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Can a Bankruptcy Order be annulled?

admin — Tue, 16 Nov 2021 10:31:34 +0000

In order to assess whether a Bankruptcy can be annulled, section 282 of the Insolvency Act 1986 and Rule 10.132-10.141 of the Insolvency (England and Wales) Rules 2016 should be considered in the first instance.

Section 282 of the Insolvency Act 1986

Section 282 sets out the court’s power to annul a bankruptcy order. The relevant parts of section 282 are as follows:

(1) The court may annul a bankruptcy order if it at any time appears to the court-

(a) that, on the grounds existing at the time the order was made, the order ought not to have been made;

(b) That, to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secured for to the satisfaction of the court.

Section 282(1)(a) of the Insolvency Act 1986

The use of section 282(1)(a) of the Insolvency Act 1986 is that the jurisdiction under s.282(1)(a) is discretionary. The discretion is exercisable if it appears to the court that on any grounds existing at the time the order was made, the order ought not to have been made.

The case of JSC Bank of Moscow v Kekhman & Ors [2015] 1 WLR 3737, Mr Justice Howard highlighted the questions that the court must ask when an application is being considered under section 282 (1)(a) of the Insolvency Act 1986.

The three questions are:

(1) What were the grounds existing at the time the order was made;

(2) Whether on those grounds the order ought not to have been made; and

(3) If so, whether the court should annul the bankruptcy order.

The first question – What were the grounds existing at the time that the Order was made?

It is important to consider each individual case to establish the position at the time the bankruptcy order was made.

The second question – Whether on those grounds the order ought not to have been made?

In order to understand the likely decision that a court will come to on this question, it is helpful to examine the question from the prism of what the court have decided in some other cases.

In the case of Lambert v Forest of Dean DC [2019] EWHC 1763 (Ch), the bankrupt applied to annul the bankruptcy on the basis that the order ought not to have been made. The bankrupt relied on evidence that the process server’s statement was likely untruthful and he was not in fact served with proceedings. In the Chancery Division of the High Court, Judge Mullen accepted the bankrupt’s arguments that the process server’s evidence was deliberately untruthful and that proper steps had not been taken by the Council to bring the statutory demand to the attention of the bankrupt. The court also found that the procedural steps were tainted with dishonesty, but declined to exercise the court’s jurisdiction to annul the order. The main reason for the Judge’s decision to decline to exercise his jurisdiction to annul the order is that the Judge found that the petition debt was, and remained, indisputably due and owing.

In another case, Gary Rafferty v Sealants International & Another [2018] EWHC 1380 (Ch), the Judge annulled the bankruptcy order on the condition that the petitioner was now in a position to pay the petitioner debt and would do so.

In asking what grounds existed when the order was made, the court was not restricted to the evidence before the court which made the order and could consider new material. In terms of the admission of fresh evidence, the Ladd v Marshall test had no bearing in the bankruptcy jurisdiction, and the fact that new material could have been put before the court hearing the bankruptcy petition did not necessarily prevent its admission on an annulment application. Where no new material had emerged between the making of the order and the hearing of the annulment application, the court would not normally allow the applicant to effectively re-run his argument before a different judge in the hope of a different result.

In the case of Fehily & Another v Atkinson & Another [2017] Bus. L.R.695 the bankrupt made an application to annul the bankruptcy order on the basis that she had entered into a voluntary arrangement at a time when she lacked mental capacity to do so. The bankrupt was unsuccessful in her application to annul the bankruptcy order relying on a lack of mental capacity. The court identified the legal tests in relation to mental capacity. The court stated “that in order for a person to have the required mental capacity to enter into a particular transaction they had to be able to absorb, retain, understand, process and weigh information about the key features and effects of the transaction and the alternatives to it; that the question was issue and time specific and was focused on the person’s ability to understand the key features of a transaction, not on whether they actually understood them; that the fact that a person needed help in understanding the transaction did not prevent them from having the capacity to understand it.”

Section 282(1)(b) of the Insolvency Act 1986

In order to apply to annul under s. 282(1)(b), an applicant would need to satisfy the court that all bankruptcy debts and expenses have been paid or secured to its satisfaction. In order to enable an applicant to apply to annul her bankruptcy under s. 282(1)(b), an applicant would need to be in a position to pay or provide security for any outstanding sums to other creditors who proved in the bankruptcy as well as the costs of making the annulment application.

