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Ulterior motives and discretion in bankruptcy proceedings

In Maud v Aabar Block SARL and another [2016] EWHC 2175 (Ch) the High Court considered the correct approach to exercising discretion in a bankruptcy petition where there was an ulterior object to the petitioners’ bringing of the petition which was also opposed by other creditors.

The facts of the case were complicated and set out in the judgment. The debtor was a 50% shareholder and director of a holding company which controlled a €3bn asset. The group was subject to insolvency proceedings in Spain and the assets were to be sold. Personal loans had been made to the debtor to invest in the group. The loan had subsequently been assigned to the petitioning creditors and judgment was entered by consent.

On coming before the registrar for the third time the bankruptcy order was made. It was appealed by the debtor on the grounds that the petition was being used as collateral attack to wrest control of the asset from the debtor to the benefit of the petitioners.

The judgment gives a broad overview and summary of the current case law in this area.

Snowden J allowed the appeal and gave useful guidance as to what effect an ulterior motive has on a bankruptcy petition where there are multiple purposes behind the petition. The Judge found first, that the court should consider whether the ulterior motive made the petition an abuse of process by going against the nature of the class remedy the petitioner was attempting to invoke. Secondly, were there was no abuse of process the court should still consider whether to grant or refuse a petition which is opposed by other creditors in light of the ulterior motive. This would require weighing the interests of other creditors against those of the petitioner to decide whether a grant or refusal would be in the interests of the whole class. Thirdly, the Judge confirmed the Court’s wide ranging case management powers and discretion to adjourn the petition where there is a reasonable prospect of the debtor paying the debt in any event.

William Skjøtt / 22nd Nov 2016


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