Official Receiver v McKay

For annulment under the Insolvency Act 1986 section 282(1)(b), the debts which must be paid in full are those supported by a proof that remains subsisting at the relevant time, in the amount then standing. A proof may be withdrawn or varied by agreement between creditor and trustee under rule 6.106 of the Insolvency Rules 1986, without a court order. A withdrawn or expunged proof does not leave the former debt subject to the payment requirement. A varied proof is payable at its varied amount. Earlier authorities under the Bankruptcy Act 1883 do not control the construction of the self-contained 1986 regime. The court retains a discretion to refuse annulment if the order would be inappropriate.

Mrs McKay’s bankruptcy order followed a county court judgment debt. The petitioning creditor later withdrew its proof of debt by agreement with the trustee, and the bankruptcy expenses were paid. On the Official Receiver’s application, His Honour Judge Norris QC annulled the bankruptcy under section 282(1)(b), holding that there was no subsisting proved debt: [2006] EWHC 430 (Ch).

Permission to appeal was limited to whether annulment required the original bankruptcy debt to have been paid in full, rather than released or removed by withdrawal of the proof. The Court of Appeal considered the interaction between section 282(1)(b), rules 6.106 and 6.211, and older authorities on annulment.

Lord Justice Lloyd gave the leading judgment. Sir Paul Kennedy and Lord Justice Mummery agreed. The appeal was dismissed, and there was no order as to costs.

1. The appeal proceeded on the basis that the bankruptcy order had been properly made on a valid petition debt, that a proof had been filed and later withdrawn by agreement between the creditor and trustee, and that the bankruptcy expenses had been paid.
2. Section 282(1)(b) of the Insolvency Act 1986 operates to the extent required by the rules. Rule 6.211 identifies the matters requiring proof. The relevant debts are those for which a proof remains subsisting at the time of the application, in the amount at which the proof then stands. If the proof has been varied, the varied amount must be paid in full.
3. Rule 6.106 permits a creditor’s proof to be withdrawn or varied by agreement with the trustee, without recourse to the court. Rule 6.107 provides an alternative route by court order. Where the proof has been wholly withdrawn or expunged, the former debt no longer requires payment for the purposes of annulment.
4. The Court of Appeal did not carry the older decisions under the Bankruptcy Act 1883 across uncritically. In Re Keet, the court had been concerned that annulment might be used to obtain the equivalent of a discharge in a regime with stringent discharge conditions. The 1986 legislation had a different policy and was self-sufficient on this issue. The earlier authorities therefore did not require payment of a withdrawn proof under the present legislation.
5. The court retained a discretion to refuse annulment even where the statutory conditions were satisfied. The possible recovery of an underlying debt outside the bankruptcy might be relevant to that discretion. On the evidence, the trustee and Official Receiver had sufficiently established that there was no subsisting proved debt, so the annulment order was open to the judge.

• Court of Appeal (Civil Division) dismissed the appeal and made no order as to costs.
• High Court of Justice, Chancery Division annulled the bankruptcy under section 282(1)(b) of the Insolvency Act 1986: [2006] EWHC 430 (Ch).