A creditor’s failure to comply with its obligations under the Equality Act 2010 be grounds for dismissal of a bankruptcy petition.
Summary
The High Court adjourned bankruptcy proceedings for 90 days to give De Freitas the opportunity to pay a bankruptcy petition debt in full, via equity release.
The court had been asked by De Freitas to dismiss the petition on four separate grounds, including a failure by HMRC to comply with its duties under the Equality Act 2010. Each ground for dismissal was rejected by the court.
The court has the power to adjourn bankruptcy proceedings if it is satisfied that there is credible evidence that there is a reasonable prospect of the petition debt being paid within a reasonable time.
Background
HMRC presented a bankruptcy petition against De Freitas for unpaid self-assessment tax, penalties, and interest covering 15 years to 2016 totalling £130,812.26.
De Freitas had a long standing complaint against HMRC and had been through the four stage complaints process resulting in the rejection of his complaint by the Parliamentary and Health Services Ombudsman.
De Freitas issued judicial review proceedings against the Ombudsman which were settled by consent. The consent order stated that he could ask the Ombudsman to reconsider its decision but this hadn’t happened, and he argued that he couldn’t ask for this until HMRC provided him with the information he had requested.
De Freitas asked for the bankruptcy petition to be dismissed on the grounds that:
there was an ongoing complaint as part of an Alternative Dispute Resolution (ADR) process
he could pay or compound any debt that may be due
the bankruptcy petition was defective because it contained incorrect information
HMRC was aware that he had a mental health issue and it had failed to comply with it’s Public Sector Equality Duty and had failed to make ‘reasonable adjustments’ under the Equality Act 2010 (EA 2010)
It was common ground between the parties that he had a disability within the meaning of s6(1) EA 2010.
Public sector equality duty
De Freitas argued that HMRC had a 'public sector equality duty' (PSED) under s149 EA 2010 required it to minimise the disadvantages suffered by people with a disability and to take steps to meet their needs. Where a public authority proposes to carry out an act that could affect someone who is known to have a disability, the PSED imposes an obligation on the public authority to carry out an “open-minded conscientious enquiry” of the potential impact of that act on those that person before acting.
De Freitas also argued that HMRC had failed in its duty to make 'reasonable adjustments' in respect of disability under section 20 of the EA 2010.
The court's decision
Ground 1: There was an ongoing complaint
De Freitas hadn’t produced any evidence to show that he had a real prospect of success in relation to the complaint or that his liability would be reduced to below the bankruptcy debt level of £5,000 if his complaint was successful.
Ground 2: The debt could be paid or compounded
Even if the court agreed that he could pay the debt, it was not appropriate to dismiss the petition because ‘HMRC would have no comfort that the debtor will actually pay the petition debt.’
Ground 3: There were factual errors in the petition
The court found that there were factual errors, and HMRC had been given permission to amend the petition, which it hadn’t done. No argument had been put forward on behalf of De Freitas that he had been prejudiced by the errors.
Ground 4: Breach of the Equality Act 2010
The PSED required HMRC to carry out an assessment of the impact that bankruptcy proceedings would potentially have on De Freitas’ mental health when deciding whether to proceed with the petition and the duty to make adjustments required HMRC to take such steps (if any) as were reasonable to ensure that if it pursued the petition, he would not be disadvantaged as a result of his disability.
The court was satisfied that HMRC had complied with the PSED.
Comments
The court confirmed that the PSED and the duty to carry out reasonable adjustments are separate obligations that a public authority must comply with. For a public authority to comply with the PSED, it must carry out an “open-minded conscientious enquiry” of the potential impact of an act on a person with a disability (or other protected characteristic) before acting. If it fails to carry out reasonable adjustments, it may fail to comply with the PSED.
Even if there is a breach of the EA 2010, this could be a reason to dismiss a bankruptcy petition, but it will depend on the facts of the particular case.
This case also confirmed the court’s power to adjourn bankruptcy proceedings if the court is satisfied that there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time.