How To Set Aside A Bankruptcy Order | Can It Be Done?

“We act on behalf of the [respondent]. We attach a Final Charging Order obtained in the Medway County Court on 19 October 2009 for ease of reference. The sum of £7205.02 remains due and owing. It is now our client’s intention to remove the security and proceed with bankruptcy proceedings unless satisfactory proposals have been received into our offices in within the next seven days.”

Her husband in his witness statement says that he tried to contact the debt adjuster and the respondent many times but received no reply or was told he could not deal with the matter. It is not clear what happened so far as the respondent or Pentagon were concerned between 2010 and 2018.
On 6 February 2019 the respondent says it served a statutory demand on the appellant in the sum of £7365.02. Initially the appellant denied receiving this but the respondent filed a certificate of personal service dated 7 February 2019 signed by a process server who says the appellant identified herself to him at the time of service, and this point does not appear to have been pursued before the district judge and was not pursued before me.
On 21 June 2019 the respondent filed a petition for bankruptcy in the County Court at Medway based on the failure to comply with the statutory demand. It is not in dispute that the petition was duly served on the appellant. The petition indicated that the debt was secured, but that the respondent was willing to give up that security for the benefit of all the creditors on the making of a bankruptcy order pursuant to section 269 of the Insolvency Act 1986.
The endorsem*nt on the petition completed by the court indicated that it would be heard on 30 September 2019 at 15.30 at Medway. It also gave notice to the appellant that if she intended to oppose the petition, she must, not later than 5 business days before the day fixed for the hearing, file a notice with the court and deliver a copy to the respondent’s solicitor. Such a notice is required, by rule 10.19 of the Insolvency (England and Wales) Rules 2016 (the 2016 Rules), to identify the proceedings, to state that the making of a bankruptcy order is opposed, and to state the grounds
No such notice was filed. However, by letter dated 9 September 2019 to Mr Addlestone, the appellant’s husband wrote to confirm that his wife had been ill and off work and that he had tried to contact the respondent during this time but received no response. He said that she had resumed work on the fourth of that month, and that he would “take full responsibility in paying the outstanding debt…” He made an offer to pay the debt by monthly instalments of £168 so that after 12 months £2016 would be paid and that the total would be paid over three and a half years. He added:

“In the meantime, it would be helpful if you could hold action [by] your client as we act in resolving this situation.”

On 17 September he and the appellant wrote again giving full details of the family’s financial budgets, saying that:

“This is to state that this is our financial position and we can be able to make repayments to [the respondent] for the outstanding debt if agreed. During this period if we get any change of circ*mstances, we will have no choice other than to sale our house and pay off all the outstanding.”

By letter dated 20 September Mr Addlestone replied simply saying that regrettably the proposal was not accepted and that he was instructed to proceed with the bankruptcy hearing on 30 September.
The appellant and her husband attended the hearing on 30 September. The appellant’s husband indicated to the respondent’s agent before the hearing that his mother in law was willing to pay off all the debt. It had been hoped that she would attend the hearing but she had been taken ill that morning. They also said that they had recently appointed agents, Robinson Jackson, to sell the property and that there was an interested buyer.
The judge’s comments on the parties’ notes of the hearing indicates that it was listed as part of a busy possession list (as per local listing protocol) with a time estimate of 10 minutes. The hearing was called on, and these three offers to pay the debt were repeated, as her handwritten note confirms. There is no reference in any of the notes of the hearing to a certificate that the debt remained due (as required by rule 10.24 of the 2016 Rules) or to a list of supporting or opposing creditors (as required by rule 10.20). Mr Addlestone told me that he emailed copies of such documents to his agents under email dated 24 September 2019 according to his usual practice and although he himself was not present during the hearing his agents were experienced agents whom he had engaged on many such hearings. It did not form part of the grounds of appeal that these documents were not duly handed in and it is likely on the information before me that they were, although I have not had sight of copies.
The judge’s handwritten note indicates that the respondent submitted that the offer to pay the debt by instalments over such a period was “unsatisfactory.” The note then goes on to deal with appellants submissions and records “family member will pay” and then refers to mother in law, the property being on the market with the agents and that an offer had been accepted. The note continues:

“house on market-Robinson Jackson – 1 mth ago. – 24;9;19 -offer. Accepted the offer. RJ processing with solicitor.”

