Bramston v Haut

A court may suspend a bankrupt’s discharge under section 279(3) of the Insolvency Act 1986 only for a purpose connected with the bankrupt’s failure to comply with obligations under Part IX. The power cannot be used merely to allow the bankrupt time to propose an individual voluntary arrangement.

The appropriate route for that purpose is the interim-order regime under sections 252–256. It requires notice, a serious and viable proposal, an eligible and willing nominee, and judicial consideration of the nominee’s independent report.

The court should interfere with a trustee’s administration only for bad faith, fraud, perversity, or conduct so unreasonable and absurd that no reasonable trustee could have acted that way.

The respondent bankrupt sought a six-week suspension of his automatic discharge so that creditors could consider a second proposal for an individual voluntary arrangement. Arnold J made the suspension order without prior notice of the hearing to the trustee. He subsequently refused to set it aside and ordered the trustee personally to pay the bankrupt’s costs: [2012] EWHC 1279 (Ch).

The trustee appealed. The principal issues were whether sections 279 and 303 of the Insolvency Act 1986 authorised suspension for that purpose, whether the statutory default threshold was established, and whether the trustee had acted perversely by declining to promote or facilitate the application.

1. Appeal allowed. Section 279(3) of the Insolvency Act 1986 did not authorise the suspension. Its purpose is connected with a bankrupt’s failure to comply with obligations under Part IX. It extends the bankruptcy and maintains the disabilities of an undischarged bankrupt until compliance. The order had instead been made solely to permit the bankrupt to advance an individual voluntary arrangement and obtain annulment. That purpose fell outside the section: per Kitchin LJ, with whom Arden and Rix LJJ agreed.

2. Section 279(4) created a separate jurisdictional threshold. The court had to be satisfied that the bankrupt had failed or was failing to comply with an obligation. At the without-notice hearing, the evidence provided no basis for that finding or for reasonably anticipating it at a prompt substantive hearing. The six-week suspension was effectively final, rather than a short holding order. At the later hearing, the judge identified conflicting positions but did not resolve the evidential dispute. He thereby conflated jurisdiction with discretion.

3. The proper route was an application for an interim order under sections 252–256. That regime permits modification of the bankruptcy provisions, including suspension of automatic discharge, but imposes safeguards. These include notice to the official receiver and trustee, a serious and viable proposal, a willing nominee, protection against significant diminution of the estate, and an independent nominee’s report addressing the proposal’s prospects and whether creditors should meet. The purported report did not state the nominee’s own opinion and failed to comply with the statutory requirements. An application under that regime would therefore have failed.

4. In supervising a trustee’s administration, the court ordinarily intervenes only where the trustee acts in bad faith, fraudulently, perversely, or so unreasonably and absurdly that no reasonable trustee could have acted likewise. Administrative-law language concerning Wednesbury unreasonableness may confuse that inquiry. The judge should have asked whether the trustee acted perversely.

5. The trustee did not act perversely. Section 279(3) provided no jurisdictional basis for the proposed application. Moreover, a trustee’s functions concern collecting, realising and distributing the estate. A trustee has no duty to cooperate affirmatively in promoting a bankrupt’s voluntary arrangement, particularly where there are genuine concerns about default, prejudice to creditors and obstruction of investigations.

6. The judge should have set aside the suspension order and had no proper basis for ordering the trustee personally to pay the bankrupt’s costs.

1. Court of Appeal (Civil Division): The appeal was allowed unanimously. The suspension order should have been set aside, and the personal costs order against the trustee could not stand: [2012] EWCA Civ 1637.

2. High Court, Chancery Division: Arnold J dismissed the trustee’s application to set aside the six-week suspension of discharge and ordered the trustee personally to pay the bankrupt’s costs: [2012] EWHC 1279 (Ch).