Power to annul bankruptcy order part 2

The Official Petitioner can make an application to annul a bankruptcy order in respect of various different petitions if the petition was pending at a time when a criminal bankruptcy order was made against the individual or was presented after such an order was made and no appeal is pending against the conviction upon which it is based. (Under section 277 of the Insolvency Act, an appeal is pending during the period of 28 days from the date of conviction, or if notice of appeal to the Court of Appeal is given during that 28 day period, as well as notification to the official receiver, until termination of that appeal and for so long thereafter as an appeal to the House of Lords is pending.).

Of the more general powers to annul available to the court which do not require the involvement of the Official Petitioner, the first is under section 282 (1(a)) that the court may annul a bankruptcy order if at any time it appears to the court that on the grounds existing at the time the order was made the order for up the bankruptcy ought not to have been made.

The first point to note is the use of the word "may". The court has a discretion. It may not annul a bankruptcy unless a specified ground is made out, but even if the ground is made out the court has a discretion not to make the order. (Of course as with discretion's generally they are to be exercised in a reasonable and not a capricious manner, so if the court in the exercise of his discretion were to refuse to annul one would expect there any cogent and reasoned grounds for the refusal).

Section 282 does not specify who has to apply for the order, and indeed on the face of the wording of section would allow the court to act of its own motion. However it does not merely have to be the bankrupt which applies. Sometimes someone else will apply, although of course what they have to demonstrate is the position as at the time the bankruptcy order was made (since it is only by reference to that time that it can be said that there were grounds existing at that point which mean that the bankruptcy order ought not to have been made).

Evidence which is adduced on the annulment need not have been before the court when the bankruptcy order was made. Moreover evidence about things after the bankruptcy can also be put forward in order to demonstrate what the true position was at the time of the bankruptcy.

One category of person other than the bankrupt who can be known to apply is the spouse. The usual way this arises is as follows. A husband makes himself bankrupt in order to frustrate or obstruct the wife's application for financial relief. This can have arisen in a number of ways. One can be where the husband and a friend have effectively concocted a fictitious debt which is then used as the basis of the bankruptcy petition. If there was no true debt then there could be no valid bankruptcy. Another situation in which this could arise is where a husband petitions for his own bankruptcy on the basis that he is insolvent when that is not true. This effectively again amounts to an abuse of process in circumstances where the order should not have been made. It is important however to distinguish two things. One is whether the petition was properly granted, the other is motive. A husband may well be trying to make life difficult for his wife, but if he is genuinely for example unable to pay his debts as they fall due, or if he is insolvent on a balance sheet test, then it is legitimate for him to apply to make himself bankrupt.

The same principle could apply where it was felt the bankrupt was effectively trying to pull the wool over the eyes of his or her creditors.