Ahmed v Mogul Eastern Foods & Anor

A bankruptcy order may be annulled or rescinded despite an earlier decision that the petition debt was due. The powers are broad but must be exercised judicially. A later application should not become a disguised appeal on the same material. It may be entertained where material new evidence is produced, including evidence that could not reasonably have been adduced earlier. The evidence must be credible and sufficiently cogent that it could have led a reasonable bankruptcy judge to refuse the petition. Where it raises a genuine issue requiring disclosure and cross-examination, the bankruptcy order may be reviewed.

Mrs Fatima Ahmed appealed against the Nottingham County Court dismissal of her application to annul or rescind a bankruptcy order made on 22 October 2004. The petition was based on an alleged debt of £42,412 said to be due from a partnership in which she had been a partner.

She relied on later evidence that the balance-sheet entry represented the depreciated value of fixtures and fittings leased with the shop, rather than a book debt. The District Judge treated the application as an impermissible second appeal. The issues were the scope of the statutory review powers and whether the new evidence was sufficiently credible and cogent.

The appeal was allowed. Sections 282(1)(a) and 375(1) of the Insolvency Act 1986 confer broad powers to annul, rescind or vary a bankruptcy order. A prior decision on the petition debt is not an absolute bar.

1. The discretion must be exercised judicially. An application based only on the same material is, in substance, an appeal and should ordinarily be refused.
2. Material new evidence may justify review. There is no requirement under section 282 equivalent to the strict rule in Ladd v Marshall. The availability of the evidence earlier remains relevant to discretion.
3. The evidence must be credible and sufficiently cogent. If unanswered, it must be capable of leading a reasonable bankruptcy judge to refuse the petition.
4. The inconsistencies in the company and partnership accounts did not make the accountant’s explanation inherently incredible. They raised a sufficient issue about the alleged debt. Its determination required disclosure and cross-examination.

The District Judge’s dismissal could not be justified merely because the debt had previously been considered. The appeal was allowed and the liquidator was left to establish the alleged indebtedness in appropriate proceedings.

1. High Court (Chancery Division): appeal from the Nottingham County Court dismissal of the application to annul or rescind the bankruptcy order; appeal allowed.