Upon any application to annul under s. 282(1)(b), the trustee/s in bankruptcy would be required to file a report with the court dealing with a number of matters, including the extent to which the bankruptcy debts and expenses have been paid or satisfactorily secured: Insolvency (England and Wales) Rules 2016, r. 10.133. Therefore, it would be useful to attempt to discuss any proposed annulment application with a trustee/s to obtain their views on it. If the trustee/s are likely to provide a negative report to the court, it would be better to seek to ascertain this before an application is made, so that an applicant could attempt to address any problems that the trustees might identify before an application is made.

For further information on the above, please contact us on 0207 467 3980 and speak to a member of our insolvency team now. Alternatively, email us with your query at info@jamesedwardassociates.com and we will be sure to call you back straightaway at a time convenient for you. All communications will, of course, be dealt with in the strictest of confidence.

What constitutes property for the purposes of section 436 of the Insolvency Act 1986?

admin — Tue, 16 Nov 2021 10:26:31 +0000

Where an individual is adjudged bankrupt, all his property (subject to certain exceptions) will vest in his Trustee in Bankruptcy immediately upon their appointment pursuant to section 306 of the Insolvency Act 1986 (“the Act”).

“Property” is broadly defined in legislation. Section 436 of the Act defines property as ‘money, goods, things in action, land and every description of property wherever situated and also obligations and every description of interest, whether present or future or vested or contingent, arising out of, or incidental to, property’.

Certain items are exempt and will therefore not vest in the Trustee in Bankruptcy.

These exemptions include:

Tools of the trade necessary for the bankrupt to trade and/or earn a living;
Clothing and bedding which is deemed necessary to satisfy the basic domestic needs of the bankrupt and their family;
Property which the bankrupt holds on trust for another (see section 283(3) of the Act);
Specific types of statutory tenancies (see section 283(3A) and 308A of the Act).

Gwinnutt (as the First Defendant’s Trustee in Bankruptcy) v George and another [2019] EWCA Civ 656

Background

The Respondent barrister, Mr George, was adjudged bankrupt in March 2012. Mr Gwinutt was appointed as his Trustee in Bankruptcy on 24 April 2012. In carrying out his role, the Trustee sought to realise monies owed to the Bankrupt for outstanding fees (in the region of £76,000) for the benefit of creditors, the majority of which were expressly incurred on a non-contractual basis. It was originally held that where a barrister has no contractual right to a fee, this could not amount to property cable of vesting in a Trustee in Bankruptcy because in these circumstances, the barrister has no more than a mere expectation of receipt of payment at some point in the future.

The appellant Trustee in Bankruptcy appealed against this decision.

Decision

The decision was overturned and it was held that payment of an outstanding non-contractual fee was not to be regarded as voluntary. Further, in the usual course of practice, barristers are likely to be paid.

It was therefore held that non-contractual fees constitute property capable of vesting in the Trustee. This decision furthers the statutory objective, namely, that all of a bankrupt’s property (excluding the exemptions referred to above) should be capable of realisation.

If you require any advice bankruptcy or need any assistance in relation to defending bankruptcy proceedings, please do not hesitate to call our specialist bankruptcy team on +44 7441912822 or alternatively, contact us here

Using a charging order to recover a debt secured with a personal guarantee

admin — Tue, 16 Nov 2021 10:25:55 +0000

If you are owed a debt which has been secured with a personal guarantee (“PG”) and the individual who provided that PG (“the Debtor”) has a beneficial interest in land, securities (for example, stock, dividends and interest in a trust) or has other assets, you may wish to consider imposing a charge over the same. Once a charge is in place, you can then seek an order for sale which would achieve a realisation of funds.

This method is most effective where there is substantial equity in land and the Debtor is the sole owner. Of course, we would not recommend pursuing a charging order and subsequently an order for sale if any relevant property did not have sufficient equity or if numerous individuals had an interest in the same. It is therefore important to consider the state of the Debtor’s resources before seeking a charging order.

By carrying out an official copy entry search you will be able to ascertain whether the Debtor is the legal owner of the property and discover whether there are any pre-existing charges on the title which will have priority over your potential charge, such as a mortgage.

An application for a charging order has two stages: (1) an interim order; and (2) a final order. The interim order is usually made without a court hearing. Once made, you can register the same with the Land Registry which will stop the Debtor from selling any property without your knowledge. Depending on the information provided in your application, the court may decide that a full hearing ought to take place in order to make the interim order final. If and when an interim order is made final, you will need to update the Land Registry.

If you require any advice in relation to obtaining a charging order in relation a debt you are owed, please do not hesitate to call our specialist dispute resolution team on +44 7441912822 or alternatively, contact us here

Does a Tomlin Order constitute a regulated credit agreement?

admin — Tue, 16 Nov 2021 10:21:51 +0000

On 15th July 2019 in CFL Finance Ltd v Bass and others [2019] EWHC 1839 (Ch), the High Court (Chief ICC Judge Briggs) published its decision following the final hearing of a bankruptcy petition.
The court refused to adjourn the creditor’s bankruptcy petition where creditors were in dispute as to how to proceed with regard to the debtor.

