The High Court held a judgment following a Tomlin Order is a contingent debt included in the debtor's bankruptcy.
Summary
In April 2016 Oliver was ordered to pay damages and costs following a breached Tomlin order. The High Court refused to grant a final charging order against Oliver’s interest on the basis that both the damages and costs were extinguished in Oliver’s bankruptcy.
Oliver was made bankrupt in October 2014 and was discharged 12 months later.
Background
A money claim was made against Oliver and settled by way of a Tomlin order in May 2014. The terms of the agreement (the schedule) included that Oliver would transfer their interest in their properties to the claimant (Little Miracles Ltd.).
This transfer did not occur, so Little Miracles applied to court in April 2016 to enforce the Tomlin order against Oliver and to claim damages for loss of rental income. The court ordered that damages should be paid by Oliver, along with costs.
Little Miracles applied for and obtained an interim charging order against Oliver’s interest in a property in August 2022.
Oliver applied to have the interim charging order set aside. They also applied for the court order made in April 2016 to be varied, to delete reference to their liability for damages and costs because these debts were extinguished in their bankruptcy.
The High Court judge dealt with these applications by Oliver and the claimant’s application for a final charging order in one judgment.
The court's decision
The high court judge refused to grant the final charging order against Oliver’s interest in the property. It was held that both the damages and costs that Oliver was ordered to pay in 2016 were a contingent liability, so covered by Oliver’s bankruptcy in 2014.
Definition of a bankruptcy debt
The judge referred to the definition of a ‘bankruptcy debt’ at s.382 Insolvency Act 1986, which includes 'any debt or liability to which he may become subject after the commencement of the bankrtupcy...by reason or any obligation incurred before the commencement of the bankruptcy.' The definition includes debts that are to be paid in the future, whether the amount is fixed or not.
The judge held that Oliver’s liability to pay damages and costs arose because of an obligation that was incurred before their bankruptcy, the obligation being the settlement agreement reached by way of the Tomlin order. The debts were therefore provable debts in Oliver’s bankruptcy and could not be enforced against Oliver.
Statutory and contractual relationships
The judge also cited In Re Nortel [2013] UKSC 52 in support of this conclusion. In Nortel, the court confirmed that bankruptcy includes all liabilities that arose from a statutory or contractual relationship that existed before the date of the bankruptcy.
Discontinuation of the interim charging order
The judge did not feel that a formal variation of the 2016 order was necessary, but they agreed to make a declaration in this order to the effect that Oliver’s liabilities were provable debts in his bankruptcy. The judge also held that there should be an order discontinuing the interim charging order.
Comments
This decision clearly confirms the legal position relating to bankruptcy and contingent liabilities. Debtors considering bankruptcy can continue to be confident that future liabilities will be ‘bankruptcy debts’ under s.382 Insolvency Act 1986 provided the debts arise from an obligation they incurred before bankruptcy.