What is a bankruptcy restriction order?

As with all consequences, a bankruptcy restriction order should be taken very seriously.

A bankruptcy restrictions order is an order by the court that the restrictions of bankruptcy are prolonged for a period of between 2 and 15 years. This means that it will be an offence for you to:

  • Get £500 or more of credit either alone or jointly with any other person without informing the lender of your bankruptcy
  • Carry on business (directly or indirectly) in a different name from that in which you were made bankrupt, without telling all those with whom you do business the name in which you were made bankrupt
  • Be concerned (directly or indirectly) in promoting, forming or managing a limited company, or acting as a company director, without the court's permission, whether formally appointed as a director or not

If you break these restrictions then you may be punished by way of imprisonment or fine or both.

Why do bankruptcy restrictions orders exist?

The Bankruptcy restrictions order was introduced by the Enterprise Act in order to protect the public and organisations from blameworthy bankrupts. The majority of bankrupts will obtain their discharge from bankruptcy upon the first anniversary of the bankruptcy and those who are to blame in some way remain subject the restrictions mentioned above for a period specified by the order.

When is a bankruptcy restriction order made against you?

A bankruptcy restrictions order can be applied for within one year of your bankruptcy or after one year with the permission of the court. If your discharge is suspended the Official Receiver can proceed to apply without the permission of the court outside of the one year period.

The Official Receiver will usually determine that a bankruptcy restrictions order is necessary during the investigation into your affairs. If information regarding your affairs comes to light following the first anniversary of your bankruptcy then the Official Receiver will need the permission of the court to apply for the bankruptcy restrictions order.

Please note that only the Official Receiver can apply to the court. A trustee will have to go through the Official Receiver to apply for the order.

What actions lead to a bankruptcy restrictions order?

The court can make a bankruptcy restrictions order against you if it thinks fit having regard to your conduct. The insolvency act does state the following kinds of behaviour that should be taken into account:

  • Incurring debt that you had no reasonable prospect of being able to repay
  • Failing to co-operate with the Official receiver or the trustee
  • Gambling
  • Neglect of business affairs
  • Fraud or fraudulent breach of trust
  • Failing to account for loss of property
  • Failing to keep records which account for loss of property in the last 2 years
  • Failing to produce those records
  • Making transactions at an undervalue, preference or making excessive pension contributions (see previous transactions)
  • Failure to supply goods and services already paid for
  • Trading when you ought to have known that you were unable to repay your debts

You should realise when you are at this stage that things get a little more serious, particularly if your behaviour may lead to you being found guilty of a bankruptcy offence.

What are the consequences of a bankruptcy restrictions order?

As discussed above the restrictions of bankruptcy are prolonged for a period of 2 to 15 years. If you are not in business then your main concern will be obtaining credit, your chances are seriously affected. This includes getting a mortgage. Your career may also be affected and any future aspirations that you develop may also be affected. For example, if you suddenly decide that you would like to be a solicitor.

However, if you are in business then you are likely to be affected most by a bankruptcy restrictions order. It can affect your ability to obtain credit, maintain supplier relationships, start up again and be a director.

Is there anything you can do?

There are two things that you can do:

What is an Interim bankruptcy restrictions order?

An interim bankruptcy restrictions order has the same effect of a bankruptcy restrictions order. It will usually be made in the time between the Official Receiver applying for a bankruptcy restrictions order and the court actually making the order. The court will make an interim order if it considers it in public interest to do so and evidence suggests that the application presented to the court will be successful.

This page has described one of the outcomes of bankruptcy that can have far reaching consequences.