Owo- Sampson v Barclays Bank Plc & Anor (No. 2)

Annulment of a bankruptcy order under section 282 of the Insolvency Act 1986 is discretionary, even where the order ought not to have been made. The court must be satisfied that annulment is right in the interests of creditors generally, including that the petitioning creditor and other liabilities can be met. On appeal, the judge conducts a true appeal rather than a rehearing. Intervention is justified only for material failures in the lower court’s evaluation or where its discretionary decision falls outside the generous ambit of reasonable disagreement.

The claimant appealed against the bankruptcy registrar’s refusal to annul a bankruptcy order made in 1998. The Court of Appeal had previously held that the order ought not to have been made because the petitioning bank was fully secured, but remitted the question whether the court should exercise its discretion under section 282 of the Insolvency Act 1986.

After considering the claimant’s proposed mortgage financing, the secured debt, the petitioning bank’s debt and other liabilities, the court had to decide whether the registrar had exercised that discretion properly and whether the claimant had shown that annulment would avoid prejudice to creditors.

1. The appeal was dismissed. The registrar had not exercised the discretion under section 282 in a manner warranting appellate intervention.

2. Section 282 gives the court a discretion to annul a bankruptcy order where, on grounds existing when it was made, the order ought not to have been made. That circumstance does not itself require annulment. The court must be satisfied that annulment is right in all the circumstances and will not prejudice creditors generally.

3. The relevant practical consideration was whether, following annulment, the claimant could satisfy the petitioning creditor and meet his other liabilities. The proposed borrowing of £325,000 was insufficient after allowing for the Bank of Scotland’s secured entitlement, Barclays’ debt and other unsecured liabilities. The claimant therefore had not demonstrated that annulment would secure payment of creditors.

4. An insolvency appeal is a true appeal, not a rehearing. The appellate court may intervene where the lower court considered irrelevant material, failed to consider relevant material, or exercised its discretion outside the generous ambit within which reasonable disagreement is possible. A different decision by the appellate judge would not suffice.

5. Although the registrar may have placed excessive weight on matters such as the claimant’s failure to make payments, hostility towards the bank and a possible preference, those matters did not affect the essential conclusion. The decisive finding was that annulment would not ensure payment of Barclays and fair treatment of the unsecured creditors.

• Court of Appeal: Held that the bankruptcy order ought not to have been made because the petitioning bank was fully secured, but remitted the exercise of the annulment discretion.
• High Court (Chancery Division): Dismissed the appeal from the registrar’s refusal to annul the bankruptcy order.