June 2008

Introduction

i What is an annulment?

The annulment procedure applies to bankruptcy only. Once a bankruptcy order has been made it can be ’annulled’ i.e. cancelled, only by order of the court. An annulment releases the bankrupt from the restrictions placed upon him or her by insolvency law and once it is made the individual is no longer bankrupt. Annulment can be sought at any time, even after the bankrupt has received discharge from bankruptcy.

ii Why would an order be annulled?

The most common reasons that a court may order that a bankruptcy be annulled are as follows:

a. If, at the time the bankruptcy order was made, there was a valid reason why it ought not to have been made

b. that the debts and expenses of the bankruptcy have either been paid in full or secured to the satisfaction of the court

c. that an individual voluntary arrangement (IVA) has been approved.

iii How is an annulment application made?

Generally, the bankrupt (or representative) must apply to the court for an annulment of the bankruptcy order. The application must state the grounds on which the annulment is being sought and should be accompanied by an affidavit (i.e. a written statement of the relevant facts which is sworn on oath or affirmed, usually in the presence of a solicitor). The court will then set a date for the hearing.

In certain circumstances the petitioning creditor’s solicitors may make the application for annulment, e.g. where their client has failed to notify them that the debt has been paid prior to the bankruptcy. The applicant should notify the official receiver and any trustee, of the time and place of the annulment hearing. Notice of the application is usually also received from the court.

iv Costs

It is important for the official receiver to establish before the hearing, exactly who will be responsible for the costs. The party making the application will require an estimate of the total costs incurred by the official receiver. This is calculated by liaison between the examiner, court liaison officer (CLO) if the office has one, case officer, and the cashier, to ensure that the appropriate costs, fees, expenses and any other disbursements have been taken into consideration See paragraph xvi for further details on providing this estimate. Any payment due in respect of costs should be received in advance of the hearing.

The official receiver, or representative, usually an assistant official receiver (AOR), should attend the annulment hearing to ensure that the question of costs is dealt with satisfactorily, as this becomes more difficult to address after the annulment order has been made.

v Bankruptcy order ought not to have been made

Where there is an application to annul on the grounds that the bankruptcy order ought not to have been made, the bankrupt only has to give the official receiver (and any trustee) sufficient notice to allow them to attend the hearing. The bankrupt must also inform the petitioning creditor of such an application. The reason for this is that the application is usually only between the bankrupt and the petitioner.

Examples of why a bankruptcy order should not have been made are:

a.   that the proper procedures involved in obtaining the order were not followed

b.   where the debt to the petitioning creditor had been paid in full prior to the date of the hearing of the petition, when the bankruptcy order was made

The official receiver will not normally make a report in these circumstances unless it is considered that the conduct of the bankrupt should be reported to the court, but will attend or be represented at the hearing to ensure that if the application is granted, provision is made for the payment of the official receiver’s costs.

vi Debts paid in full or secured to the satisfaction of the court

Where a bankrupt applies for an annulment on the grounds that the debts and expenses of the bankruptcy have been paid in full, he or she must give the official receiver (and any trustee) at least 28 days notice of the hearing.

Where the official receiver is trustee, a report must be prepared and sent to court containing the following information:

a.   the circumstances leading to the bankruptcy

b.   a summary of the assets and liabilities, both at the time of the bankruptcy order and at the date of the application, explaining any differences

c.   confirmation of the extent to which debts have been paid or adequate security given to creditors

d.   details of any known creditors whose claims have not been proved

The report may include any other matters which the official receiver believes should be drawn to the court's attention, such as, any lack of co-operation by the bankrupt.

A copy of the report must be filed at court not less than 21 days before the hearing, and a copy must be sent to the bankrupt (or representative) at least 14 days before the hearing. If there is a trustee other than the official receiver in office, responsibility for providing the report rests with that trustee.

vii   Payment of the debts in a ‘payment in full’ annulment

Where it is a payment in full matter, payment of the debts can be made either via the trustee, official receiver or a third party, e.g. a solicitor. The latter method is known as paying debts ’outside the proceedings’ and is by far the most common type of payment. If the debts are paid outside the proceedings, proof of payment should be requested to enable the official receiver to report to court on this. In practice the court may look to the bankrupt to provide evidence that the debts have been paid. The occurrences of annulment through payment in full ‘inside the proceedings’ are quite rare.

viii   Individual voluntary arrangement approved

Where the creditors have agreed to a bankrupt's offer to pay them under an IVA, application for annulment may be made 28 days after the supervisor has reported the results of the meeting of creditors to the court. For more information regarding an IVA, please see Case Help Manual (CHM) part – Individual Voluntary Arrangements.

