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Bankruptcy: What happens where a petition debt does not meet the conditions for bankruptcy by the point of the hearing?

April 2018 has seen a number of valuable insolvency decisions delivered by the High Court and Court of Appeal (“CoA”), one of which being the decision in Loson v Stack & Anr [2018] EWCA Civ 803.

The creditor (Stack) sought to enforce a costs order made against the judgment debtor in an enforcement dispute arising out of a liability to pay a parking ticket. It served a statutory demand and subsequently issuing a petition.

Prior to the petition hearing, the debtor applied under CPR 40.9A for, and obtained, an order to pay the costs by instalments (“the Order”). In making the Order, the County Court considered it would not prevent the making of a bankruptcy order. The Order was set aside on appeal to the High Court.

The CoA upheld the High Court’s decision, finding that the debtor had no ability to pay nor, on the evidence, a realistic prospect of discharging the debt within a reasonable period or at all (para.23).

The County Court had neglected to consider the effect of the Order on the court’s exercise of its discretion as to whether or not to make a bankruptcy order; the court would be bound to take into account the change of circumstances created by the instalment order (para.11).

This appeal revisited the question of whether a bankruptcy order could and/or would be made where a petition debt was, at the time of the petition hearing, no longer due and payable (here, due to the Order varying the time for payment), and any arrears were below the bankruptcy level of £5000.

Previous authority had been somewhat conflicting on the point: Lilley v American Express (Europe) Ltd [2000] BPIR 70; and Re Patel [1986] 1 WLR 221 (albeit a case under the previous legislation).

Consistent with Lilley (where a payment post presentation had taken the debt below the bankruptcy threshold), the CoA endorsed in Loson that whilst the court hearing the petition would have the jurisdiction to make a bankruptcy order based on the position at the date of presentation, there was ‘considerable doubt’ that a bankruptcy order would actually be made (para.11).

That of course recognises the practical reality that bankruptcy is still treated as a draconian remedy.

Hannah Laithwaite / 1st May 2018


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