CASE STUDY

Case Study

Case Study

Question 1

Part (a)

A petition for a bankruptcy order against an individual may be presented by a creditor or jointly by more than one creditor. The petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed. If unsecured creditors has a shortfall it becomes an unsecured debt just like a credit card.  They can sue, get a judgement or turn it over to a collection agency to do the same.  If a judgement is entered they can possibly garnish wages, attack bank accounts, place liens on property, and even confiscate personal property and sell it at auction.  No not all those collection techniques are available in all states and there are limitations in most cases, but it can happen. To present a winding-up petition on the basis of a written demand, there must be a debt of more than the statutory minimum, which is currently £750. (Curran 2006:163-177)

In order to start bankruptcy proceedings the debt must exceed the bankruptcy level of £750 and the debtor appear unable to pay his debts. For the purposes of section 267(2)(c) a person appears unable to pay a debt or debts if a statutory demand is not complied with during a period of 3 weeks from the date of service, or, in the case of a judgment debt, execution or other process issued in respect of it is returned unsatisfied in whole or in part. The role of the statutory demand is to give rise to a presumption of inability to pay a debt. A number of creditors for smaller amounts can aggregate their claims to reach this minimum. (Holliday 2005:15-20)

Part (b)

Tensions between personalism and professionalism can grow if Joe diverted cash payments from customers into his personal bank account as part repayment of his loan. Not even the appearance of such transactions upon cash flow forecasts and controls led to him changing such personalized practices, however. As a result, his indebtedness itself can grow, without the personal resources that would cover it, and Clearview Ltd was continually drained of cash resources, in breach of its renegotiated overdraft facility.

It was unlikely that Joe, running his own small firm, and also acting as sole director and sole shareholder of Clearview Ltd, would himself confront this problem, having earlier provided Clearview Ltd with a £100,000 loan, duly converted into a personal loan to its proprietor to reduce his indebtedness to Clearview Ltd, for which no interest was either formally accrued or paid. For accounting purposes, the proprietor's liability would be recorded as a 'loan to the director', so that any essential ambiguity remained. Even after later proposing to dispense with his outside accounting services, the proprietor promised him the Clearview Ltd audit work, while he still provided salary preparation and consultancy support. In the interim, the proprietor switched from a 'big six' to a sole proprietor auditor, claiming this would simply mean cheaper ...