The official receiver also operates a streamlined Fast Track Voluntary Arrangement (FTVA) procedure in some circumstances. For more information  regarding an FTVA, please see the CHM part – Fast Track Voluntary Arrangements

ix   Stay of advertisement and Stay of proceedings

The court may, in advance of the hearing date, order that there should be no advertising of a bankruptcy or winding-up order by making a ‘stay of advertisement’ order. Every effort must be made to ensure that such an order is obeyed as failure to do so could have serious consequences.

For further information please see the CHM parts – Stay of Advertisement or CHM part – Stay of Proceedings

x Land registry entries

The court when granting the annulment will normally order that the Pending Action (Bankruptcy) PA(B) and Writs & Orders (Bankruptcy) WO(B) entries at the Land Registry be vacated, if application is made for this by or on behalf of the bankrupt. The bankrupt should arrange for this to be done, as it is not the responsibility of the official receiver. Where the annulment application is successful but the court does not dismiss the petition, vacation of the PA(B) entry will not be provided for in the order, as the petition will be re-listed for hearing.

It is important to ensure that any cautions or Form J Restrictions registered with HM Land Registry by the official receiver are withdrawn following the annulment. Failure to do so could lead to the official receiver being liable for damages.

For more information please see the CHM part – Withdrawal of a Caution or Form J Restriction  

xi Advertisement of the annulment order

If the bankrupt requires the annulment to be advertised in the London Gazette or a newspaper (usually a local one), he or she should request the official receiver to arrange for this to be done. The cost of these advertisements must be paid to the official receiver before the notices are placed.

For more information see the CHM part – Gazetting and Advertising

xii Notice to creditors

The official receiver has a duty to inform those creditors who received notice of the bankruptcy, that the order has now been annulled, whether or not the official receiver remains trustee of the estate. Under the Insolvency Rules, even if an insolvency practitioner trustee is in office at the time of the annulment, the obligation to notify creditors rests with the official receiver (where he/ or she has previously notified creditors of the bankruptcy). In such instances, before undertaking this task the official receiver should liaise with the trustee to ascertain whether he or she has already notified creditors, before undertaking this task.

xiii Appeals

An application for annulment should not be confused with an appeal. With an appeal the decision of the court is appealed to a higher authority, i.e. the higher authority is asked to review the decision of the lower court. In the case of a decision made in a county court or by a registrar of the High Court, an appeal is made to a single judge of the High Court. Where the decision was made by a judge of the High Court, appeal lies to the Court of Appeal.

In contrast, applications for annulment are made to the court that made the bankruptcy order, or the court to which the case was subsequently transferred.

xiv Rescission or recall of a winding-up order

Any application for rescission or recall of a winding-up order should be made within 7 days of the making of the order, although the court has the power to extend this time limit if necessary. The rescission or recall provisions are often used to ‘withdraw’ winding-up orders made in late payment cases, in preference to the ‘stay’ procedure which is considered to be more cumbersome and does not have the effect of nullifying the order. When a winding-up order is rescinded or recalled by the court, the official receiver should receive at least 3 copies of the order.

xv Stay of proceedings

Where an order is made in a winding up, staying the proceedings altogether (usually referred to as ‘stayed generally’), it brings the winding up to an end, and grounds for such an application may include payment of the debt(s) in full. It must not be confused with an order staying the proceedings for a fixed period of time as such an order only suspends the winding up, it does not end it. It is the responsibility of the company or partnership, or otherwise as may be prescribed in the order, to forward a copy of any stay order made, to the Registrar of Companies

For more information see the CHM part – Stay of Proceedings

xvi Fees and disbursements

The sum due to the official receiver in respect of costs incurred will depend on the amount of work that has been undertaken in each individual case. The official receiver will need to estimate the total costs, fees and expenses for an estate, before any court hearing for annulment of a bankruptcy order, or rescission or recall of a winding-up order. The cashier will be expected to provide this calculation from information provided by the examiner, CLO and case officer. The procedure for arriving at this sum will depend on the date of the insolvency order as a new financial regime was introduced for those cases where the insolvency order was made on or after 1 April 2004.

