Owo-Samson v Barclays Bank Plc & Anor

The Court of Appeal held that a creditor's estimate of the value of security given in a petition under Insolvency Act 1986 s.269 may be challenged at the petition or annulment stage and, if the creditor's estimate is shown to be wrong, the petition debt may in truth have been fully secured so as to found a ground for annulment under IA s.282(1)(a). The court found errors of law in the Registrar's approach: he treated the debtor's attitude to enforcement as a reason not to determine whether the petition debt was fully secured and he wrongly relied on the Trusts of Land and Appointment of Trustees Act 1996 when considering likely delay in enforcement. The appeal was allowed and the matter remitted for redetermination because the Court did not have sufficient material to exercise the discretionary remedy of annulment itself.

Background and parties: The appellant, Mr Timi Owo-Samson, was made bankrupt on 2 June 1998 following proceedings by Barclays Bank, which had obtained a charging order over the appellant's home to secure an earlier costs judgment. The appellant sought annulment of the bankruptcy order on the basis that the petition debt was in reality fully secured by the property. The Bank was the petitioner; the trustee in bankruptcy was the second respondent.

Procedural history: A statutory demand and petition specified the Bank's estimate of the value of its security as £20,000, producing an unsecured balance. The appellant failed to press valuation points at the demand stage and the bankruptcy order was made. He applied for annulment (initially dismissed), obtained a review and a rehearing before the Registrar, and lost on annulment. That decision was upheld on appeal to His Honour Judge McGonigal. Permission was granted for a second appeal to the Court of Appeal (Chadwick LJ gave permission on 5 February 2003).

Nature of the application and relief sought: The appellant sought annulment of the bankruptcy order under Insolvency Act 1986 s.282(1)(a) on the ground that, on evidence not before the court in 1998, the Bank's security exceeded the petition debt so that no unsecured debt existed then to support a petition.

Issues framed by the court:

• Was the petition debt fully secured at the date of the bankruptcy order so that annulment was available under IA s.282(1)(a)?
• If so, should the court exercise its discretion to annul, having regard to the conduct of the parties and the prospects of the debtor being able to satisfy creditors if annulment were granted?

Court's reasoning: The judgment reviewed the statutory scheme (IA ss.267–271, 282 and relevant Insolvency Rules) and authorities (including Platts v Western Trust & Savings Ltd and Re Button). The Court held that (i) the petitioner’s estimate of the value of security may be challenged at petition or annulment stage and, if shown to be incorrect, the debtor can show that no unsecured debt then existed; (ii) the Registrar erred in treating the debtor's stated opposition to enforcement as a reason not to decide whether the debt was fully secured, and erred in importing the wide discretion under the Trusts of Land Act 1996 into the enforcement of a charging order under CPR 73.10; (iii) on the valuation evidence before the court (preferring the Seeley valuation) and excluding speculative allowance for enforcement costs in the valuation exercise, the petition debt was fully secured and therefore the bankruptcy order ought not to have been made. Nevertheless, because the court lacked sufficient material to exercise the discretionary remedy of annulment itself (not least to assess the debtor's realistic ability to pay if the order were annulled), it allowed the appeal and remitted the matter for redetermination by a different registrar.

The appeal was allowed and the matter remitted to a different registrar for redetermination. The Court found legal error in the Registrar's approach to (i) declining to determine whether the petition debt was fully secured because of the debtor's attitude to enforcement and (ii) relying on the Trusts of Land Act 1996 to suggest prolonged postponement of enforcement. On the evidence the petition debt was, excluding speculative enforcement costs, fully secured, but the Court lacked sufficient material to exercise the discretionary power of annulment itself and therefore remitted the case for redetermination.

Bankruptcy order made 2 June 1998. Application to annul initially dismissed (1998); review and rehearing before registrars followed. Registrar Baister dismissed the annulment application (24 July 2002). That decision was upheld on appeal to His Honour Judge McGonigal (decision dated 15 November 2002 as recorded in the judgment). Permission to pursue a second appeal to the Court of Appeal was granted on 5 February 2003. The Court of Appeal allowed the appeal and remitted the matter for redetermination by a different registrar.