In so doing, the court considered whether the fact that an earlier IVA proposal had been revoked by the court for (among other reasons) a failure to disclose a side deal which meant that the debtor could not subsequently propose a new IVA.
The court also held that a structured settlement clause making provision for the payment of a debt over time (in the form of a Tomlin Order) does not extend “credit” or “financial accommodation” within the meaning of section 9(1) of the Consumer Credit Act 1974 (CCA), so these arrangements do not fall within the scope of consumer credit regulation.
If you are considering entering into an Individual Voluntary Arrangement or if you have been served with a Statutory Demand or Bankruptcy Petition please contact James Edward & Associates urgently.

How We Can help

Our solicitors based in London have over 90 years’ experience in providing specialist legal advice on Bankruptcy.

Based in the heart of legal London, just a stone’s throw away to the Royal Courts of Justice, the Employment Appeal’s Tribunal and Inns of Court.

Make An Enquiry Now

For more information please call us on +44 7441912822, complete a Free Online Enquiry or email info@jamesedwardassociates.com and one of our lawyers will contact you.

Can a second annulment application be an abuse of process even though a bankruptcy order should not have been made?

admin — Tue, 16 Nov 2021 10:20:44 +0000

In July 2019 the High Court held that it was an abuse of process for an individual to make a second application to annul his bankruptcy on substantially identical grounds to his first, failed, application.

In the case of Lambert v Forest of Dean District Council and others [2019] EWHC 1763 (Ch) (8 July 2019) the first annulment application had been struck out as a result of the failure of the applicant (L) to comply with an outstanding costs order, which had been a condition for the continuation of the application.

When the court dismissed L’s second application, the court noted that the proper way of seeking to reinstate an application that had been previously struck out was by applying for relief from sanction. By bypassing this process and still without attempting to comply with the costs order, L had abused the court’s processes. The court also added that, even had L applied for relief from sanction, this would still have been refused due to the seriousness of his failures to comply with court directions.

The court also dismissed the second annulment application on its merits notwithstanding the fact that the court was prepared to accept that the petitioning creditor’s original statutory demand had not been properly served and accordingly that the resulting bankruptcy order should not have been made.

As often happens the court could not question the validity of the petition debt because it arose out of a council tax liability order and such statutory liabilities could support a bankruptcy petition without further court scrutiny (other than where there was fraud, collusion or a miscarriage of justice). (That said, the court did not suggest that there was not ordinarily a need for the council to serve a valid statutory demand before a bankruptcy petition in respect of such liability orders.)

The court also observed that, even if the court annulled the bankruptcy order, the petitioning creditor would simply restart the bankruptcy process. Moreover, there were apparently suspicions that the bankrupt had concealed assets from his trustee.

How We Can help

At James Edward & Associates we feel that these indications from the High Court as to the proper approach to an application for relief where an annulment application has been refused are very useful. Should you wish to apply for an annulment please contact our team of experts.

Our solicitors based in London have over 90 years’ experience in providing specialist legal advice on Bankruptcy.

Based in the heart of legal London, just a stone’s throw away to the Royal Courts of Justice, the Employment Appeal’s Tribunal and Inns of Court.

Make An Enquiry Now

For more information please call us on +44 7441912822, complete a Free Online Enquiry or email info@jamesedwardassociates.com and one of our lawyers will contact you

Bankruptcy threshold rises to £5,000

admin — Tue, 16 Nov 2021 09:54:40 +0000

The bankruptcy threshold will increase to £5,000 for creditors’ bankruptcy petitions presented after 1 October 2015 as set out in the Insolvency Act 1986 (Amendment) Order 2015. Should a bankruptcy petition be presented prior to this date, the current minimum bankruptcy level of £750 will apply. Whilst debtors will welcome the move, creditors wishing to enforce a debt which is less than £5,000 should act now in order to benefit from the current bankruptcy threshold.

James Edward & Associates appointed in the bankruptcy of comedian Steve Furst

admin — Tue, 16 Nov 2021 09:40:42 +0000

James Edward & Associates has been instructed by the trustee in bankruptcy of the actor and comedian Steve Furst, who is currently appearing in the West End theatre production of “Made in Dagenham”.

James Edward & Associates partner, James Edward commented: By way of assistance to the trustee in bankruptcy, we are continuing to look into Mr Furst’s affairs. Mr Furst has co-operated with our enquiries throughout.