Detailed guidance on the appropriate amounts to be charged is given in the Technical Manual (TM) Chapter 36 – Estate Accounting - Part 1

Where a bankruptcy order made on or after 1 April 2004 is annulled, or a winding-up order made on or after 1 April 2004 is rescinded, recalled, or permanently stayed, the full administration fee should only be charged when the official receiver has undertaken significant material work on a case. If, for example, the initial notices have not been issued, a reduced administration fee could be charged, with sanction of the court, equivalent to the actual time spent in administering the case, plus disbursements.

In such matters, a calculation should be made by multiplying the time spent by the official receiver and other staff undertaking the work, by the relevant hourly rate according to who performed the tasks. The appropriate hourly rates for each grade are set out in The Insolvency (Amendment) Regulations 2004 and can be viewed in the TM Chapter 36 – Estate Accounting Annex E

There are two ‘tables’ of rates in Annex E, one for the London insolvency district and the other for provincial offices. The time and rate calculation should exclude VAT in this instance as it is being used as a guide only. It is still an administration fee that is being charged and thus VAT cannot be charged. The cost of any disbursements, e.g. advertising costs, travel and subsistence, etc, should be added to the reduced administration fee when calculating the costs payable to the official receiver.

The official receiver should seek to have the level of the reduced administration fee sanctioned by the court and included in the wording of the order. It is important to ensure that as far as possible, the appropriate costs are paid before the court orders the bankruptcy order to be annulled, or the winding-up order to be rescinded, recalled or permanently stayed.

xvii Annulment where a Bankruptcy Restrictions Order (BRO) or Bankruptcy Restrictions Undertaking (BRU) has been obtained

It is possible that a bankrupt may apply for annulment of a bankruptcy order after the official receiver has submitted a statement of facts to the  Authorisations Team. In such matters the official receiver should inform the  Authorisations Team of the annulment application, and report to the court in broad terms what has been referred to the Team. It will then be for the court to decide how to proceed in light of this information.

Also, it may be possible for a bankrupt to apply for annulment after a bankruptcy restrictions order (BRO) has been made or a bankruptcy restrictions undertaking (BRU) has been accepted. The official receiver should notify the Authorisations Team of the bankrupt’s application.

If an order is made annulling the bankruptcy order on the grounds that the order ought not to have been made then:

a.   any BRO/BRU in force shall be annulled

b.   no new BRO may be made

c.   no new BRU may be accepted

Where a bankruptcy case involving a BRO/BRU is annulled, the official receiver should record this on LOIS, (CA06) to ensure that the Individual Insolvency Register (IIR) is updated, and also, inform the Authorisations Team.

Where the annulment order is granted on the grounds of payment in full or following approval of an IVA then:

a.   the annulment does not affect the BRO/BRU, i.e. it remains in place

b.   the court may make a BRO on an application instituted before the annulment

The Secretary of State may accept a BRU offered before the annulment, and then an application for a BRO or interim order in respect of the bankrupt may not be instituted after the annulment.

Notes:

a    In order to comply with Rule 6.214, where the official receiver is trustee, a

      copy of his final account must be submitted to Corporate Governance

      Section (acting for the the Secretary of State) and a further copy filed at

      court, as soon as possible after a bankruptcy order is annulled.

b    A spreadsheet is available on the shared drive called ’Final Account’. 

