Bathurst v The Official Receiver

The duration of a bankruptcy restrictions order must reflect the gravity of the bankrupt’s conduct, including statutory misconduct such as preferences, dissipation of assets and failure to co-operate with the official receiver. A court should not discount the seriousness of a preference merely because it may later be set aside. Possible mitigation may be relevant after recovery, particularly where the bankrupt has co-operated, but it cannot neutralise the original misconduct. The protective and deterrent purposes of bankruptcy restrictions orders must be given proper weight.

The Official Receiver appealed, with permission, against an order made by District Judge Fitzgerald on 29 January 2008. The District Judge accepted that a bankruptcy restrictions order was appropriate but fixed its duration at three years.

The bankrupt had granted a charge in favour of a relative, transferred and spent insurance proceeds which should have been available to creditors, and failed initially to disclose a bank account and the proceeds to the Official Receiver. The central issue was whether the District Judge had erred in principle when assessing the appropriate duration of the order, including by taking account of the possible future setting aside of the charge and the bankrupt’s moral obligation to his daughter.

1. Appeal allowed. The three-year order was varied so that it expired on 29 January 2019, giving a total period of nine years.
2. The guidance in Re Sevenoaks Stationers (Retail) Ltd [1991] 1 Ch 164 concerning categories of seriousness in directors’ disqualification cases applied by analogy to bankruptcy restrictions orders. The statutory discretion had to be exercised by reference to the bankrupt’s conduct and the gravity of that conduct.
3. The District Judge erred by failing to take account of the bankrupt’s failure to co-operate with the Official Receiver. That failure was expressly identified as relevant conduct under paragraph 2(2)(m) of Schedule 4A to the Insolvency Act 1986. The District Judge also failed to take account of the dissipation of £4,300 on a holiday and other personal expenditure.
4. The District Judge further erred by discounting the seriousness of the preference because the charge might later be set aside. A preference, as defined by section 340 of the Insolvency Act 1986, is inherently liable to be set aside. Treating that possibility as reducing the seriousness of the original conduct would undermine paragraph 2(2)(d). Actual recovery, particularly with the bankrupt’s assistance, might be a mitigating factor, but neither recovery nor co-operation had occurred.
5. The moral obligation felt towards the bankrupt’s daughter did not justify minimising the seriousness of giving her £9,000 which should have been available to creditors.
6. Bankruptcy restrictions orders protect the public and deter misconduct. The court should not readily find extenuating circumstances for conduct identified by Parliament as deserving criticism. The conduct fell within the intermediate category under Re Sevenoaks Stationers (Retail) Ltd and warranted nine years.

• High Court (Chancery Division): allowed the Official Receiver’s appeal and substituted 29 January 2019 for 29 January 2011 in the bankruptcy restrictions order.
• District Judge Fitzgerald: made a bankruptcy restrictions order for three years on 29 January 2008.
• Norris J: granted permission to appeal on 17 April 2008.