McRoberts v McRoberts

The discretion under section 281(5) of the Insolvency Act 1986 to release a bankruptcy debt arising from family proceedings is unfettered, but must be exercised for its proper purpose. It is not a jurisdiction to review or vary the fairness or merits of the underlying family order. The court must balance the prejudice to the obligee if there remains a prospect of payment against the prejudice to the discharged bankrupt’s realistic opportunity to rebuild a viable financial future. The burden lies on the applicant because continued liability is the default position. Release is appropriate only where the obligation is unlikely to be satisfied and release is necessary, or substantially assists, the bankrupt’s rehabilitation.

The applicant sought release under section 281(5) of the Insolvency Act 1986 from liability under a 2003 consent order made in matrimonial proceedings. The order required payment of a £450,000 lump sum by instalments, secured by provisions concerning property and company shares. The applicant defaulted, was made bankrupt, and was discharged, while the respondent received nothing on her proof of debt. About £350,000 remained outstanding.

The applicant argued that the obligation was in substance maintenance or a variable instalment obligation, and that the court should review it according to present fairness. The central issue was the proper scope of the statutory discretion and whether release was justified on the evidence.

1. The application was dismissed. The obligation remained in place.

2. Section 281(5) confers an unfettered discretion, but the discretion must be exercised for the statutory purpose. Its purpose is to facilitate the objectives of discharge where continuation of the obligation serves no substantial purpose because it is so unlikely ever to be satisfied.

3. The court must balance the prejudice to the respondent if release deprived her of a real prospect of payment against the prejudice to the applicant’s realistic opportunity to establish a viable financial future. The burden lies on the applicant, since continued liability is the default position.

4. The discretion does not permit review of the merits or overall fairness of the underlying matrimonial obligation. Any review or variation of that obligation belongs to the matrimonial court under the Matrimonial Causes Act 1973. Section 281(5) should not be used as an additional review jurisdiction.

5. The order was properly characterised as requiring payment of a lump sum. Payment by instalments did not alter that character, particularly because default accelerated the outstanding balance.

6. Although the applicant’s present income and assets appeared limited, the evidence did not establish that the obligation had no realistic prospect of partial satisfaction or that its continuation materially obstructed his future. The passage of time, the respondent’s restraint, and the risk of oppressive enforcement did not materially alter the balance.