The Official Receiver v Bathurst

A court may review its own insolvency order under section 375(1) of the Insolvency Act 1986, including where the order has been drawn up, to determine whether a material mistake undermined its basis. The power should be exercised sparingly.

For a bankruptcy restrictions order, the court must consider all the bankrupt’s conduct under paragraph 2(1) of Schedule 4A. Conduct intended to prefer a relative may remain serious and relevant even where the transaction is void under section 284 rather than a voidable preference under section 340. The distinction between void and voidable does not necessarily reduce the appropriate period of restriction.

The Official Receiver appealed against a bankruptcy restrictions order made by District Judge Fitzgerald on 29 January 2008, which imposed restrictions for three years on William Arthur Bathurst. The appeal had previously been allowed, with the period increased to nine years.

After judgment was delivered, the parties identified that a charge granted by Mr Bathurst after presentation of the bankruptcy petition had mistakenly been treated as a voidable preference. The central issues were whether the court could review its order and whether the corrected legal character of the charge affected the appropriate period of the bankruptcy restrictions order.

1. Review jurisdiction. The Chancellor held that section 375(1) of the Insolvency Act 1986 entitled the court to review its earlier order. The power should be exercised sparingly, but it extended to reconsidering the basis of the order where a material mistake had been identified.
2. Legal character of the charge. The charge, granted after presentation of the bankruptcy petition but before the bankruptcy order, was not a voidable preference under section 340 because it was not granted at a relevant time under section 341. It was instead void under section 284. That did not make it wholly devoid of legal effect, since it could be ratified by the court and could generate protected interests for a bona fide purchaser for value without notice under section 284(4).
3. Relevance to the restrictions order. Although the conduct did not fall within paragraph 2(2)(d) of Schedule 4A, it remained relevant under paragraph 2(1), which required consideration of all the bankrupt’s conduct. Mr Bathurst knew of his insolvency and intended, in a non-technical sense, to prefer his cousin by attempting to secure the debt against jointly owned property. The frustration of that intention by section 284 did not make the conduct less reprehensible or remove the need for deterrence.
4. The Chancellor therefore found no reason to alter the nine-year bankruptcy restrictions order. The earlier judgment was to be read in the light of the modified reasons.

• High Court (Chancery Division): On 21 May 2008 the appeal was allowed and the three-year bankruptcy restrictions order was replaced by a nine-year period. On review, the Chancellor maintained that order while modifying the reasons.
• District Judge Fitzgerald: Made the bankruptcy restrictions order on 29 January 2008 for three years.