Bramston v Haut

The Court of Appeal allowed the trustee's appeal against Arnold J's order of 3 April 2012 which had suspended the bankrupt's automatic discharge for six weeks. The court held that section 279(3) of the Insolvency Act 1986 did not provide a proper jurisdictional basis for suspending discharge to permit the bankrupt to present an individual voluntary arrangement (IVA) and that the correct statutory route, if any, lay in Part VIII (sections 252–256) dealing with interim orders for IVAs. The judge had also conflated jurisdiction and discretion: he failed properly to determine whether the statutory threshold in section 279(4) (that the bankrupt had failed or was failing to comply with obligations) was satisfied and wrongly treated the trustee as Wednesbury unreasonable in declining to make a s.279 application. Finally, the Court found that Arnold J had no proper basis for ordering the trustee personally to pay the bankrupt's costs.

This is an appeal from Arnold J's judgments in the Chancery Division (bankruptcy) in which the judge had dismissed an application by the trustee in bankruptcy to set aside an earlier interim order suspending the bankrupt's automatic discharge. The interim order of 3 April 2012 was sought by the bankrupt to allow time for creditors to consider a proposed IVA (the "Second Proposal"). The trustee had declined to make an application to suspend discharge and opposed the IVA, contending that the bankrupt had not cooperated and that the IVA was defective and prejudicial to other creditors.

Nature of the application / relief sought:

• The April 3 order: suspension of the bankrupt's discharge under ss.279 and 303 of the Insolvency Act 1986 for six weeks to enable the Second Proposal to be put to creditors.
• The trustee's application: set aside the April 3 order and, ultimately, restrain the use of that suspension to effect an IVA that would annul the bankruptcy.

Issues framed by the court:

• Whether the court had jurisdiction under s.279 (and s.303) to make an order suspending discharge for the purpose of facilitating an IVA.
• Whether, on the materials before the court, the jurisdictional threshold in s.279(4) (failure or failing to comply with obligations under Part IX) was satisfied.
• Whether the trustee's refusal to apply for suspension was Wednesbury unreasonable (or otherwise perverse) such that the court should intervene under s.303(1).
• Whether the April 3 order, if made, was flawed in form (for example, failing to direct the trustee to apply under s.303) and whether the costs order against the trustee was appropriate.

Court's reasoning and conclusions:

• The Court of Appeal concluded the statutory purpose of s.279 is to extend the period of bankruptcy where a bankrupt has failed or is failing to comply with Part IX obligations, thereby preserving the disabilities of bankruptcy until compliance; it is not a vehicle to suspend discharge for the collateral purpose of permitting presentation of an IVA and obtaining annulment of the bankruptcy. The judge had therefore misapplied s.279 by using it to facilitate an IVA.
• The proper statutory route for a bankrupt seeking time to present an IVA is the interim order procedure in Part VIII (ss.252–256), which contains procedural safeguards: notice to the official receiver and trustee, a requirement for a nominee, the nominee's report and shorter interim periods. Those safeguards were not observed and the nominee's report filed was inadequate.
• The judge erred in conflating jurisdiction and discretion and in failing to resolve conflicting evidence on whether the bankrupt was in default so as to satisfy s.279(4). The Court also held that the trustee's refusal to apply under s.279 could not be characterised as perverse or as unreasonable conduct of the kind that would justify court intervention under s.303(1), given the trustee's duties to investigate and protect the interests of all creditors.
• For those reasons the Court allowed the appeal, concluded Arnold J's order of 3 April 2012 was outside the proper scope of s.279, and held there was no proper basis for the order that the trustee pay the bankrupt's costs.

The court noted the unusual facts of the case (the bankrupt seeking suspension) and the statutory safeguards in Part VIII, and emphasised the limited circumstances in which the court will interfere with trustees' commercial judgments.

Appeal allowed. The Court of Appeal held that the order suspending the bankrupt's discharge was outside the scope of s.279(3) because that provision is directed to prolonging bankruptcy where a bankrupt has failed or is failing to comply with obligations under Part IX; suspension to facilitate an IVA should, where appropriate, be sought by the debtor under Part VIII (ss.252–256) with its procedural safeguards. The judge had conflated jurisdiction and discretion, failed properly to resolve whether the s.279(4) threshold was met, and was wrong to conclude the trustee had acted unreasonably in declining to make a s.279 application. The costs order against the trustee was also set aside.

Appeal from Arnold J in the High Court of Justice, Chancery Division (Bankruptcy) ([2012] EWHC 1279 (Ch)). Permission to appeal was granted and the Court of Appeal delivered judgment allowing the appeal: [2012] EWCA Civ 1637.