Can a Bankruptcy Order be annulled?

  • Insolvency
  • Law
  • Personal Bankruptcy

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 Morgan 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@summitlawllp.co.uk 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.