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Buachaill, Barrister
Category: UK Bankruptcy Law
Satisfied Customers: 10109
Experience:  Barrister 17 years experience
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Hello. Back in 2008 I lent a friend £10000 to help him acquire

Customer Question

Back in 2008 I lent a friend £10000 to help him acquire a business. Unfortunately earlier this year he was made bankrupt but did repay me the loan in full about 1 month prior to his bankrupcty. At the time I did provide details of this to the solicitors. Now, 2 days ago, I have received a letter from solicitors in London acting on behalf of the official receivers asking me to pay the £10000 as "I am in a better position on the bankruptcy than other creditors". They quote section 340 and 341 Insolvency act 1986 say the receiver can investigate any transactions prior to the bankruptcy order being made.
Is this correct? Am I liable for this although I did this as a good will gesture for my friend? I am not in any way blaming my friend for this, this came about as a consequence of the current economic situation in this country but I really had no other dealings with the business.
This seems grossly unfair and now my own situation is such that I really need this money myself but I cannot afford to fight this in court.
Please advise. Do I need further legal advice on this?
Thank you.
Submitted: 4 years ago.
Category: UK Bankruptcy Law
Expert:  Buachaill replied 4 years ago.

Buachaill :

1. Under Bankruptcy law, one creditor cannot gain a preference over another. All creditors must be treated equally or pari passu in the bankruptcy. NO one creditor can be preferred over another creditor. By law, the period during which all creditors must be treated equally has been extended to include the period immediately before bankruptcy to include three months prior to the initiation of bankruptcy. This is why you have now been written to by the official receiver. I regret to say that you will not be able to successfully defend an action by the official receiver in law. However, you would be able to retain the money if you could show that you had an equal claim against the bankrupt which could be set off against the money he has paid to you. Apart from this option, there is little to help you. I regret to say that it makes no difference why you gave him the money, whether as a good will gesture or otherwise.

Buachaill :

Please RATE the Answer positively so that I may get paid

JACUSTOMER-sdfj58yh- : Thank you. So I understand I have to prove that, basically, I am as entitled to that money as the official receiver in order to keep it? That seems very unfair. Will they prosecute me if I do not pay? I would have thought that anyone trying to help business in this country would be encouraged to do so, but now I must say I would never help anyone like this again thanks to this draconian law. What do you suggest?
Buachaill :

2. You need to raise some debt which you can set off against the money they are claiming ie some additional money that the bankrupt owes you. You had a personal relationship with the bankrupt so you must be able to see if this is the case. Finally, the law is draconian and very sweeping. It is ill thought out.

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