Discharge and Termination I
An individual is subject to bankruptcy restrictions until he is discharged from bankruptcy. A discharge frees the debtor from all pre-bankruptcy liabilities.Upon discharge the bankrupt is discharged from debts which could have been proved for in the bankruptcy. No further recovery may be had from the bankrupt.
Upon discharge, there may be continuing obligations on the debtor for a further period in accordance with obligations arising from the bankruptcy itself. They may arise in particular in relation to the realisation of assets and the payment of part of the debtor’s income to the Offical Assignee for the benefit of creditors, for a further period.
Formerly the conditions for release in ordinary were very onerous. A court order was required. This position has been reformed dramatically. By 2012 legislation, there is an automatic discharge, three years after adjudication. By 2015 legislation, following the UK position, automatic discharge occurs one year after adjudication.
Discharge and Termination II
The Official Assignee or a creditor may apply to the court to object to the discharge of a person from bankruptcy. The grounds are that the person has failed to cooperate with the Official Assignee has hidden or failed to disclose income or asset. The court may suspend the discharge pending further investigation or extend the period for discharge to a date not later than eight years after adjudication.
Apart from the other bases a bankrupt is entitled to discharge the bankruptcy if he pays all debts, costs together with interest or has obtained the consent of creditors. This basis of discharge in not likely to be commonly found, given the provision for automatic discharge after one year.
Completion of Bankruptcy Composition
A bankrupt is entitled to discharge if he enters a composition or arrangement with creditors which has been successfully carried out. This may occur immediately where the agreed sums are paid or secured upfront.
These types of bankruptcy arrangement differ from debt settlement arrangements and personal insolvency arrangements, by which a person avoids bankruptcy entirely.
In the case of a composition, the court, on the application of the bankrupt, on the report of the Official Assignee and in the absence of fraud, discharge the adjudication order—
- in the case of a composition payable in cash, upon lodgment with the Official Assignee of the necessary amount to pay the composition, expenses, fees, costs, such further sums as the Court may direct and the preferential payments;
- in the case of a composition payable by instalments which are secured to the satisfaction of the creditors, upon lodgment with the Official Assignee of the completed bills, notes or other securities, the necessary amount to pay expenses, fees, costs, such further sums as the Court may direct and the preferential payments;
- in the case of a composition payable partly in cash and partly by instalments which are secured to the satisfaction of the creditors, upon lodgment with the Official Assignee of the completed bills, notes or other securities, the necessary amount to pay the cash composition, expenses, fees, costs, such further sums as the Court may direct and the preferential payments
Prior to 2011 an application was required to be made to the court for the discharge of a bankruptcy. There were a number of restrictive bases for release. In some cases, there was an entitlement to discharge, while in other cases it was at the court’s discretion. A discharge from bankruptcy was given by way of court certificate.
In the case of bankruptcies before 1st, January 1960, the 1988 Act automatically discharged the bankruptcy without the need for court application.
A bankrupt was entitled to discharge if he paid all debts, costs together with interest. He was entitled to discharge if all creditors consented.
The court could order discharge where
- the assets were fully realised,
- the creditors had been paid at least 50%,
- the bankruptcy has been in existence for 12 years,
- the bankrupt has made full disclosure of all later acquired assets, and
- it was reasonable and proper to order discharge.
In any case where the debts had not been paid in full, the court was required to consider the report of the assignee or trustee. The court had to be satisfied that it was reasonable and proper to order a discharge. The court had regard to the bankrupt’s conduct prior to bankruptcy and the reasons for bankruptcy.
Superseded 2011 Reformed Rules on Discharge
The Civil Law (Miscellaneous Provisions) Act 2011 introduced automatic discharge of all bankruptcies on the 12th anniversary of the making of the adjudication order. Upon such discharge, the property of the bankrupt which remained vested in the Official Assignee after payment of expenses, fees, costs and expenses in bankruptcy and preferential payments re-vest in the bankrupt. They re-vest on the date in which the bankruptcy stands discharged.
A bankrupt whose assets, in the opinion of the court have been fully realised was entitled to discharge from bankruptcy, where provision is made for the payment of expenses, fees and costs and preferential debts and the creditors had received at least 50 percent.
Where a bankruptcy has subsisted for five years, the bankrupt could apply to the court for an order of discharge. Discharge could be ordered where
- provision had been made for fees, costs, expenses and preferential payments,
- the court was satisfied that the estate had been fully realised,
- after-acquired properties had been disclosed, and
- it is reasonable and proper to grant the discharge.
Where the discharge is granted, and sufficient funds remained to pay a dividend to the creditors, this fund is to remain vested in the Official Assignee for the benefit of creditors.
Automatic Discharge after One Year
The Personal Insolvency Act 2012 provided for automatic discharge of the bankrupt after three years. This period was reduced to one year in 2015. It provides that every bankruptcy shall on the first anniversary of the making of the adjudication order, stand discharged unless it is discharged or annulled prior to that date.
The termination of bankruptcy does not necessarily mean that all of the debtor’s obligations cease at that point. The unrealised assets of the bankrupt remain vested in the Official Assignee for the benefit of the creditors.
