Setting aside a bankruptcy petition
In Ndyabakiha v Hitachi Capital UK Plc [2021] EWHC 633 (Ch) the High Court set aside a bankruptcy order based on a late and unevidenced offer. Previous cases suggest this should not succeed in court, so the case offers hope for clients and advisers.
What the case was about
On 19th June 2019, Hitachi presented a bankruptcy petition based on a loan debt of £7365.02, entered into in 2008. Hitachi gave up its charging order as per s269 of the Insolvency Act 1986. The bankruptcy hearing took place on the 30th September 2019.
No notice to oppose the petition was filed before the hearing, as required by Insolvency Rule 10.18. However on the 9th and 17th of September Ndyabahika’s husband offered Hitachi £168 per month supported by a financial statement. This would have cleared the debt within 3 and a half years. He also stated they would sell the home to repay the debt if needed, and explained that his wife had been off work due to illness, but had recently returned.
The offers were refused, but were repeated at the hearing. Additionally he claimed, without evidence, that his mother-in-law could settle the debt within 24 hours, and that they had a buyer for their home. The District Judge’s notes commented that personal circumstances would not be a factor in the decision to adjourn or not, and she was concerned that the offer was not supported by evidence. The bankruptcy order was made.
Ndyabahika argued that the hearing on the 30th September 2019 should have been adjourned to allow time for the payment to be made.
The High Court had to decide whether to allow an out of time appeal and set aside the order. They had to consider whether the District Judge had exercised her discretion properly under s266(3) of the Insolvency Act 1986. The High Court also looked at due process as per section 3 of the Insolvency Practice Direction.
What the court decided
The late appeal was allowed as it was just given the circumstances of the case.
The offers to pay the debt arose very late and case law suggests that there is a high bar set with regards to adjournments based on offers of repayment (with reference to Edington v Sekhon & Another [2015] EWCA Civ 816). Any offer should have a reasonable prospect of being made (i.e. no obvious barriers for Ndyabahika actually making the payment) and it must repay the debt in a reasonable time.
However the High Court found that the District Judge had not exercised her discretion properly. Ndyabahika’s illness and subsequent return to work were relevant and should not have been overlooked. They were material as to whether the offer was credible. As was the understandable fact that the potential loss of their home led to a very late offer from Ndyabahika’s mother. In ‘Sekhon’ the offer was hopeless but here it wasn’t and the house sale would have repaid the debt, at that point secured by a charging order.
The High Court examined the Insolvency Practice Direction (IPD), from paras 3.6–3.9. Hitachi was put on notice that the petition was opposed, given Ndyabahika‘s engagement and negotiation prior to the petition hearing. This was despite no opposition notice having been filed. As such, the District Judge should have considered a referral to the relevant specialist court under the IPD. This did not happen and was a procedural irregularity. That referral would have given enough time for Ndyabahika to gather and file evidence of the offer to the specialist court, in this case the Central London County Court (CLCC).
The appeal was allowed and the bankruptcy order set aside. A new hearing would be listed at the CLCC. Ndyabahika would have to file evidence within 28 days.
The Official Receiver and Trustee would be invited to join proceedings to discuss their costs.
What this means for advisers
Previous case law has shown how difficult it is to oppose bankruptcy on the basis of an offer of payment. Offers must be realistic and payment must clear a debt quickly, and ideally be supported by evidence at the hearing.
Despite that, judicial discretion must be used properly and should not ignore personal circumstances where they explain or add weight to the offer being made. In this case, despite a lack of evidence, the circumstances and conduct before the hearing meant that discretion should have been applied, leading to a short adjournment. The circumstances of this case were not complex, and the late rush to deal with the debt not unfamiliar to debt advisers.
A serious offer should also be seen as opposing the petition and a referral made to the nearest specialist court, which buys time. An opposition notice should be filed 5 business days before the bankruptcy hearing on the correct form. However, even if that doesn’t happen, there is still hope if the conduct leading up to bankruptcy amounts to clear opposition.
We’ve also updated our ‘Stopping Bankruptcy’ article. You can read the judgment here.
Graham O’Malley works as a debt expert in the Expert Advice team at Citizens Advice.
The information in this article is correct as of the date of publication.
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