, Power to annul bankruptcy order part 5: leadingcounsel.co.uk
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Power to annul bankruptcy order part 5

As we saw last week, where annulment is sought on the basis that bankruptcy debts and expenses have all since the making of the order been either paid or secured for, the court can give directions as regards giving creditors the opportunity to prove.

Where the claim is an unliquidated debt (ie it is not of a precise amount, such as where there is an obvious liability in damages but the precise amount of those damages is unclear, to be contrasted with a liquidated sum such as for example a debt, e.g. borrowed money or money due pursuant to a purchase contract where the debtor has bought something but not paid the money over) then it would either have to be secured for or the creditor can place an agreed figure on the claim.

All debts have to be actually paid. The words "to the satisfaction of the court" govern "secured" not "paid". What that means is that if you are offering security for a debt then that is something which has to be demonstrated to the satisfaction of the court. If you are paying a debt than as a matter of fact the debt is either paid or not paid. The question of satisfying the court does not come into it (save to the extent of as a proving that the debt has been paid). It is not a question of the court deciding that a fair approach has been taken to payment of the debt, it is a question of establishing whether actual payment has been made.

It should be noted that the debts have to be paid. Therefore if the debt is not paid in full then even if the creditor would be willing to accept less this does not amount to payment so as to invoke the jurisdiction. (There may of course be cases where due to arrangements with a third party it is said in some way this affects the debt and one can envisage a tripartite arrangement that would deal with this, for example the creditor treating something as having a particular value and hence treating it as effective part payment: this is nonetheless a difficult area and each case must be considered on its own facts. In general it will be difficult to invoke the jurisdiction on such ground, though not necessarily impossible.).

The court does not have to be satisfied that statutory interest will be paid. That is not part of the definition of bankruptcy debts. Therefore the court can grant annulment without any payment of interest. However the court will consider the circumstances and whether payment of interest ought to be a condition of annulment. That is a matter of discretion having regard to all the circumstances, bearing in mind that there is no absolute right to annulment even if a statutory ground for annulment is made out: without making out the ground, there is no jurisdiction to annul, but even when made out there is a discretion as to whether to annul. If the annulment application is made promptly then the court may not consider interest is necessary, but obviously the longer the period before the application to annul (which in real terms if interest is not paid devalues the debts) the more likely the court is to insist on it. In general terms if there are assets in the bankruptcy estate to enable payment of interest than the creditors ought to receive interest.

There can sometimes be a "chicken and egg" situation where a third-party lender is to lend the money to allow for discharge, because the lender will not normally lend without the annulment, but until debts are paid the annulment cannot take place. The court can look at what the maximum amount of the debt is likely to be, and can grant an annulment on the basis of the security if satisfied that it is bound to be sufficient. (The court has power to set aside the annulment if for example it is said by way of undertaking that monies will be paid and then they are not). Another way of dealing with the matter is to make the annulment conditional on payment of various sums.

The costs of the bankruptcy must be paid for. Whilst the court has a discretion as to what the proper amount of such costs is and payment thereof, the presumption is under this ground that those costs will all be paid by the debtor.

Michael J. Booth QC