Insolvency proceedings in relation to individuals are referred to in Bermuda as "bankruptcy'' proceedings.

To commence the process either a creditor or the bankrupt debtor must file a petition with the Supreme Court.

If the court is satisfied (amongst other things) that the debtor has committed "an act of bankruptcy'' then the court may make a receiving order for the protection of the estate of the bankrupt.

A debtor commits an act of bankruptcy in various circumstances. These include: In certain circumstances, disposing of property or departing from Bermuda for the purpose of defeating the claims of creditors.

Filing a declaration admitting that the debtor is unable to pay his or her debts or; Notifying creditors that the debtor has stopped paying his or her debts.

A creditor can present a petition against a debtor if he is owed at least $5,000, an "act of bankruptcy'' has occurred within three months before the presentation of the petition, and the debtor is domiciled in Bermuda or lived here within a year before the date of the petition.

On the making of a receiving order, the Official Receiver (a government official) becomes the receiver of the property of the debtor.

A meeting of creditors must be called as soon as possible after the receiving order is made. At the meeting, a decision must be made whether or not the debtor should be adjudged bankrupt, as well as the general mode of dealing with the debtor's affairs and the investigations.

The Official Receiver has duties to: Investigate the conduct of the debtor.

Make a report concerning the conduct of the debtor.

Take part in a public examination of the debtor to assist in relation to any prosecution of any fraudulent debtor.

Before the appointment of a trustee, act as interim receiver of the debtor's estate.

Authorise and appoint a special manager.

Summon and preside at a meeting of creditors and advertise the receiving order, date of meetings, public examination, etc.

Once a receiving order has been made and a statement of the debtor's financial affairs has been completed, the court must hold a public examination of the debtor.

During the public examination, any creditor who has submitted a proof of debt may question the debtor as to his affairs and the cause of the failure to pay.

In certain circumstances, the court may dispense with a public examination.

If the creditors decide, at the meeting of creditors, that the debtor be adjudged bankrupt, and in certain other cases, the court must adjudge the debtor bankrupt.

The property of the bankrupt then becomes divisible among his creditors and vests in a trustee.

Where a debtor is adjudged bankrupt, the creditors by majority vote appoint a person to act as trustee in bankruptcy.

The creditors may also determine whether to appoint a committee of creditors, normally made up of three to five persons, to supervise the administration of the bankrupt's property.

The debtor can make a composition or scheme of arrangement with his creditors, which would normally be an offer to pay the creditors on a discounted basis.

A composition or scheme must be submitted in writing to the Official Receiver, who must prepare a report on the debtor's proposal and meet with the creditors.

If three-quarters in value of the creditors who have proved vote to accept the proposal, it is put before the court. If approved by the court, it is binding on all creditors (even those who did not vote for it).

In the distribution of the property of a bankrupt, special types of claim are paid before ordinary claims. The special types (within limits) are government taxes, and the wages or salary of any employee of the bankrupt.

These debts rank equally amongst themselves and are paid in full unless the property of the bankrupt is insufficient to pay them.

Ordinary claims are paid "pari passu'', which means they are paid in equal proportions to the extent of the available property of the bankrupt.

Generally the property available for distribution to creditors is all of the bankrupt's property, with a few exceptions. The exceptions are: Property held by the bankrupt in trust for any other person.

Tools, books, vehicles, other items of equipment as are necessary for use personally by him in his employment or business and clothing, bedding, furniture, household equipment required for the basic domestic needs of the bankrupt and his family.

The bankrupt can apply to court for an order of discharge, which is an order terminating the bankruptcy.

An order of discharge does not release a bankrupt from certain types of liabilities, including a debt or liability incurred by any fraud or any claim in damages for negligence.

However, all debts provable in bankruptcy, other than those specifically excepted, are released upon the granting of an order of discharge.

Attorney Kelvin Hastings-Smith is manager of the Litigation Department at Appleby Spurling & Kempe. This column was written with the assistance of Nigel Howcroft, Head of the Insolvency Department at AS&K. Copies of Mr.

Hastings-Smith's columns can be obtained on the Appleby Spurling & Kempe web site at www.ask.bm.

This column should not be used as a substitute for professional legal advice.

Before proceeding with any matters discussed here, persons are advised to consult with a lawyer.