When property is personal to a client made bankrupt and not for the benefit of the bankruptcy estate.
Summary
Addison stood as a personal guarantor and defaulted on a loan repayment. Addison was served with a statutory demand and made bankrupt.
The appeal vesting in the Official Receiver as property cannot benefit the estate and therefore Addison did have standing to continue with his appeal to set aside the statutory demand.
'Property' is defined in s.436 of the Insolvency Act 1986 (IA 1986).
Background
Addison made an application to set aside a statutory demand issued by London European Securities Ltd (LES). The County Court refused the application as they felt the case lacked sufficient merit. Addison appealed this decision.
As the statutory demand was not set aside, LES proceeded with a bankruptcy petition and a bankruptcy order was made on 2 June 2021.
Addison was granted permission to appeal the set aside decision on 29 July 2021. The Judge was seemingly unaware that a bankruptcy order had been made.
The court's decision
The High Court considered whether Addison had standing to pursue his appeal after the bankruptcy order had been made.
It also considered the merits of Addison's set aside application.
Appeal after a bankruptcy order
The court held that Addison did have standing to pursue the appeal.
The court considered whether the appeal would vest with the trustee in bankruptcy, as would a claim for damages.
Making a bankruptcy order is likely to have severe consequences for the bankrupt. The court held that Addison's right to appeal was personal to him and would allow (if successful) the opportunity to restore his position, so could not vest in the trustee pursuant to s.306 IA 1986.
The court also held it would serve no purpose for the benefit of the bankruptcy estate to pursue the appeal.
Merits of set aside application
Now that Addison's appeal could be heard, the merits of his set aside were reconsidered.
The court dismissed the appeal on merits. It was held that the decision to refuse the set aside was correct.
Comments
Advisers might be considering bankruptcy or a DRO where the client is pursuing a claim or appeal. This decision provides clearer guidance on 'property' for the benefit of the bankruptcy estate or DRO asset parameter.
Para 87 of the judgment states "the appeal is a continuation of the claim once it had failed at first instance." With reference to s.436 IA 1986 and property, on the face of it the appeal should vest with the official receiver. However, where a bankrupt has an ongoing personal injury claim seeking damages to "body, mind and character cases" this should not vest with the official receiver as it is "personal to the bankrupt."
Para 113 sums up clearly and, in our opinion, fairly why Addison had the right to continue with his appeal, taking into account the process pursuant to s.303 IA 1986 where the appeal vested with the official receiver.