Bankruptcy annulment application dismissed despite creditor’s petition based on an unliquidated debt.
Summary
This case concerns an application by Dusoruth to annul a bankruptcy order, which was made following a creditor’s petition by Orca Finance UK Ltd.
The court considered several arguments from Dusoruth, including one that the petition was based on an unliquidated sum as it comprised a claim for unjust enrichment. Orca had not obtained a judgment against Dusoruth. The court exercised its discretion to refuse to annul the bankruptcy order due to delays and obfuscation from Dusoruth.
Background
A statutory demand and bankruptcy petition were served on Dusoruth by Orca following convictions for criminal wrongdoing. Dusoruth did not make an application to set aside the statutory demand or defend the petition. A bankruptcy order was made against them on 16 November 2020.
Dusoruth applied to annul the bankruptcy on the grounds that:
Dusoruth’s centre of main interest was not based in England and Wales
the debts were disputed
the amounts in the bankruptcy petition were not liquidated sums
The court's decision
To annul a bankruptcy on the basis that the debts are disputed, the defendant had to present a genuinely triable issue. The burden of evidence is the same test used in disputing a statutory demand or petition. The prospect of a successful defence must be more than fanciful.
Fundamental dispute
The Judge dismissed Dusoruth's argument that the debts were fundamentally disputed because Dusoruth had been generally evasive in proceedings, even when cross-examined. There was no evidence to support Dusoruth's assertions about how the debts had been incurred.
Centre of Main Interest
The Judge dismissed Dusrouth's argument that their centre of main interests (COMI) was not in England and Wales at the point the bankruptcy petition was presented.
When making a determination of Dusoruth’s COMI, the Judge applied a test of standing in the shoes of a reasonable third-party, and asking where they – based on the facts – would have assumed Dusoruth’s COMI would have been.
The Judge deemed that Dusoruth’s COMI was in England, so the bankruptcy petition was valid.
Unliquidated sums
Section 267 Insolvency Act 1986 provides a bankruptcy petition must be based on a debt that is a liquidated sum payable to the petitioning creditor […] either immediately or at some certain future time.
Dusoruth argued that the sums requested by Orca in their petition were merely claims under unjust enrichment (Dusoruth had been unjustly enriched at Orca’s expense) and that the sum had not been finalised in order to be deemed ‘liquidated’. This argument was based on similar presenting facts in Hope v Premierpace (Europe) Ltd [1999] BPIR 695.
Orca did not have an existing judgment against Dusoruth, so their claim was only a claim, and not a determination. This point was agreed with by the Judge who stated:
“until there is a determination that the petitioner has been unjustly enriched and, if so, to what extent, and what restitutionary remedy is appropriate, it cannot be said that the debtor’s liability has been pre-ascertained. […] Until that quantification has taken place and the appropriate means of restitution determined, the claim cannot be liquidated.”
Court's refusal to annul the petition
The Judge determined that in this case, neither debt in the petition was for a liquidated sum, which meant the petition was not valid.
The court referred to the court's powers to annul the bankruptcy, which states the court may annul a bankruptcy order if appears that on any grounds existing at the time of the bankruptcy order, it should not have been made. This requires an exercise of discretion.
The Judge stated that discretion could be exercised, particularly where a debtor has failed to act reasonably, such as failing to raise defences at earlier points in the bankruptcy process when such defences were available to them. In this case, Dusoruth’s delays in dealing with the bankruptcy were a key factor.
Comments
This case highlights that petitions by creditors on the basis of claims for damages or unjust enrichment can be challenged on the basis that the debt is unliquidated. This could be sufficient to avoid bankruptcy if the challenge is presented early enough.
The creditor must obtain a judgment to be certain the petition is based on a liquidated sum. This gives debtors the opportunity to defend the claim, or acknowledge the claim and request to pay by instalments.
Debtors seeking to annul a bankruptcy must take action early, as delays can result in potentially successful arguments being ineffective.