The Official Receiver v Negus

An income payments order under section 310 of the Insolvency Act 1986 may be made even where the sums recovered are unlikely to produce a distribution to unsecured creditors. Benefit to unsecured creditors is not a statutory precondition and is not, merely for that reason, a relevant consideration. The court must not treat fees payable to the Official Receiver or Secretary of State as less important than provable debts, since the statutory scheme gives those fees priority. The bankruptcy regime also serves public purposes and is not confined to distributing assets among creditors.

The Official Receiver appealed against District Judge Merrick’s refusal to make an income payments order against a bankrupt under section 310 of the Insolvency Act 1986. The proposed payments were expected to be absorbed by fees payable to the Official Receiver and Secretary of State, leaving no distribution for unsecured creditors. The District Judge considered that this was inconsistent with the purpose of bankruptcy. The central issue was whether the likely absence of a distribution to unsecured creditors was a sufficient reason to refuse the order.

1. The appeal was allowed. Section 310 does not make benefit to unsecured creditors a precondition for an income payments order, nor does it state that such orders must be made in creditors’ interests.
2. The statutory reference to claiming income for the bankrupt’s estate is significant. That estate is subject to the priority given to bankruptcy expenses. Under section 324(1) of the Insolvency Act 1986, funds are distributed among creditors subject to retaining sums necessary for bankruptcy expenses.
3. Parliament’s decision to give the Official Receiver’s and Secretary of State’s fees priority over unsecured debts provides no basis for treating those fees as less important when exercising the section 310 discretion. It would be anomalous if the priority accorded to the fees placed them in a worse position.
4. Bankruptcy has a public aspect and is not exclusively concerned with distributing assets among creditors. It is therefore consistent with the statutory scheme to require a bankrupt whose income exceeds the reasonable domestic needs of the bankrupt and family to contribute towards bankruptcy costs.
5. Sections 307 and 310 differ in procedure and in the discretionary nature of an income payments order, but those differences do not justify distinguishing fees from provable debts. The prospect that an order will not benefit unsecured creditors is not, as such, a relevant consideration.
6. The appeal was allowed and the Official Receiver’s application for an income payments order was not refused on the ground identified by the District Judge. The court noted additionally that the absence of PAYE deductions had given the bankrupt increased take-home pay, although that point was not critical.

• High Court (Chancery Division): The Official Receiver’s appeal from the decision of District Judge Merrick was allowed.
• Brighton County Court: The District Judge refused to make an income payments order because the payments were expected to be exhausted by bankruptcy fees.