ADJOURNMENTS AND DISCRETION: DECISION NOT TO ADJOURN BANKRUPTCY PETITION UPHELD BY THE COURT OF APPEAL

In Edginton -v- Sekhon [2015] EWCA Civ 816 the Court of Appeal refused to overturn the judge’s decision not to adjourn a bankruptcy petition.

“Delay is inimical to all forms of litigation and especially so in a collective enforcement process such as insolvency. In my judgment, the judge was entitled to take into account the very late stage which the application was made”

THE CASE

The appellant had been  made bankrupt on a petition.  At the hearing of the petition he applied for an adjournment in order that he could have time to pay/investigate methods of payment.

KEY POINTS

  • The court has a discretion to adjourn a bankruptcy petition.
  • This discretion is usually exercised if there is evidence of a reasonable prospect of being able to pay the petition debt in full within a reasonable period.
  • The fact that an application to adjourn is made at the last minute can properly be taken into account as a relevant factor.
  • A decision in relation to adjournment is a discretionary case management decision and cannot be impugned except on the usual grounds for impeaching a judicial exercise of discretion.

THE JUDGMENT

Lord Justice Lewison stated:
  1. It is common ground that the conditions for making a bankruptcy order on a creditor’s petition contained in section 27(1) of the Insolvency Act 1986 were satisfied. Accordingly, it follows that the judge had jurisdiction to make the order.
  2. Procedure in insolvency proceedings is governed primarily by the Insolvency Rules 1986 (“the IR”). There is a general power to adjourn hearings; IR 7.10. However, since that rule is in chapter 1 of Part 7 of the IR, it does not apply to the hearing of bankruptcy petitions: see IR 7.1(c). Nevertheless, IR 6.29 envisages that a bankruptcy petition may be adjourned.
  3. IR 7.51A provides that, with some exceptions, the CPR apply to insolvency proceedings with any necessary modifications, except so far as inconsistent with the IR. It seems to me, therefore, that in the case of a bankruptcy petition the jurisdiction to adjourn is now found in CPR Part 3.1(2)(b).
  4. There are, however, differences between insolvency proceedings and an ordinary civil action. First, insolvency proceedings are class actions designed to secure distribution of an insolvent’s assets pari passu between all his creditors. They are not merely a debt collection process. The primary purpose of the proceedings is to enable an independent person to ascertain and preserve the debtor’s assets and to achieve that pari passu distribution.
  5. Second, the presentation of a petition has the effect that any disposition of property made without the consent of the court by a person who is subsequently adjudicated bankrupt is void: see Insolvency Act 1986, section 284. Accordingly, delay in dealing with a petition is liable to have adverse consequences for creditors generally see Re: A Debtor (Number 72 of 1982) [1984] 1 WLR 1143 applied in Judd v Williams [1998] BPIR 88.
    1. Against this background, the practice has evolved in relation to the grant of adjournments of bankruptcy petitions where the debtor asks for time to pay. The starting point is that if the petitioning creditor establishes that the statutory conditions are fulfilled, he is prima facie entitled to a bankruptcy order see Re: A Debtor (Number 452 of 1948) [1949] 1 All ER 652 and Re: A Debtor (Number 72 of 1982), both referred to in Judd v Williams.
  6. The court, of course, has to power to adjourn the petition, but the practice is to do so only if there is credible evidence that there is a reasonable prospect that the petition debt will be paid within a reasonable time. There are many statements to this effect in the cases of which the following recent ones are representative.
“A debtor clearly has no right to an adjournment in these circumstances, although it may be that a court will grant one if he could produce convincing evidence that the debt would be paid within a very short period.”
Addison v CAS Bank NB [2004] EWHC 532 Ch, [2004] BPIR 685, David Richards J.
“A petitioning creditor has a prima facie right to obtain a bankruptcy order on, as this was, a duly presented petition where the liability of the debtor for the petition debt is, as it is here, clearly established. Equally, the court hearing the petition has a discretion to adjourn the petition for payment if but only if there is a reasonable prospect of the petition debt being paid in full within a reasonable time: seeRe: Gilmartin [1989] 1 WLR 513 at 516 and much subsequent authority to a similar effect. There must be credible evidence to support such a prospect if the court is to grant an adjournment for payment.”
Harrison v Seggar [2005] EWHC 411 (Ch), [2005] BPIR 583, Blackburne J.
