Carter v Davies

The court can refuse to annul a bankruptcy order based on a debt subject to a breathing space moratorium.

Summary

The High Court rejected an appeal seeking annulment of a bankruptcy order. The order had been made without knowledge of a standard breathing space moratorium under the Debt Respite Scheme.

The making of the bankruptcy order was not null and void, because regulation 7(12) had no application in relation to regulation 10.

Where the court gives permission to progress under regulation 7(2)(b), it retains jurisdiction to make a bankruptcy order despite the existence of a moratorium.

Background

In January 2023 the appellant, Mr Carter, entered a standard breathing space moratorium.

Bankruptcy order

In February 2023, Carter was adjudged bankrupt following a creditor petition for an undisputed judgment debt. He did not attend the hearing.

The petitioner’s solicitors were unaware of the breathing space moratorium due to administrative error. They did not notify the court of its existence as required under regulation 10(1).

Mr Carter applied to annul the bankruptcy order under s.282(1)(a) Insolvency Act 1986 (IA 1986). He argued the order should not have been made.

County Court refuses to annul bankruptcy order

The County Court held that it would have stayed the petition if it had been informed of the breathing space before making the bankruptcy order.

The County Court refused to annul the bankruptcy order even though it was made incorrectly. It referred to Khan v Singh-Sall [2022] EWHC 1913 (Ch). The court must exercise its discretion under s.282(1) IA1986 by weighing up all the relevant factors.

The court felt that Carter had sufficient funds to pay the debt in late 2022 but chose to travel abroad instead. It concluded that Mr Carter obtained the breathing space moratorium by failing to disclose his ability to repay his debts to the debt advice provider. This trumped the petitioner's failure to notify the court of the moratorium's existence.

A further bankruptcy order under the same petition was inevitable if the court annulled this order.

Appeal to the High Court

Mr Carter appealed to the High Court. He argued that the court had no jurisdiction to consider making a bankruptcy order because the petition should have been stayed under regulation 10(2)(a). The bankruptcy order was null and void under regulation 7(12).

The court's decision

The High Court held that bankruptcy is not enforcement action within regulation 7(7). It is neither a step to collect a debt nor to enforce a judgment.

The court also held that it can grant permission for a creditor to progress existing proceedings under regulation 7(2)(b), subject to the power of the court which would otherwise be prohibited under regulation 10. For bankruptcy proceedings, the court can make a bankruptcy order, despite the existence of a moratorium, if it gives permission under regulation 7(2)(b).

Bankruptcy order not null and void

The making of the bankruptcy order was not null and void, because regulation 7(12) did not apply to regulation 10(2)(a). The County Court's jurisdiction to make a bankruptcy order remained because the bankruptcy was not null and void.

The regulations intended the court to retain discretion to permit the bankruptcy order to remain if that order is made contrary to regulation 10(2)(a). This is because bankruptcy impacts on all creditors, not just those with moratorium debts.

The County Court was correct to conclude that it retained a discretion not to annul the bankruptcy.

Comments

This judgment underlines the importance of advisers and clients taking steps to tell the court that a breathing space moratorium is in place where there are existing proceedings relating to a moratorium debt.

Advisers should not rely on the creditor notifying the court or tribunal of the moratorium as required under regulation 10(1) as this can lead to client detriment.