To be honest, I'd say your friend is quite lucky that the bankruptcy search was done in advance. I know certain firms who do it at the last minute, especially when they also act for the purchaser's financier, and they do one search perhaps a month after the SPA has been executed and before the loan documents are executed. Lucky that it did not go all the way to that stage yet.

Yes, the owner can be faulted for not representing himself to be an unadjudicated bankrupt to you at the earliest stage. But what's the point of suing a bankrupt for misrepresentation? You'll waste good money chasing bad money. A police report would do you no good.

With regard to the agent, best not to jump to conclusions. In most, if not all scenarios, the agent would not know that the vendor is a bankrupt. There is no duty upon the agent to do the necessary searches. It would be hard to pinpoint the blame on the agent.

Now, you need to get back your 3% deposit paid and just cut your losses. A bitter pill indeed, but do be thankful that a deeper hole could've been dug if things went on all the way - and end up digging a bigger hole in your wallet as well.