Ruiz (a Bankrupt), Re

A bankruptcy order should be annulled only where the statutory conditions are satisfied. Inability to pay debts concerns commercial insolvency, not merely whether liabilities exceed assets. The court retains a discretion even where the threshold is met, and must balance the interests of creditors, the bankrupt and affected family members.

Home rights under section 336(2)(a) of the Insolvency Act 1986 bind the trustee only while those rights subsist. They do not make the property permanently immune from realisation or render it onerous. A freezing order does not prevent presentation of a bankruptcy petition.

Trustees are ordinarily entitled to reasonable remuneration for work properly performed. Challenges to fees should be made promptly. An appeal against a financial order is ordinarily a review, and later market fluctuations do not satisfy the stringent Barder criteria.

The wife appealed out of time against a financial order made in divorce proceedings and applied to annul the husband’s bankruptcy order. The husband had petitioned for his own bankruptcy while divorce proceedings and a freezing order were in existence. The bankruptcy vested his estate in the trustee, limiting the divorce court’s ability to make orders concerning the family home.

By the time of the hearing, prolonged litigation, falling property values and professional costs had substantially depleted the estate. The wife argued that her home rights, the freezing order and the child’s welfare prevented the trustee and creditors from realising the home. The central issues were whether the bankruptcy should be annulled, whether any annulment should be conditional on payment of the trustee’s fees and expenses, and whether the financial order should be set aside.

1. Annulment. The application was refused. Under section 282(1)(a) of the Insolvency Act 1986, the husband was commercially insolvent when the order was made. His assets exceeded his liabilities on a balance-sheet basis, but the evidence showed that he could not meet his debts as they fell due and had no tangible and immediate prospect of doing so. The bankruptcy was unnecessary but was not shown to have been a tactical attempt to defeat the wife’s claims.
2. The discretion to annul was therefore not engaged. In any event, the circumstances did not justify annulment. The wife had delayed for 18 months after learning of the bankruptcy, the creditors and trustee would otherwise have been left unsecured, and a fresh bankruptcy might have followed. Section 282(1)(b) could not assist because the bankruptcy debts and expenses had not been paid or secured.
3. Section 336(2)(a) did not give the wife permanent protection against realisation of the home. Its purpose was to ensure that the trustee was in no better short-term position than the husband. Home rights continued until ended by order under the relevant statutory provisions, but did not make the property onerous or exclude the interests of creditors indefinitely.
4. Trustee’s remuneration. The trustee was, on the facts, entitled to proper professional fees and expenses. The wife had not established impropriety, and had not pursued a properly framed challenge to the amount of the fees. Had annulment been appropriate, it would necessarily have been conditional upon payment of those fees and expenses.
5. Appeal. The appeal was dismissed. The district judge had considered the child’s position and had properly applied section 25 of the Matrimonial Causes Act 1973. The child’s welfare was not paramount in the financial exercise. The freezing order did not make the bankruptcy illegal, and there was no evidence of hidden assets.
6. The appeal was a review under the Family Procedure Rules. The district judge’s order was neither wrong nor unjust because of serious procedural irregularity. The later reduction in the property offer was a normal market fluctuation, not a Barder event. The annulment application itself did not invalidate the basis of the order, and Article 8 did not require a different result.

This was a first-instance decision of the High Court (Family Division) determining an application to annul a bankruptcy order and an appeal from a district judge’s financial order.