The note of the respondent’s agent included the following:

“[The appellant’s] husband then spoke on her behalf and made reference to a series of offers made to the [respondent] all of which were essentially the same and had been refused because of the timescale for repayment. [The appellant’s] husband then stated that a family member had offered to pay the whole debt although there was no evidence in support of this assertion and stated that the family member was ill and could not attend the hearing…The Judge was apparently concerned at the absence of documentary evidence in support of this assertion and stated that there was insufficient evidence to show that the debt could be paid off in order to grant an adjournment and hence the decision to make a Bankruptcy Order. Our agent states that [the appellant’s] husband expressly stated that [the appellant] had a “spinal dislocation” rendering her bedridden for 5.5 years but the Judge made the Bankruptcy Order, stating that, if you client had an offer to make, it should be made to the Official Receiver.”

By the time the district judge gave her note commenting on the parties notes some four months had elapsed since the hearing and, unsurprisingly, by then she had no independent recollection of the hearing. She continued:

“I can only say that it would have been my usual practice to have concentrated on offers of repayment and whether there was any evidence of a realistic proposal. It is also likely that I would have explained that personal circ*mstances would not impact upon the decision but, as I say, I cannot categorically say that this is what happened.”

Subject to one minor difference as to the timescale for payment and the caveats which she had expressed she was prepared to approve the note of the respondent’s agent. It is not in dispute that the hearing was a short one, in the order of about 15 minutes. The appellant’s husband in his witness statement says that he told the judge that his mother in law could pay the debt in 24 hours. However, the bankruptcy order was made.
On 11 October he contacted Mr Addlestone and offered to pay the debt in full. However, in response he was told that he could not do that as his wife had been made bankrupt. She then obtained legal representation by MLS Legal Services and an appellant’s notice dated 18 October was filed at the County Court at Medway on 21 October and a fee paid. She filed a witness statement dated 16 October 2019 in support in which she repeated that her mother could lend her the full amount to pay off the outstanding debt and this could be effected in one day.
The notice was referred to a circuit judge there and by email dated 24 October it was indicated that such an appeal lay to the High Court. That is the correct route of appeal from a district judge in a personal insolvency matter (see Practice Direction – Insolvency Proceedings July 2018 (IPD), which came into force on 4 July 2018). MLS contacted the High Court on 4 November and was told that an appellant’s notice needed to be re-issued in that court and the appropriate fee paid, and a refund sought in respect of the fee paid to the county court. Such an appellant’s notice was duly filed on 5 November.
Such a notice should have been filed in 21 days after the bankruptcy order under Civil Procedure Rules (CPR) Part 52.12(2)(b), but by rule 52.15(1) an application to vary the time limit may be made to the appeal court and reference is made to rule 3.1(2)(a) which provides that the court may extend time even if the application is made after time for compliance has expired.
Neither party referred me to authority in relation to the principles to be applied when dealing with such extensions, but the Court of Appeal has given guidance in respect thereof in a practice note dealing withR (Hysaf) v Secretary of State for the Home Departmentand other cases, see[2014] EWCA Civ 1633, which is confirmed in a further practice note of the Court of Appeal inMcDonald v Rose[2019] EWCA Civ 4. The guidance confirmed that the three stage test set out inDenton v TH White Ltd[2014] EWCA Civ 906should be applied and that in most cases the court should not embark on an investigation of the merits unless without much investigation it is clear that those are very strong or very weak.
The first stage is to identify the seriousness or significance of the failure to comply. The time limit for an appeal notice is deliberately strict in the interest of finality of judgments, and a delay in the order of two weeks is serious, although not in my judgment at the top end of seriousness. The second stage is to ask why the default occurred. This was not fault of the appellant. She engaged MLS promptly who filed an appellant’s notice with a supporting witness statement promptly. In most cases an appeal from a district judge will lie to a circuit judge, but an appeal in insolvency proceedings will lie to the High Court, as MLS should have known or checked.
The third stage is to evaluate all the circ*mstances of the case, so as to deal justly with the application. In this respect, in my judgment the subsequent delay cannot fairly be laid at the door of the parties. It arose initially due to the failure of the recording equipment at the hearing and the need for the parties and the judge to do their best to provide notes of what happened. That took some time, after which the court’s listing of the appeal took its course. Looking at matters in the round, in my judgment the delay in filing the appellants notice is relatively insignificant and it is not submitted that any particular prejudice has been caused by it.
In my judgment, it is just having regard to the above matters to grant permission to vary the time for filing the appellant’s notice to the time filed in the High Court. I have reached that conclusion without having regard to the merits. However, as all matters were listed before me, I have been able to go into those in greater detail than if the application to vary time had been heard on its own. Having done so, and if it were necessary to look for further factors, I would hold that the merits are such as to lend weight to the granting of such permission.
I will deal with the issues of permission to appeal and the substantive appeal together.
It is not in dispute that the hearing of 30 September 2019 was the first hearing of the petition. Moreover, it was not submitted at the hearing that the conditions of which the court is required by section 271 of the 1986 Act to be satisfied before making a bankruptcy order were not made out. That section provides, so far as material:

“(1) The court shall not make a bankruptcy order on a creditor’s petition unless it is satisfied that the debt, or one of the debts, in respect of which the petition was presented is either-(a) a debt, which, having been payable at the date of the petition or having since become payable, has been neither paid or secured or compound for, or (b) a dent which the debtor has no reasonable prospect of being able to pay when it falls due.

…

(3) The court may dismiss the petition if it is satisfied that the debtor is able to pay all of his debts or is satisfied-(a) that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented, (b) that the acceptance of that offer would have required the dismissal of the petition, and (c) that the offer has unreasonably refused; and in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.”

Rather, Ms McCauley Slowe focussed her oral submissions before me on the ground that the district judge should have granted an adjournment, in particular in order to obtain evidence from the appellant’s mother of her willingness and ability to pay the respondent’s outstanding debt within a very short period time, and in relation to the property being on the market. Although it was accepted, as Mr Addlestone submitted, that there was no confirmatory evidence of that or of the mother’s illness before the district judge, Ms McCauley Slowe submitted that an opportunity should have been given to the appellant to file such evidence, given that this was the first short hearing of the petition.
In the appellant’s skeleton argument prepared by MLS , reference was made to section 266(3) of the 1986 Act and the general power of the court to dismiss or stay the hearing of the petition and to authorities to the effect that an adjournment may be ordered where there is credible evidence of a reasonable prospect of the petition debt being paid within a reasonable time, namelyAnderson v Kas Bank NV[2004] BPIR 865 andRoss and another v HMRC[2010] BPIR 652).
I was not referred to any particular passages in these authorities or referred to other authorities. These and others, however, were referred to by the Court of Appeal inEdgington v Sekhon and Sekhon[2015] EWCA Civ, in which Lewison LJ gave the lead judgment. In paragraph 15, he observed that the power to adjourn bankruptcy petitions is derived from the general power to adjourn in CPR Part 3(2)(b).
In the following two paragraphs he set out two differences between insolvency proceedings and an ordinary civil action as follows:

“First, insolvency proceedings are class actions designed to secure distribution of an insolvent’s assets pari passu between all his creditors. They are not merely a debt collection process. The primary purpose of the proceedings is to enable an independent person to ascertain and preserve the debtor’s assets and to achieve that pari passu distribution.”

Second, the presentation of a petition has the effect that any disposition of property made without the consent of the court by a person who is subsequently adjudicated bankrupt is void: see Insolvency Act 1986, section 284. Accordingly, delay in dealing with a petition is liable to have adverse consequences for creditors generally seeRe: A Debtor (Number 72 of 1982)[1984] 1 WLR 1143 applied inJudd v Williams[1998] BPIR 88.”

He then set out in paragraphs 18 and 19 the practice in relation to an adjournment where the debtor asks for time to pay;

“The starting point is that if the petitioning creditor establishes that the statutory conditions are fulfilled, he is prima facie entitled to a bankruptcy order seeRe: A Debtor (Number 452 of 1948)[1949] 1 All ER 652 andRe: A Debtor (Number 72 of 1982), both referred to inJudd v Williams.

The court, of course, has to power to adjourn the petition, but the practice is to do so only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time.”

He then went on to observe that there are many statements to this effect in the cases and gave recent examples:

“A debtor clearly has no right to an adjournment in these circ*mstances, although it may be that a court will grant one if he could produce convincing evidence that the debt would be paid within a very short period.”

How To Set Aside A Bankruptcy Order | Can It Be Done? - Oliver Elliot (2024)