Balding, R (on the application of) v Secretary of State for Work & Pensions

A liability to repay overpaid benefits, determined under Social Security Administration Act 1992 before bankruptcy, is a bankruptcy debt under the Insolvency Act 1986. Discharge from bankruptcy releases that liability, including the liability enforced by deductions from subsequently payable benefits. The statutory power to recover by deduction does not create a separate liability outside the bankruptcy legislation. The absence of an express exception for benefit overpayments, and the general purpose of discharge, support that conclusion. Deductions may continue during the bankruptcy, but not after discharge where the underlying liability has been released.

The claimant received income support and was found, before his first bankruptcy, to have been overpaid because he failed to disclose a material fact. The Secretary of State determined under section 71 of the Social Security Administration Act 1992 that the overpayment was recoverable and recovered it by deductions from prescribed benefits. The claimant was discharged from bankruptcy in 1998, but deductions later resumed.

The judicial review claim concerned whether the pre-bankruptcy liability was a bankruptcy debt and, if so, whether discharge released it despite the statutory power to recover by deduction.

1. The claim succeeded. The claimant’s liability to repay the overpaid benefit arose under section 71(1) of the Social Security Administration Act 1992. It was therefore a liability to pay money under an enactment within section 382(4) of the Insolvency Act 1986, and fell within the definition of bankruptcy debt.
2. The power under section 71(8) to recover by deduction from prescribed benefits operated without prejudice to other methods of recovery. It did not transform the underlying liability into a different, freestanding liability depending on the method selected. The Secretary of State could, in an appropriate case, sue or prove in the bankruptcy.
3. Section 281(1) of the Insolvency Act 1986 released the claimant from all bankruptcy debts on discharge. None of the exceptions in section 281 applied. In particular, fraud was neither found nor alleged, no relevant debt had been prescribed under section 281(6), and liabilities under section 71 were not excluded.
4. The reasoning was consistent with the statutory policy of allowing a bankrupt a fresh start. Policy concerns about recovery of public money could not overcome the clear statutory language. The absence of wording, comparable to section 89(1) of the 1992 Act, giving priority over insolvency legislation was significant.
5. Authorities concerning continuation of deductions during bankruptcy, including R v Secretary of State for Social Security ex p Taylor and Chapman, Bradley-Hole v Cusen and Mulvey v Secretary of State for Social Services, did not decide the effect of discharge. The Court of Appeal decision in Steele v Birmingham City Council was materially distinguishable because it concerned a determination made after bankruptcy.
6. The Secretary of State was granted permission to appeal because the issue had potentially significant wider consequences and there was a compelling reason for consideration by the Court of Appeal. The court expressed no view on the prospects of success.

First-instance judicial review proceedings in the Divisional Court. The court granted permission to appeal to the Court of Appeal because of the wider public importance of the issue.