Summary

A tribunal judge had made a serious procedural error in finding that a bankruptcy petition was unopposed because the notice of opposition had been filed late, and that accordingly he had jurisdiction to hear the petition. He should have adjourned the hearing and transferred it to a specialist court, in accordance with CPR PD 57AA and CPR PD (Insolvency Proceedings).

Facts

A debtor appealed against a bankruptcy order made against him by a tribunal judge sitting in the county court on the return date of a petition presented by the respondent petitioner.

The petition debt of £2.4 million was the subject of judgment following the debtor's failure to pay the first instalment of the price of shares sold to him. It was not disputed that the debt was due or unpaid, or that the debtor had further substantial debts. The debtor contended that the petition debt was secured against his shares in his company, and that there was a reasonable prospect of the debt being paid in full within a reasonable time due to an IPO of shares in his company, which he said was valued in excess of the petition debt. He also offered security over a property. The Insolvency (England and Wales) Rules 2016 r.10.18 provided that a notice of opposition should be filed five days before the hearing. At the hearing, the debtor applied for the petition to be adjourned and transferred to the Central London County Court. The judge refused the application to adjourn, finding that the bankruptcy petition was unopposed as the notice of opposition had been filed late. He held that the material provided was insufficient to consider that there was a reasonable prospect of payment if given a reasonable time to do so. The debtor was adjudged bankrupt.

The debtor submitted that the judge had made a serious procedural error in finding that the petition was unopposed due to the lateness of notice. He maintained that it was settled practice to consider any opposition regardless of whether it had been made on time. He argued that where there was any opposition to bankruptcy proceedings, unless fanciful, the court should adjourn and transfer the proceedings to a specialist court such as the Central London County Court, in accordance with CPR PD 57AA.

The petitioner submitted that, even if the judge had been wrong to conclude that the petition was unopposed, he had been entitled to find that the grounds of opposition were fanciful. It argued that the judgment debt had been outstanding for a considerable period, that there was a long history of attempting to enforce payments, that the value of the security should be regarded as nil, and that there was no good evidence as to the IPO's value.

Held

Jurisdiction - The county court's jurisdiction in relation to the insolvency of individuals was conferred by the Insolvency Act 1986 s.373. The present position was that the exercise of jurisdiction was regulated by PD 57AA which related to Business and Property Courts, and provided in para.4.1 that only certain specified county court centres, including the Central London County Court, were appropriate venues to hear "specialist work". Paragraph 4.2 stated that "specialist work" meant all work undertaken in the Business and Property Court except, inter alia, for unopposed bankruptcy petitions. Paragraph 4.3 stated that specialist work should be heard only by specialist judges. CPR PD (Insolvency Proceedings) provided for a mandatory transfer of bankruptcy petitions from any non-specialist court, except where it could be described as "local business". Local business in the context of a bankruptcy petition meant that it was unopposed. The tribunal judge had held that the petition was unopposed as it had not been filed within the time limit under the Rules, and therefore he could consider it. That was a serious procedural irregularity. Whether a bankruptcy petition was unopposed had to be interpreted in the light of the practice of the court. A court would normally adjourn in such circumstances so that full matters could be considered at a later hearing. It was common for a debtor to advance grounds of opposition late or at the hearing itself, and no authority had been cited that timing was critical. The time limits had been in the Rules for a long time, and if grounds of opposition were to be rejected because they were late then there would be authority to that effect. If a debtor raised any ground of arguable substance that might give rise to a ground of opposition, it would be wrong to refuse to grant an adjournment, Darbyshire v Turpin [2013] EWHC 954 (Ch) applied. It could not be said that a debtor's prior history was a reliable indication that he could not maintain his grounds of opposition. A history of delay and failure to pay was of limited relevance when considering jurisdiction. In so far as there were inferences to be drawn from past history, they might indicate that a debtor would have difficulty succeeding on his notice of opposition, but that did not mean that a bankruptcy petition was unopposed. In so far as the tribunal judge had considered the grounds of opposition, he had not done so with regard to the low threshold in considering whether the petition had been opposed: if he had done so he could not have properly concluded that there was no ground of opposition. The debtor had a difficult case, but it was not so insurmountable that it should not be heard at all. The proper place to hear the opposition was on transfer to a specialist court; in the instant case that was the Central London County Court. It was true that an application to set aside a statutory demand was regarded as "local business" under the CPR PD (Insolvency Proceedings), and so could be heard in a non-specialist court, and such an application might raise the same or similar issues to a bankruptcy petition. However, in so far as there was an inconsistency, that was not a reason to ignore the provisions. The judge's failure to comply with the relevant Practice Directions had been a serious procedural irregularity.

Appeal allowed