      The cashier is required to complete this with details of all the transactions

      made from the LOLA estate ledger. There are instructions available on the

      shared drive to aid the completion of the final receipt and payments

      account.

c   If the case has been handed over to an insolvency practitioner (IP) the

     official receiver will not be required to attend any court hearing for

     annulment. The official receiver is entitled to receive a copy of the IP’s

     report to court and may wish to make an additional report to the court. If

     the official receiver decides to file an additional report to court, a copy must

     also be sent to the bankrupt under cover of form LCRTB – ‘Letter covering

     reports sent to bankrupt’.

d   Where an insolvency order has been annulled, rescinded, recalled or

     permanently stayed, the books and papers, valuables or any other items

     taken into safekeeping by the official receiver, must be returned to the

     bankrupt, partner or director.

e   When notifying HMRC of any matters relating to annulments, the notice or

     communication should be sent to:

     HMRC DMB (Debt Management and Banking)

     ICHU

     Room BP2302

     Benton Park View

     Longbenton

     Newcastle Up[on Tyne

     NE98 1ZZ

     If known, the VAT registration number must be included in any correspondence.

Where can I find out more?

Insolvency Act 1986

Section 147 – Power to stay or sist winding-up order

Section 282 – Court's power to annul bankruptcy order

Section 299(4) – Time of release where bankruptcy order annulled

Insolvency Rules

Rule 6.206 to 6.214 – Annulment of bankruptcy order

Rule 7.47(4) – Application for rescission of winding-up order

The Insolvency (Amendment) Regulations 2004

The Insolvency Proceedings (Fees) (Amendment) Order 2007

Notices

F5/03 – Changes to the processing of expedited audits and supplementary audit applications

F4/04 – Enterprise Act: Information on the New Financial Regime

T18/05 – Insolvency Act 1986 section 282 (1)(b) Bankrupt not entitled to annulment of bankruptcy order where court not satisfied that debts paid or secured as bankruptcy file destroyed.

T51/05 – Bankruptcy: Annulment Orders obtained on the payment in full grounds: (re)financing schemes: time limit for paying the creditors.

F18/07 – Changes to Insolvency fees

T18-08 – Information on the High Court decision in Halabi v London Borough of Camden, affects on applications for annulment on payment in full grounds.

Technical Manual

Chapter 6 – Appeals, Stays, Rescissions and Annulments

Chapter 36 – Estate Accounting

Case Help Manual

Stay of Advertisement

Stay of proceedings

Individual Voluntary Arrangements

Fast Track Voluntary Arrangements

Leaflets & Publications

Insolvency Service leaflet – ’Can my bankruptcy be cancelled?’

(Available from Official Receivers’ offices or online at www.insolvency.gov.uk    ‘Publications’)

LOIS Workbook

Annulments Process – Screen 6

Forms to be used:

LCRTB – ‘Letter covering reports sent to bankrupt’

NOACNP – ‘Notice of Annulment – Creditor not proved’

NABO – ‘Notice of Annulment of bankruptcy order’

Click HERE to view the Flowchart for Annulment of a Bankruptcy Order

Click HERE for the Flowchart for Rescission or Recall of a Winding-Up Order

Procedure

1   Receive notification of an application for annulment of a bankruptcy order or for rescission or recall of a winding-up order.

2   Check to see if the court has ordered a stay of advertisement or a stay of proceedings. If so, refer to the CHM parts: ’Stay of Advertisement’ or ‘Stay of Proceedings’ and attempt to ensure that all advertising is stopped.

3   When known, note the date of the annulment, rescission or recall hearing and enter details on to LOIS, (CA08) under 'comment' heading of 'Rescissions/Stays in companies or 'Annulments in bankruptcies'.

4   Where there is an application for annulment on the grounds that all the debts and expenses have been paid in full, the examiner will prepare the official receiver's report to court (unless the official receiver is not the trustee).

This report must be filed at court at least 21 days before the hearing and a copy must be sent to the bankrupt under cover of form LCRTB at least 14 days before the hearing.

5   Confirm with the cashier that the appropriate fee(s), costs, expenses and  other disbursements have been calculated and posted to the estate on LOLA . If not previously done, obtain an estimate of the official receiver’s total costs and inform the applicant of the amount required.

6   On the day before the hearing, pass all papers to the senior officer (usually an AOR), who will be attending the hearing.

Hearing adjourned

7   If the hearing is adjourned note the new date and enter details on to LOIS, (CA08) under 'comment' heading of 'Rescissions/Stays in companies or 'Annulments in bankruptcies'.