What are the 6 key requirements to make a contract valid?
Offer and acceptance - there must be an offer made by one party (the offerer) and there must be an unqualified acceptance by the others.
Consideration - The subject of the contract (often a promise) must be matched by a consideration (usually payment of money). a promise to pay is valid consideration.
Capacity to contract - parties to contract must have legal capacity to enter a contract, 18+ (16+ in Scotland) and of sound mind when the contract is entered into. those aged 16-18 in Scotland can enter into a
financial contract, but they are protected by being able to void a contract if it can be shown that a ‘prudent adult’ would not have entered into it.
the terms of the contract - must be certain, complete and free from doubt
there must be intention to create a legal relationship
legality of object - contracts cannot be made for illegal or immoral purposes. contract must not have been entered into as a result of misrepresentation or under duress or undue influence.
Define the Consumer Insurance (Disclosure and Representations) Act 2012
- if the consumer has taken reasonable care, and the misrepresentation was honest/reasonable the insurer has no right to refuse the claim
- in the case of misrepresentation due to carelessness, detailed rules allow the insurer to apply a ‘compensatory remedy’ to the claim, based
on what the insurer would’ve done had the applicant answered everything accurately. if claim is rejected insurer must refund all premiums paid. - if careless misrepresentation is identified in situations other than a claim, the insurer and and policyholder have the right to terminate the
contract with reasonable notice. however, insurer can’t cancel life insurance policy in this situation - in the case of deliberate or reckless misrepresentation, the insurer may reject the claim completely as if the contract never existed and is not
required to refund premiums unless there’s a good reason to.
What is an agent?
person who acts on behalf of another (the principal) and can conclude contracts on their behalf. in law, the acts of agents are treated as being those of the principal.
What 2 types of property are there?
Real Property (realty) = real property is property that is fixed or immovable, in other words land or houses.
Personal Property (personalty or chattels) = movable assets, including animals.
What 3 types of ownership are there?
Single ownership = asset owned by 1 person, who is solely entitled to the asset and any benefits derived from it
Joint ownership
tenancy in common
When does insolvency occur?
insolvency arises when:
a persons liabilities exceed their assets or
a person cannot meet their financial obligations within a reasonable time.
What impact did The Enterprise Act (2002) have?
- The act reduced amount of restrictions placed on an undischarged bankrupt at the discretion of the court.
standard discharge period is 12 months
List 3 possible criminal offences whilst still having an undischarged bankruptcy
- obtaining credit of £500 or more, either alone or jointly with any other person, without disclosing the bankruptcy (in this context credit includes
borrowing, credit cards and ordering goods on credit); - carrying on business (directly or indirectly) in a different name from that under which they were made bankrupt, without telling all those they do
business with the name under which the bankruptcy was registered; - being directly or indirectly involved in promoting, forming or managing a limited company, or acting as a company director, without the court’s permission.
Define the 7 key points of bankruptcy in practice
- While a bankruptcy order is in place, the undischarged bankrupt’s possessions are, in effect, surrendered to an official receiver or an insolvency practitioner, referred to as the trustee in bankruptcy, who can dispose of them and use the cash to pay off the creditors. The only exceptions are clothing, household items and items the bankrupt would need to carry on working – tools, vans and so on.
- bankruptcy cancels most kinds of debt and allows people to make a fresh financial start, it comes at a price: it normally makes it more difficult to obtain credit in the future and it can affect employment prospects
- The bankrupt is likely to find that banks will not provide normal current account facilities, offering (if at all) only a basic account that does not offer
overdraft or normal debit card facilities - Once declared bankrupt, the bankrupt’s interest in a property (their share of any equity) will be included in their assets, providing the interest is more than £1,000. This could result in the property being sold to pay the debts, or a joint owner or spouse buying out the bankrupt to ensure continuing ownership. If the property cannot be sold immediately, the trustee can place a charge on the property, to be settled on the eventual sale of the property, although any existing mortgage will remain as the first charge.
- If the debtor’s family is living with them, sale of the property can be delayed for 12 months, so that alternative housing can be arranged.
- The trustee can also claim any property gained by the bankrupt until they are discharged – this includes past and future inheritances and other windfalls.
- The trustee can ‘attack’ transactions in the years prior to bankruptcy if they are considered to have been a deliberate attempt to move assets out of the mestate. Known as ‘prior transactions’, they are generally occasions where the assets were gifted or sold at less than their true value in the two years before bankruptcy. The attack period can be extended to five years if a prior transaction took place in the five years before bankruptcy, and the individual was insolvent at the time of the transaction (or the transaction caused them to become insolvent).
What is an Individual voluntary arrangement (IVA)?
An individual voluntary arrangement (IVA) is an alternative to bankruptcy, under which the debtor arranges with the creditors to reschedule the repayment of part of the debts over a specified period. A creditors’ meeting is called, and the creditors vote whether to accept the IVA. An IVA can be set up only if creditors who are owed at least 75 percent of the value of the total debt represented at the meeting agree to the arrangement.
What is a Company voluntary arrangement (CVA)?
a company that is in temporary financial difficulties (but which its directors believe has a viable long-term future) can make a binding agreement
with its creditors – including the tax authorities – about how its debt and liabilities will be dealt with.
- In this way, the directors retain control of the company and it can continue to trade. A CVA can be proposed by the directors of the company, or by a liquidator but not by the creditors. As with IVAs, creditors representing 75 per cent of the company’s debt must agree to the CVA being set up.
What is a Debt Relief Order (DRO)?
- Debt relief orders (DROs) are intended to give relief to those living in England and Wales who are struggling to pay their debt, and have limited disposable income, no assets, and no prospects of their situation improving.
- If a DRO is granted, the creditors listed in the order will be subject to a ‘moratorium’ on debts owed to them, usually lasting for 12 months. This means that they cannot seek repayment or enforcement of debts owed to them. At the end of the moratorium, assuming that the debtor has met the terms of the DRO, the debts are written off and they are discharged.
- DROs are organised through a partnership between the Insolvency Service and experienced debt advisers, known as ‘approved intermediaries’. A debtor can only apply for a DRO through an approved intermediary.
Name the 7 requirements to apply for a DRO
- is unable to pay their debts;
- owes a maximum of £30,000 in unsecured debts;
- has total gross assets of no more than £2,000 – one vehicle valued below £2,000 can be excluded;
- has disposable monthly income (after tax, NICs and normal household expenses) of no more than £75;
- must not have been subject to a DRO in the previous six years, or be the subject of any other formal insolvency orders, such as bankruptcy or IVAs;
- may not be able to gain approval for a DRO if they gave away or sold any property for less than its real value in the two years before the application;
- must pay a fee of £90
