The court has discretion to set aside a bankruptcy order where it serves no useful purpose to a local authority.
Summary
The High Court set aside a bankruptcy order on the grounds that it served no useful purpose.
The local authority had applied for the order despite the fact Ms Lock had no income of her own and owned no assets that would vest in the bankruptcy. The only financial support she had was from her daughter. Information about Ms Lock's financial position was available to the local authority.
The court held there is a burden upon a public authority to make an initial case that a bankruptcy order will achieve some useful purpose.
Background
Ms Lock lived in social housing and relied on financial support from her daughter.
When Ms Lock fell into arears of council tax Aylesbury Vale District Council served her with a bankruptcy petition. The pre-bankruptcy checklist completed by the local authority did not identify any assets. The authority stated it believed she may have received an inheritance, but had not investigated any further.
Ms Lock acted as a litigant in person. She attempted to dispute the bankruptcy proceedings but failed to file a skeleton argument in time.
The County Court held that the local authority was entitled to a bankruptcy order. Ms Lock had not appealed the liability order or applied to set aside the statutory demand.
The appeal
Ms Lock was given permission to appeal to the High Court to consider whether:
the district judge should have used their discretion not to make a bankruptcy order
the lack of assets justified refusing to make a bankruptcy order, and
the bankruptcy order served a proper purpose
The court's decision
The High Court held that the County Court had not considered whether it was appropriate to make the bankruptcy order under section 266(3) of the Insolvency Act 1986.
The court acknowledged that Ms Lock had filed the skeleton argument out of time, but the district judge should have at least skim-read the argument and identified the points made.
The court agreed there was no proper evidence that there were any assets which could be realised, or were likely to be realised, in the bankruptcy. There was no evidence presented that indicated an investigation of the bankrupt's financial affairs would bring anything more to light. The bankruptcy order was unjust, and the court set it aside.
When serving a bankruptcy petition for unpaid council tax, the local authority has a burden to at least make an initial case that a bankruptcy order will achieve some useful purpose.
Comments
This case explains the process that a local authority must follow before serving a statutory demand or making a creditor's bankruptcy petition. It should fully explore a person's financial situation, and it must identify if any income or assets are available.
Where the bankruptcy order would serve no useful purpose, the court can use their discretion not to make the order.
Although this case concerned a local authority bankruptcy petition, the same argument could be used to challenge other creditors who petition for bankruptcy despite being aware that someone has no income or assets.