Fitch v Official Receiver

Section 375(1) of the Insolvency Act 1986 gives a broad discretion to rescind a bankruptcy order. An application normally depends on a post-order change of circumstances, or exceptionally on further evidence which could not have been adduced on appeal. A collective change in creditors’ commercially informed view may be a new and relevant circumstance, even where the underlying facts were previously known.

The discretion must be exercised cautiously and only in exceptional circumstances. It is not confined to circumstances closely analogous to an informal scheme of arrangement. The court must decide whether the actual circumstances justify rescission. A supposed deception cannot justify refusing relief unless there is evidence of a proposed representation or misrepresentation.

Mr and Mrs Fitch appealed from Chadwick J’s refusal to rescind bankruptcy orders made against them. The petitioning creditor and a substantial body of creditors later supported rescission because the continuing bankruptcies were likely to prevent recovery of substantial fees earned, or to be earned, through the Fitches’ business activities. No creditor opposed.

Chadwick J treated the applications as an impermissible further appeal and considered that rescission would facilitate deception. The central issues were whether the creditors’ changed attitude was a relevant change of circumstances under Section 375(1) of the Insolvency Act 1986, whether the discretion was confined to cases analogous to an arrangement with creditors, and whether the proposed conduct involved deception.

1. Appeals allowed. Lord Justice Millett gave the judgment of the court. Chadwick J had exercised the discretion on erroneous bases. Both bankruptcy orders were rescinded.

2. Section 375(1) of the Insolvency Act 1986 permits the bankruptcy court to review, rescind or vary an order made in its bankruptcy jurisdiction. Its scope differs from an appeal and from annulment under section 282(1). An application under section 375(1) must normally rest on a change since the bankruptcy order, or, more rarely, on further evidence which could not have been adduced on appeal.

3. The creditors’ change of view was such a change. It was material that a substantial body of creditors, including the petitioning creditor, supported rescission for commercial reasons and none opposed. That the facts which caused their reappraisal had been known when the orders were made did not prevent their later attitude from being new and relevant. Section 375(1) was the only means by which effect could be given to that post-order position.

4. The court rejected the suggested restriction derived from Re A Debtor No. 12 of 1970 [1971] 1 WLR 1212 CA. The discretion remains one to be exercised cautiously and only in exceptional circumstances, but the inquiry is whether rescission is justified on the circumstances of the case. It is not whether those circumstances sufficiently resemble an informal scheme of arrangement. The creditors’ support, the prospect that bankruptcy would destroy valuable recoveries, the absence of misconduct or public interest, and the limited risk of an asset scramble made the circumstances exceptional and justified relief.

5. There was no evidence of intended deception. Mr Fitch acted as an intermediary, not as a borrower. If the orders were rescinded, his silence about the former orders would not amount to a representation that he had never been bankrupt. The position would differ if he were asked about his creditworthiness, but there was no basis to suppose that he would misrepresent it.

6. The petitions were not dismissed. They were returned to the County Court and were expected to be restored so that arrangements protecting creditors’ interests in the prospective fees could be made; fresh bankruptcy orders might otherwise require consideration.

• Court of Appeal (Civil Division) Allowed both appeals, set aside Chadwick J’s order, and rescinded the bankruptcy orders.

• High Court, Chancery Division (Bristol District Registry) Chadwick J dismissed the applications to rescind the bankruptcy orders on 5 October 1995.

• Swindon County Court Deputy District Judge Exton made the bankruptcy orders on 31 July 1995. Mr Fitch’s separate appeal from his order was dismissed by His Honour Judge Moseley QC on 25 August 1995.