There may be ongoing obligations for the debtor, such as an obligation to pay a proportion of his income for the benefit of the creditors a further period. This may generally continue for up to three years.
The issue of sale of the family home is subject to a longer time cycle. The family home revests after three years unless the Official Assignee has applied to court for consent to sale or postponement of this date or where there has been an agreement for sale.
Some claims, such as a third party rights against insurers arising from a civil claim such as an accident remain.
Entitlement Discharge on Payment or Consent
A bankrupt is entitled to an order discharging him from bankruptcy where provision has been made for the payment of the expenses, fees and costs of the bankruptcy, and for preferential payments, and he has paid the creditors in full with such interest as the Court may allow.
A bankrupt is entitled to discharge where he has obtained the consent in writing of all of his creditors, whose debts have been proved and admitted in the bankruptcy. The giving of consent by a creditor) constitutes a waiver of the right to recover the amount concerned proved and admitted in the bankruptcy.
A bankrupt is entitled to discharge where he has completed a composition in bankruptcy. See above,
An order of discharge shall provide that any property of the bankrupt then vested in the Official Assignee shall be revested in or returned to the bankrupt, and that order shall for all purposes be deemed to be a conveyance, assignment or transfer of that property to the bankrupt and, where appropriate, may be registered accordingly. He may apply to the Official Assignee for the issue of a certificate of discharge from bankruptcy.
Existing Bankruptcies Discharged
Where an adjudication had been made for more than three years before the coming into effect of the relevant provision of the Act in Bankruptcy (Amendment) Act 2015 on 29th January 2016, that bankruptcy was to be discharged six months after that date or the earlier due date, unless it had been otherwise discharged in the meantime on another basis. Creditors may make objection within a certain period.
Where an adjudication of bankruptcy would, but for the new provision for automatic discharge after one year, expire more than six months after commencement of the legislation, it is deemed to be discharged on the later of six months after commencement of the legislation or one year after adjudication, unless otherwise discharged or annulled.
Objection to Discharge
The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt apply to the Court to object to the discharge of a bankrupt on certain grounds.
Where the court is satisfied that the bankrupt
- has failed to cooperate with the Official Assignee in the realisation of his assets
- has hidden or failed to disclose income or assets which could be realised for the benefit of the creditor,
then the court may, where it considers just postpone discharge. The bankruptcy shall be discharged on such later date being not later than the eighth anniversary of the date of the adjudication order, as the court considers just.
The court may order postponement up to not later than the fifteenth anniversary, when the court considers it to be just in view of the seriousness of the failure to cooperate or the extent to which the income or assets referred to above were hidden or not disclosed as the case may be.
The application is made on notice to the bankrupt and where made by the trustee in bankruptcy or a creditor, notice shall also be given to the Official Assignee. Where it appears to the Court that the making of an order is justified, the Court may make an order that the matters complained of by the applicant be further investigated and pending the making of a determination of the application the bankruptcy shall not stand automatically discharged under the general provisions.
References and Sources
Burke & Comyn Personal Insolvency Law 2014
Bracken Practioner’s Personal Insolvency Handbook 2013
Law Society (Wright) Insolvency Law 2009
Sanfey & Holohan Bankruptcy Law & Practice2nd Ed 2010
Farry, Holohan Consolidated Bankruptcy & Personal Insolvency Legislation2013
Forde, Kennedy & Simms Company Insolvency 2015
Forde & Simms Bankruptcy Law 2nd Ed 2009
Insolvency Law and Practice (Report of the review committee chaired by Sir Kenneth Cork CBE, 1982, Cmnd 8558) (the Cork report)
V Finch, Corporate Insolvency Law: Perspectives and Principles 3rd Ed 2017
RM Goode, Principles of Corporate Insolvency Law (4th Ed, 2011)
A Keay and P Walton, Insolvency law: corporate and personal (4rd Ed, 2017)
Marsh Bankruptcy Insolvency and the Law 2016
WW McBryde, Bankruptcy 2nd Ed, 1995
Butterworths Insolvency Law Handbook 14th Ed 2012
Core Statutes on Insolvency Law and Corporate Rescue (annual editions)
Personal Insolvency Legislation
Bankruptcy Act 1988
Bankruptcy (Amendment) Act 2015
Personal Insolvency Act 2012
Personal Insolvency (Amendment) Act 2015
Bankruptcy Act 1988 (Commencement) Order 1988, S.I. No. 348 of 1988
Bankruptcy Act, 1988 (Alteration of Monetary Limits) Order 2001, S.I. No. 595 of 2001
Bankruptcy Act 1988 (Official Assignee Accounts and Related Matters) Regulations 2013, S.I. No. 464 of 2013
Bankruptcy (Amendment) Act 2015 (Commencement) Order2016, S.I. No. 34 of 2016
Rules of the Superior Courts (Bankruptcy) 2013, S.I. No. 461 of 2013
Rules of the Superior Courts (Bankruptcy) 2016, S.I. No. 232 of 2016
Rules of the Superior Courts (Bankruptcy) 2012, S.I. No. 120 of 2012
Bankruptcy (Amendment) Act 2015 (Commencement) (No. 2) Order 2016, S.I. No. 253 of 2016