Smith v Ian Simpson & Co

Section 271(1) does not automatically bar a bankruptcy order merely because the petition debt has been paid from the debtor’s own property after presentation of the petition. Read with the Insolvency Act 1986, Part IX and the Insolvency Rules, ‘paid’ means an unconditional payment which will not be avoided if a bankruptcy order is made. A debtor cannot therefore terminate the petition, against the interests of supporting creditors, by making a vulnerable disposition of his own property. Rules 6.31 and 6.32 give effect to that scheme. Section 271(3) also recognises that a petition may remain on foot where an offer is refused unreasonably, subject to the subsection’s conditions.

Ian Simpson & Co petitioned for Smith’s bankruptcy on a debt of £5,956.43 in legal costs. Before the hearing, Smith’s solicitor tendered a banker’s draft for the full amount, conditional on dismissal of the petition. It was refused because payment might later be avoided under section 284(1). Supporting creditors had given notice, but none could be substituted as petitioner, although some could seek carriage of the petition. Deputy District Judge Steel made a bankruptcy order, and Judge Maddocks dismissed Smith’s appeal. The Court of Appeal considered whether section 271(1) treated payment from the debtor’s own resources as payment barring an order, and whether refusal of the tender was unreasonable under section 271(3).

1. Appeal dismissed unanimously. Laws LJ expressly agreed with the reasoning of Jonathan Parker J. Evans LJ agreed with the result but reached it on narrower grounds.
2. Majority construction. Jonathan Parker J held that the Act had to be read as a whole. Rules made under section 412 could not prevail over the Act and would be ultra vires if inconsistent with it. The appellant’s literal construction of section 271(1) would make the substitution and change-of-carriage provisions ineffective and would conflict with section 284(1).
3. Bankruptcy is a class remedy for the benefit of creditors. Section 284(1) preserves the debtor’s property at the date of presentation by rendering post-petition dispositions voidable unless validated. Section 271(1) therefore refers to an unconditional payment which is not vulnerable to avoidance. A disposition of the debtor’s own property after presentation does not, without court approval, remove the court’s jurisdiction to make a bankruptcy order. The petition may continue in the interests of supporting creditors.
4. Section 271(3) supports that construction. Its reference to unreasonable refusal recognises that a petitioner may reasonably refuse an offer and that the petition may remain on foot, subject to the statutory conditions. Parker J respectfully differed from the reasoning in Re Purvis [1997] 3 All E.R.663 and used the reasoning in Brook v Emerson (1907) 95 LT 821 as supporting the statutory scheme.
5. Evans LJ held that a refused tender could not itself be treated as payment. A tender made at the court door remained a tender, but its timing could bear on reasonableness. The offer was also said to be conditional upon dismissal. Evans LJ doubted whether section 271(3) covered an offer to pay in cash, and disagreed that the class-remedy rationale answered the statutory construction issue. He nevertheless agreed that the appeal should be dismissed.
6. Further evidence was refused under the Ladd v Marshall principles because it could have been available below and was not relevant. The respondents’ costs were ordered to be paid by the legal aid fund under section 18 of the Legal Aid Act 1988, subject to a ten-week suspension.

• Court of Appeal — On 12 April 2000, the appeal from Judge Maddocks was dismissed. The judgment is reported at [2000] EWCA Civ 124.
• High Court, Chancery Division — Judge Maddocks, sitting as a High Court Judge, dismissed Smith’s appeal against the bankruptcy order on 5 October 1999.
• Macclesfield County Court — Deputy District Judge Steel made the bankruptcy order on 23 June 1999.