, Making someone bankrupt part 5
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Making someone bankrupt part 5

It will already be apparent that presenting a bankruptcy petition against someone is a very serious step from that person's point of view. What happens if instead of doing this genuinely, a party does it just to cause trouble for someone?

There is a cause of action in tort (the law of civil wrongs) for injury caused by the malicious and a reasonable commencement of bankruptcy proceedings against an individual. The authorities were reviewed by His Honour Judge Peter Coulson QC sitting as a High Court Judge in the Queen's Bench Division in the case of Jacob v Vockrodt [2007] EWHC 2403 (QB), [2007] BPIR 1568. The Learned Judge held, following the House of Lords case of Gregory v Portsmouth City Council [2000] 1 AC 419, [2000] 1 WLR 306, [2000] 1 All ER 560 that the tort, as the judge put it in paragraph 33 of his judgement, had five necessary elements, namely:

(a) the presentation of a bankruptcy petition;
(b) the termination of that petition in favour of the party against whom it was made;
(c) the absence of reasonable and probable cause for the presentation of that petition;
(d) the malicious presentation of that petition;
(e) the identification of damage caused by the malicious presentation of that petition.

The judge found very helpful the analogy with malicious prosecution, and so said that although for this tort malicious presentation had to occur at the time of presentation of the petition, as the judge put it at paragraphs 34-5, " In Tims v John Lewis & Co Ltd [1951] 2 KB 459, at 472, which was a malicious prosecution case, it was said that a prosecutor who continues, after discovering facts which show the prosecution to be groundless will, if he does not inform the court of these facts, be guilty of malice and may well have no reasonable or probable cause for continuing the prosecution.[35] In my judgment, as a matter of simple analogy with the malicious prosecution cases, the malicious continuation of bankruptcy proceedings which were not themselves commenced maliciously (ie because circumstances have radically changed following presentation of the petition), is probably separately actionable, as suggested in Tims. ".

The first two of the five suggested elements are fairly clear. The petition has to been presented, and it has to been determined against the petitioner. (Plainly if you have not presented a bankruptcy petition, or you have presented a bankruptcy petition which succeeded, it cannot be said you have maliciously falsely presented a petition, since either no petition existed or if it did exist if it was successful it could hardly be false).

As to the third element, Lord Justice Slade gave guidance on this in in Radivojevic v LR Industries Ltd [1984] , Court of Appeal transcript 514, when he said " Want of reasonable and probable cause I take to mean want of genuine belief, based on reasonable grounds, that there were good grounds in law for presenting the bankruptcy petition at the time when it was presented upon an alleged act of bankruptcy.". This is a question of fact. What legal advice was given is part of the background against which it will be decided whether someone could be said to have had no genuine belief or reasonable grounds for that belief.

The fourth element is malice. This is a separate element to the third element. Thus, just because there was no reasonable or probable cause, it does not automatically follow that there was malice. Malice can be spite, ill will or improper motive.

Finally there must be damage since this is an integral part of an action in tort. However it is probably the case that if the other elements are made out someone will normally have sustained some damage by virtue of an improperly presented malicious petition.

Bankruptcy is an important tool in the legal armoury, but it is one which must not be misused. That is why it is right that the machinery is there to deal with such misuse.

Michael J. Booth QC