Northcote v Wimbledon Bridge Club

Section 271(3) of the Insolvency Act 1986 confers a limited residual discretion to dismiss a bankruptcy petition where a creditor has unreasonably refused an offer to secure or compound the petition debt. It is not a broad power enabling a debtor to impose an individual voluntary arrangement outside the statutory regime. The debtor must show that the creditor’s refusal was positively unreasonable, meaning outside the range of possible reasonable actions. The question is not whether the debtor’s offer was itself reasonable. The discretion is therefore likely to be exercised only in a limited number of cases.

The applicant was made bankrupt on a creditor’s petition for unpaid costs arising from unsuccessful proceedings against the respondent bridge club. The Registrar rejected an argument under section 271(3) of the Insolvency Act 1986, holding that the creditor’s refusal of the debtor’s offers was not outside the range of reasonable responses. Patten J dismissed the appeal. The applicant sought permission to appeal, arguing that his offers should have been accepted and that the judge had failed to act even-handedly or give adequate reasons. The central issue was the scope and application of the statutory discretion.

1. The application for permission to appeal was refused. The court held that even a first-tier appeal would have been hopeless.

2. Section 271(3) of the Insolvency Act 1986 provides a limited residual discretion to dismiss a bankruptcy petition where the creditor has unreasonably refused an offer to secure or compound the petition debt. It is not a wide-ranging power permitting a debtor to establish an individual voluntary arrangement outside the regime in Part VIII.

3. The applicable test is whether the creditor’s refusal was positively unreasonable. It is insufficient that the debtor made a reasonable offer. The refusal must be outside the range of possible reasonable actions available to a hypothetical reasonable creditor. The authorities, including Re A Debtor [1994] 1 WLR 899 and Inland Revenue Commissioners v A Debtor [1995] BCC 971, supported that high threshold.

4. On the evidence, the creditor had reasonable grounds for doubting whether the offers properly reflected the debtor’s ability to pay, including the absence of supporting documentary evidence and the uncertainty surrounding his means. Proceeding to a bankruptcy order therefore fell within the range of reasonable responses.

5. Patten J had acted even-handedly and given full reasons. The adverse consequences of unsuccessful litigation did not justify appellate intervention.

• Court of Appeal (Civil Division): Permission to appeal from Patten J’s order was refused.
• High Court, Chancery Division, Bankruptcy Court: Patten J dismissed the appeal from the Registrar’s bankruptcy order.
• Registrar in Bankruptcy: Made a bankruptcy order after rejecting the challenge under section 271(3) of the Insolvency Act 1986.