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Power to annul bankruptcy order part 1

The court has power to annul a bankruptcy order which effectively means setting it aside (although certain consequences of the bankruptcy will still remain as shall be seen).

This should not be confused with discharge from bankruptcy. Although as has been seen in recent articles it is possible for orders to be made which impose restrictions on a bankrupt, in general once a bankrupt is discharged he or she has in one sense put the bankruptcy behind him or her. However the fact that he or she was bankrupt, and the way that his or her estate was dealt with, is not affected by the discharge. Discharge affects the future but does not rewrite the past.

Annulment is a very different thing. There are two principal grounds under section 282 of the Insolvency Act 1986 upon which annulment can be granted. The first under section 282 (1) (a) is that "on the grounds existing at the time the order was made, the order ought not to have been made". The second under section 282 (1) (b) is that " to the extent required by the rules, the bankruptcy debts and the expenses of the bankruptcy have all, since the making of the order, been either paid or secure for to the satisfaction of the court".

There are additional powers to annul under section 282 (2). A key part of these relates to the position of the Official Petitioner. The Official Petitioner is defined in section 402. His principal role relates to Criminal Bankruptcy Orders, and under the Insolvency Act the Official Petitioner has certain roles to fulfil in that regard. The Director of Public Prosecutions is the Official Petitioner, but any of the functions of the Official Petitioner can be undertaken by any person acting with the authority of the Director of Public Prosecutions. Thus any reference in the Act to the Official Petitioner means either the Director of Public Prosecutions or someone acting with his or her authority.

The functions of the Official Petitioner are set out in section 402 (2). A key function is to consider whether to present a bankruptcy petition to the court under section 264 (1)(d) (cases where a Criminal Bankruptcy Order has been made), and if the Director considers it in the public interest to do so, to present such a petition. There are ancillary powers to make payments towards expenses incurred by other persons in connection with proceedings pursuing any such petition brought by the Official Petitioner, and also a power to exercise as far as the Official Petitioner considers it in the public interest to do so, any of the powers conferred on the Official Petitioner by or under the Act. There are also provisions in section 402 (4) which essentially exempt the Official Petitioner and any person acting with the authority of the Official Petitioner from liability for anything done or any failure to do anything in either the discharge or purported discharge of the functions of the Official Petitioner. Essentially that is to avoid the potential for legal challenge or damages actions for either what the Official Petitioner actively does, or fails to do, in pursuing those functions.

One of the things which the Official Petitioner has power to do is apply to annul a bankruptcy order made against an individual under a petition for bankruptcy under section 264 (1)(a) (namely by one of the individual's creditors or by more than one of them if made jointly), section 264 (1)(b), (made by the individual who is made bankrupt i.e. his own petition for bankruptcy) or section 264 (1)(c) (the supervisor or any person other than the person being made bankrupt bound by a voluntary arrangement proposed by that person and approved under part VIII of the Insolvency Act, these being arrangements with creditors to avoid bankruptcy). We will look next week at the context in which such an application is made and the potential consequences.

Michael J. Booth QC