Ella v Ella & Ors

A bankruptcy order may be annulled where it ought not to have been made, including where the bankruptcy process is used as a weapon in family litigation rather than to realise assets for genuine creditors. The court must examine whether a real debt existed when the petition was presented. Where bankruptcy proceedings are abusive, the costs should not generally be borne from public funds. The court may secure an official receiver’s reasonable costs against an asset, while refusing equivalent protection to trustees whose appointment and conduct contributed to their position.

The claimant wife petitioned for her husband’s bankruptcy based on an unpaid costs order arising from matrimonial proceedings. A bankruptcy order was made in the husband’s absence. The estate appeared substantially solvent, and the bankruptcy proceedings impeded related family proceedings concerning maintenance and divorce.

The wife applied under section 282(a), alternatively section 375, of the Insolvency Act to annul the bankruptcy order. The husband supported the application. The central issues were whether the order ought not to have been made and how the costs of the bankruptcy should be dealt with.

1. The application was granted under section 282(a) of the Insolvency Act. The bankruptcy order ought not to have been made.
2. The petition was an abuse of the bankruptcy process. Although the wife initially appeared to have an enforceable costs order, the husband held costs orders against her which were likely to exceed it. There was therefore no realistic debt due to the wife when the petition was presented.
3. The proceedings had been used by both parties as a weapon in their family dispute. They were not genuine insolvency proceedings designed to realise an insolvent debtor’s assets for the benefit of creditors.
4. The decision in Mellor v Mellor, concerning remuneration for a receiver whose appointment was later annulled, was distinguished. Its facts were materially different because the trustees here had been appointed through a creditor meeting effectively dominated by the husband and were not wholly blameless for their position.
5. The bankruptcy was annulled. A charge was imposed on the matrimonial home to secure the official receiver’s costs of £1,345. No order was made for the costs of the hearing or the bankruptcy proceedings generally.