Emma Easton, solicitor, explains the process of annulment of a bankruptcy order.

What is an annulment?

An annulment applies to bankruptcy proceedings, and for practical purposes, is an order of the court cancelling the original bankruptcy order made against an individual. 

Once an annulment order is granted, it is as though a bankruptcy order had never been made against an individual, and any assets of the bankruptcy previously vested in a trustee in bankruptcy are returned to the individual.

When an annulment order can be made

An annulment order may be made any time after the bankruptcy order, and even after the bankrupt has been discharged from bankruptcy. An annulment order can be made on one of the following grounds:

• If it appears that there were any grounds, when the bankruptcy order was made, for believing that the order ought not to have been made.
• If it appears that, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the bankruptcy order, been either paid or secured to the satisfaction of the court.
• If an undischarged bankrupt enters into an individual voluntary arrangement (IVA) with their creditors.

The annulment application

A bankrupt must apply to the court for an annulment of the bankruptcy order, based on one of the above grounds.  A hearing date will be set, and the bankrupt must notify the official receiver and/or any trustee in bankruptcy in appointment, of the time, date and place of the hearing of the annulment application, together with any copies of the application and supporting witness statement.

Where the bankrupt applies for an annulment on the basis that the bankruptcy debts, costs and expenses are to be paid in full or secured for, then the full payment needs to be to the official receiver or trustee in bankruptcy, even where there is a dispute over the creditors’ claims, interest or costs. 

The bankrupt must give the official receiver and/or any trustee in bankruptcy at least 28 days’ notice of the hearing. The official receiver and/or any trustee in bankruptcy must then produce a report to court 21 days prior to the hearing, setting out:

• the summary of the assets and liabilities
• any known creditors
• whether the official receiver and/or trustee supports the application for annulment

Where an IVA is approved following the bankruptcy order

The creditors may agree for the bankrupt to enter into an IVA following the making of the bankruptcy order. The bankrupt may then apply to play for annulment 28 days after the supervisor has approved the IVA. 

The bankrupt must give five business days’ notice of the hearing, together with copies of the application and witness statement, to the official receiver, the supervisor of the IVA and/or any trustee.

Costs of annulment

The costs of the annulment of a bankruptcy order will be paid depending on how the bankruptcy is annulled. If it is annulled by payment in full, then the payment will already take into account the debts and expenses of the bankruptcy. 

However, if the bankruptcy is annulled on the basis that the bankruptcy order should have never been made, the court has discretion as to what costs ought to be made and which party should bear the cost.

The amount of costs, how they should be paid and the party responsible for paying them, should be included in the annulment order for the avoidance of doubt.

It is important for the bankrupt to establish before the hearing exactly who will be responsible for the costs, and that they are provided with an estimate of the total costs incurred by the official receiver and/or any trustee in bankruptcy and their legal expenses. This is to ensure that if it is a payment in full annulment, all costs are paid prior to the hearing.

Stay of advertisement and stay of proceedings

The bankrupt may apply for an interim order that any proceedings are stayed in order to allow the annulment application to proceed. Where the court orders a stay of the advertisement of the bankruptcy order, the official receiver must not advertise, so that the bankruptcy entries do not appear in the Individual Insolvency Register before the annulment application has been heard.

Annulment order granted and notices

There will usually be a provision contained within the annulment order that the bankruptcy entries at the Land Charges Department within the Land Registry will be vacated. However, it is essential that the bankrupt applies to the Land Registry to remove such entries once the annulment is granted, to ensure that no record of the bankruptcy is registered against the bankrupt’s property.

The bankrupt is also entitled to request in writing within 28 days of the making of the annulment order that the annulment be published in The Gazette and/or where the bankruptcy order was originally advertised, eg in the local newspaper. The bankrupt must pay the administration fee of such notices.

The official receiver has a duty to inform the creditors who received notice of the bankruptcy that the bankruptcy order has been annulled.

The bankrupt, prior to issuing an annulment application, must ensure that all the grounds for an annulment are met.

The costs and expenses of the official receiver and/or any trustee in bankruptcy, together with their legal costs, must be addressed and paid prior to the annulment hearing if the bankrupt is intending to pay all the bankruptcy debts, costs and expenses in full. 

Whether to grant an annulment order is entirely at the discretion of the court. The bankrupt must ensure that if the annulment order is granted, they make the relevant applications to have the notices of the bankruptcy order removed from the Land Registry and the Individual Insolvency Register.  These requirements should be included in the annulment order.

About the author

Emma Easton is head of insolvency at Wright Hassall, and advises on all aspects of personal and corporate insolvency matters.

See also: Bankruptcy myths dispelled