Bankruptcy – Appeal – Section 375(1) of Insolvency Act 1986 – Bankruptcy order made against first respondent on application of second respondent – Appeal compromised and High Court making order discharging bankruptcy order and charging debt owed to second respondent on first respondent’s home – Appellant trustee in bankruptcy applying for rescission of that order – Whether High Court having standing to rescind order previously made by it in exercise of appellate jurisdiction – Whether appellant entitled to be joined to appeal to oppose previous order – Appeal allowed in part
In 2011, the second respondent council obtained a bankruptcy order against the first respondent in respect of debts of more than £57,000 in unpaid rent, business rates and council tax. No other creditors were present or represented at the hearing of the bankruptcy application.
The first respondent applied out of time for permission to appeal to the High Court against the bankruptcy order. Such permission was granted but, before the hearing, the respondents reached an agreement compromising the appeal. At that time, the appellant was the first respondent’s trustee in bankruptcy, having been substituted in place of an earlier trustee. At the respondents’ request, the court made an order discharging the bankruptcy order and ordering the first respondent to pay the amount that he owed to the second respondent by agreed instalments, with the debt charged on the first respondent’s home. The appellant had not informed that the respondents proposed to ask the court to approve an order in those terms.
The appellant considered that the order should not have been made because it prejudiced other creditors of the first respondent. He applied to the court to rescind the order; that application was transferred to the High Court after the district judge took the view that the county court had no jurisdiction to hear it. At the date of the application, the appellant had fees of £6,000 outstanding and there were other debts owed in the bankruptcy.
The application was dismissed by the judge who had made the original order. He held that, while section 375(1) of the Insolvency Act 1986 enabled a court to rescind a bankruptcy order that it had made, that jurisdiction only applied to a court of first instance in respect of its orders made at first instance; accordingly, it did not apply to the judge’s order in the instant case, which had been made on appeal, albeit by the High Court.
He also held that, even if there was jurisdiction to rescind the bankruptcy order, the appellant’s application would fail because the court could dismiss an application for a bankruptcy order where there was a reasonable offer of security, even if the debtor had other creditors. The appellant appealed.
Held: The appeal was allowed in part.
(1) Section 375(1) of the 1986 Act permitted a court to review an order made by a court of the same level, whether sitting on appeal or at first instance. That conclusion was reached as a matter of statutory interpretation as there was no binding or consistent authority on the subject: Appleyard v Wewelwa [2012] EWHC 3302 (Ch); [2013] 1 WLR 752 and National Asset Loan Management Ltd v Cahillane [2015] EWHC 62 (Ch); [2016] 1 WLR 45; [2015] PLSCS 19 considered.
Although section 373 of the 1986 Act provided that the High Court and county courts had insolvency jurisdiction, it was apparent that they were not the only courts having or exercising that jurisdiction. The High Court, when acting as an appeal court, and the Court of Appeal, would also have, or exercise, the jurisdiction. Further, section 375 dealt both with the power to review, rescind or vary, in section 375(1), and with the appellate jurisdiction, in section 375(2). Section 375(1) opened with the words “Every court having jurisdiction for the purpose of the [individual insolvency Parts]”. The word “every” emphasised that the power conferred by section 375(1) was not confined to the High Court and the county courts to which proceedings had been allocated. Had parliament had intended to achieve that result, it would have used the word “court” alone, which, as specifically defined in section 385(1), would have excluded an appellate court. Accordingly, the words “Every court” in section 375(1) should be interpreted as including the High Court, whether it was sitting at first instance or on appeal. A practical limitation to ensure respect for the hierarchy of courts was found in the words “order made by it”, which meant that the High Court could not review an order made by the county court, or vice versa. Consequently, the judge had been wrong to hold that he had no power to review, rescind or vary an order which he had previously made on appeal.
(2) The first respondent had the necessary standing to bring his appeal against the bankruptcy order. While any cause of action which might lead to the recovery of money or other assets included in the estate in bankruptcy would normally be a part of the estate held on statutory trusts following the making of the bankruptcy order, the right to appeal against the bankruptcy order itself was of a different nature. Common sense and fairness dictated that the right of appeal against the bankruptcy order should remain with the bankrupt whose status had been fundamentally changed. Nonetheless, the appellant, as the trustee in bankruptcy, should have been joined to the appeal application so that provision could be made for his costs and expenses out of the assets which he held as trustee. There was also the risk that, if not joined to the appeal, the trustee might not hear that the order setting aside the bankruptcy order had been made, with the result that he continued to incur costs for no purpose. The appellant’s appeal should therefore be allowed on that ground and the case remitted to the High Court to determine how the appellant’s proper costs and expenses should be paid.
(3) Nonetheless, the appellant could not successfully have opposed the application for the order giving effect to the respondents’ agreement by arguing that other creditors would be prejudiced. His only claim would have been that the order should make proper provision for his costs and expenses. That was because a creditor who applied for a bankruptcy order was in control of the proceedings even though the order, when made, would constitute a collective remedy for the payment of all the debtor’s provable debts. The court could allow him to withdraw the application and, if there was another creditor who wished to pursue the bankruptcy order, the court could substitute it as applicant in his place under r 6.30 of the Insolvency Rules. The court was not bound to refuse to allow the withdrawal of the application for a bankruptcy order simply because the debtor was insolvent. Likewise, section 271 of the 1986 Act permitted the court to dismiss a bankruptcy application where the creditor refused a reasonable offer of security, even if the debtor was insolvent and unable to pay his debts in full.
James Couser (instructed by Lewis Onions Solicitors, of Birmingham) appeared for the appellant; the first respondent appeared in person; Paul French (instructed by the legal department of Wycombe District Council) appeared for the second respondents.
Sally Dobson, barrister
Click here to read transcript: Sands (trustee in bankruptcy of Layne) v Layne and another
