The decision of His Honour Judge Hodge QC (sitting as a Judge of the High Court) in Harriet Lock v. Aylesbury Vale District Council EWHC 2016 (Ch) to set aside a bankruptcy order and dismiss the underlying petition may surprise some practitioners and may affect the way some creditors approach the question of whether or not to pursue bankruptcy proceedings.
The Appellant, Harriet Lock, had been made bankrupt on 17 January 2017; at that hearing, District Judge Sweeney noted that the petitioner had correctly served the Debtor with a statutory demand (the debt related to unpaid council tax) and that this demand had not been set aside. District Judge Sweeney did not consider an argument which had been put forward by the debtor in a skeleton argument, that the bankruptcy order would serve no useful purpose.
HHJ Hodge QC noted that under s.266(3) Insolvency Act 1986, the Court has a general discretion to dismiss a bankruptcy petition for any reason, if it considers it appropriate to do so. The District Judge had not given consideration to this. HHJ Hodge QC concluded, with reference to a number of previous cases, that the Court could refuse to make a bankruptcy order where no useful purpose would be served by the order. In this particular case, it was clear that the Debtor had no property or funds which a trustee in bankruptcy could distribute; accordingly, the appeal was allowed.
HHJ Hodge recognised the concern of many creditors, that it is not always possible to ascertain what assets exist until after a bankruptcy order is made and investigations take place, noting:
“I acknowledge that, on the authorities, a debtor bears a heavy burden in demonstrating that there are, and will be, no assets available for distribution by an official receiver or trustee in bankruptcy for the benefit of the bankrupt’s creditors, and also in demonstrating that no useful investigation of the bankrupt’s assets and affairs can be undertaken in the bankruptcy. The authorities make it clear that there is such a heavy burden on a bankrupt.”
However, he appeared to create a new procedural requirement for certain types of petitioning creditors (local authorities and possibly public authorities in general) by adding:
“In bankruptcy petitions of the present kind, however, founded upon unpaid council tax, it does seem to me that there is a burden upon a public authority, petitioning for a debtor’s bankruptcy, to at least raise a prima facie case that a bankruptcy order will achieve some useful purpose.”