We use cookies to improve our site and your experience. By continuing to browse on this website you accept the use of cookies. Read more...

New High Court guidance for considering bankruptcy orders where an ‘ulterior object’ is identified

A three-stage consideration - the High Court has clarified the approach required when a court is faced with a bankruptcy petition, an alleged ulterior object and opposition to the petition by other creditors.

This guidance in Maud v Aabar Block SARL & Anr [2016] EWHC 2175 (Ch) emerged amidst complex and high value proceedings relating to a substantial office and real estate complex in Spain worth billions of euros.

Brief background to the appeal

Judgment had been entered against the debtor by consent following default on a loan advanced to him for the express purpose of onward investment. He was not successful in setting aside the statutory demand but did secure two adjournments of the hearing of the bankruptcy petition after persuading the court of a reasonable prospect of payment.

The bankruptcy order was subsequently granted upon the third hearing, with the Registrar finding that the petitioners did not have an ulterior object in the bankruptcy and there was no prospect of the debt being paid within a reasonable time. The debtor applied for permission to appeal.

Prior to the appeal hearing, it was revealed in a supplemental skeleton argument that a petitioner was partially motivated to make the debtor bankrupt as he perceived that the debtor was frustrating his attempts to recover full value for his investment.

After noting that the presence of an ulterior motive did not automatically render the petition an abuse of process, the High Court highlighted that it was necessary for the court to evaluate and attribute weight to the wishes of each creditor in determining whether or not to make the order sought, in the interests of the class.  By passing over this question, the Registrar below had erred as a matter of law in approaching the petition.

The three distinct questions for a court faced with an alleged ulterior purpose:

  1. Assuming the debt is undisputed, does the petitioner have an ulterior purpose that is so contrary to the nature of bankruptcy as a class remedy or to collective insolvency proceedings that it constitutes an abuse of process?
  2. If it is not an abuse but the order is opposed by other creditors, should the court grant or refuse the bankruptcy order in the interests of the class having weighed the views of all the creditors in the class?
  3. In the exercise of its general case management discretion, should the petition be adjourned upon finding there is a reasonable prospect that the petition debt will be paid within a reasonable time?

Conclusion

This three-stage enquiry as set down in this case by the High Court offers debtors and creditors alike a focussed framework upon which the likely success of a petition can be weighed.

This is likely to reduce the delays to bankruptcy proceedings caused by ulterior object arguments. However, given the emphasis on bankruptcy offering a collective remedy, these arguments may well be utilised much more readily to promote creditors’ competing wishes.

If you would like advice on bankruptcy proceedings, proposed or existing, or to discuss the latest developments in more detail, please contact Hannah Laithwaite at HannahLaithwaite@lambchambers.co.uk .

Hannah Laithwaite / 11th Oct 2016


Disclaimer

The information and any commentary on the law contained on this web site is provided free of charge for information purposes only. Every reasonable effort is made to make the information and commentary accurate and up to date, but no responsibility for its accuracy and correctness, or for any consequences of relying on it, is assumed by any member of Chambers. The information and commentary does not, and is not intended to, amount to legal advice to any person on a specific case or matter. You are strongly advised to obtain specific, personal advice from a lawyer about your case or matter and not to rely on the information or comments on this site. No responsibility is accepted for the content or accuracy of linked sites.


Download as PDF


Back to News