly served, and where the bankrupt was shown not to be under the jurisdiction of the Court of England and Wales. The prospects of success an annulment application brought on this ground depends on the circumstances of the case. In addition, the court has a general discretion when granting any annulment order. For example, the court may nonetheless refuse to make an annulment order where there is evidence that the debtor has other creditors whose position requires safeguarding.
By its nature, an application made on the grounds that the bankruptcy debts have been paid in full requires an injection of money into the bankruptcy estate. Often, the bankrupt will source funding from friends and family, or a specialist annulment funder, in order to pay the debts in full. Depending on the circumstances of the case, there can be significant benefits to a bankrupt in seeking an annulment on these grounds. There are tax savings where the debts are paid by third party funds rather than from realised bankruptcy assets, the annulment prevents the ongoing incurrence of the trustee's costs, and a successful annulment will save the bankrupt's family home from challenge by the trustee in bankruptcy. However, the bankrupt must have clear regard to how they will repay the annulment funding or else facing similar difficulties in the future.
A number of issues arise in annulment cases, not only in establishing the grounds of annulment but also in dealing with supplemental issues, for example such as dealing with the payment of the trustee in bankruptcy's costs. If you would like to discuss any of these issues with us, please contact any member of our team.
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