“There is no doubt that the court retains a discretion not to make a bankruptcy order even where the petition debt has been clearly established and any grounds of opposition have been dismissed. However, the authorities establish that in such circumstances the discretion to adjourn should only be exercised if there is a reasonable prospect of the petition debt being paid in full in a reasonable period… Furthermore, there must be credible evidence to support such a prospect if the court is to grant an adjournment for payment.”
Ross & Anr v HMCC [2010] EWHC 13 (Ch), [2010] 2 All ER 126, Henderson J.
“If the debtor does not produce any evidence of his ability to pay, he takes the risk that the court will not accept his bare assertion as to his means and ability to pay.”
See Dickens v Inland Revenue [2004] EWHC 852 (Ch), [2004] BPIR 718.
  1. A decision whether or not to grant an adjournment is, of course, a discretionary case management decision and consequently, the judge’s exercise of his discretion in this case cannot be impugned on appeal except on the usual grounds for impeaching a judicial exercise of discretion.
  2. Mr Attaras submits on Mr Edginton’s behalf that the fact that the application for an adjournment was made at the very last minute is an irrelevant consideration and that by taking into account an irrelevant consideration, the judge’s exercise of discretion is flawed. I do not agree.
  3. Delay is inimical to all forms of litigation and especially so in a collective enforcement process such as insolvency. In my judgment, the judge was entitled to take into account the very late stage which the application was made. Even in ordinary civil litigation, late applications are frowned upon, as are applications for adjournments which delay the final resolution of the case.
  4. Mr Edginton must have known that when the petition was listed for hearing, the expectation of Mr and Mrs Sekhon and indeed the court would be that it would be finally disposed of at that hearing. The costs order on which the petition is based had been made on 20 July 2011 and had thus remained unpaid for 3 years.
  5. In addition, the modern litigation culture is to avoid surprise applications, so the fact that Mr Edginton’s application came out of the blue was also relevant in the judge’s exercise of his discretion.
  6. During the course of his submissions to the judge, Mr Edginton could have said that in the event that the judge was against him on the substantive defence, he would ask for an adjournment in order to pay the petition debt and costs, but he did not. I do not consider that we should give any encouragement to tactical decisions of that sort.
  7. Mr Attaras also submitted that in a case such as this where the petition debt is modest and the debtor is a solicitor, the longstanding practice I have described is wrong or at least is inapplicable. While I accept that some judges might allow a short adjournment without requiring evidence of the debtor’s ability to pay, I do not consider that this court should cast any doubt on the validity of this longstanding practice.
  8. Certainly, in my judgment, it cannot be said to be wrong to require evidence of ability to pay. Even in the case of a modest debt owed by a professional person, without knowing about the overall liabilities no court can be confident that the debt will, in fact, be paid within a reasonable time.
  9. Mr Attaras goes on to argue that the overarching consideration in the present case was whether Mr Edginton was able to pay the petition debt within a reasonable time. That was undoubtedly a relevant consideration at a high level of generality, but the difficulty for Mr Edginton in the present case was that he had no formulated proposal about the time which he considered reasonable or the offer he proposed to make, let alone any evidence in support.
  10. The argument is that the modest size of the petition debt was such that it was inconceivable that Mr Edginton would have been unable to pay it within a reasonable time, but without knowing anything about either his assets or his other liabilities, that is no more than speculation.
  11. In fact, the statement of affairs subsequently produced by Mr Edginton’s trustees in bankruptcy, although the figures are disputed by Mr Edginton, shows even on a best case outcome a substantial deficiency as regards unsecured creditors. In addition, as Mr Attaras accepted, any offer that Mr Edginton made would have had to include the costs of the petition.
  12. As far as consequences of the bankruptcy order are concerned, it is clear that the judge had them in mind because he had referred to them in the course of his judgment a few minutes earlier.
  13. Other judges might have exercise their discretion in favour of allowing Mr Edginton a short adjournment even in the absence of any formulated proposal or evidence, but in my judgment it is impossible to say that Deputy District Judge Caun was wrong in the way he exercised the discretion that had been entrusted to him and to him alone.
  14. I would dismiss the appeal.

RELATED POSTS

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: