Insolvency – Bankruptcy – First defendant tenant of commercial premises in arrears of rent on surrender of tenancy – Bankruptcy order made on application of second defendant landlord – Order set aside by consent in High Court on basis of security offered by first defendant – Claimant trustee in bankruptcy applying to rescind consent order on grounds that court not made aware of alleged debts to unsecured creditors – Whether district judge having jurisdiction to order rescission of High Court order – Whether interests of other unsecured creditors relevant to rescission – Application dismissed
The first defendant surrendered a lease of commercial premises leaving substantial arrears of rent owing to the second defendant local authority as landlord. The second defendants obtained default judgment for those arrears in the sum of £32,308.53 and costs. Liability orders were also made in respect of unpaid business rates and council tax. In March 2011, the second defendants served a statutory demand in the sum of £57,361.09 for the amount of the judgment and orders. That debt went unpaid and formed the basis of an amended petition for bankruptcy against the first defendant. The second defendants’ application for a bankruptcy order against the first defendant was allowed by a district judge, who first satisfied himself that there were no supporting creditors. The claimant was appointed as the trustee in bankruptcy.
The first defendant applied for permission to appeal against the order. The proceedings were later settled on the terms of consent order, made in the High Court, by which the second defendants agreed to the rescission of the bankruptcy order in return for the grant of a charge over the first defendant’s home to secure his indebtedness to them. The charge was duly registered and the first defendant paid the instalments due under its terms.
The claimant subsequently applied for the consent order to be rescinded pursuant to section 375 of the Insolvency Act 1986. The district judge ruled that he had no jurisdiction to rescind an order made by the High Court and transferred the application to the High Court. The claimant argued that the defendants had failed to take into account their obligations towards other unsecured creditors whose claims presently exceeded £300,000 and that the parties should have drawn the court’s attention to the unsecured creditors and/or notified the claimant so that he could defend their interests if the provision of the security would be prejudicial to them.
Issues arose as to whether: (i) section 375(1) of the 1986 Act permitted a review of an order made by a High Court judge on an appeal under section 375(2); and (ii) the interests of other unsecured creditors were relevant to a decision under section 271(3) of the Act.
Held: The application was dismissed.
(1) Although section 375(1) was framed in unrestricted terms, it did not provide a litigant with an unlimited right to a “second bite at the cherry”. The court could review, rescind or vary its prior order only if it considered that the order ought not to remain in force in the light of either changed circumstances or fresh evidence, whether or not it might properly have been obtained at the time of the original hearing: Re a Debtor [1993] 2 All ER 991 and Ahmed v Mogul Eastern Foods [2005] EWHC 3532 (Ch) applied.
There was authority to the effect that section 375(1) did not empower review etc of an order made by a judge of the High Court on appeal under section 375(2). In the context of section 375 as a whole, and its distinction between first instance and appellate review, it was at least fairly arguable that section 375(1) should be restricted to the review by first instance courts of decisions made by them, even though such a reading was capable of producing seemingly anomalous results: Appleyard v Wewelwala [2013] 1 WLR 752 applied. The claimant’s application therefore had to fail.
(2) If, contrary to the above, section 375(1) did extend jurisdictionally to an appellate decision, in so far as other unsecured creditors might be affected by the provision of security to a petitioner, the 1986 Act provided a targeted remedy in suitable cases. It was neither necessary nor appropriate for their interests to be addressed in the context of a bilateral dispute between the petitioning creditor and the debtor and, in particular, in relation to the issue of whether a bankruptcy order should be made where security was offered and rejected.
(3) In any event, the claimant had no standing to bring the present application. The position and status of a trustee in bankruptcy was predicated on, and was the result of, an adjudication by the court on the issue between the creditor and the debtor created by the petition. It would be illogical for the trustee to participate in that adjudication. There was no reason why the position should be any different on an appeal. The purpose of the appeal was to decide whether the bankruptcy order should stand. If the order fell and there was no bankruptcy, all consequences dependent on it, including the trusteeship and the vesting, disappeared with it. The claimant himself had no interest in the outcome and his standing to bring the present application could not be superior. Even if that were wrong, the court should take into account the delay of almost a year before the claimant had brought the application and it was appropriate to dismiss it.
James Couser (instructed by Lewis Onions, of Birmingham) appeared for the claimant; the first defendant appeared in person; Paul French (instructed by the legal department of Wycombe District Council) appeared for the second defendants.
Eileen O’Grady, barrister
