Evans & Anor v Finance-U-Limited

The Court of Appeal held that a secured creditor who proves for the full amount of a debt in a bankrupt debtor's estate does not thereby lose the right to enforce its security against the secured asset. The court analysed the interaction between the Insolvency Act 1986 (notably the effect of a bankruptcy order on personal liability and on a secured creditor's right to prove) and the Consumer Credit Act 1974 provisions governing notices and enforcement of regulated agreements.

The judge at first instance was wrong to conclude that proving in Mr Evans' bankruptcy or allowing the debt to be treated in the bankruptcy meant that the creditor (Finance-U-Limited) had forfeited its right under the bill of sale to recover the vehicle; the creditor retained the right to enforce the security and the Court of Appeal ordered delivery up of the car. The court also considered the proper use of notices under the 1974 Act (sections 76, 87, 88 and 98) and observed that after the contractual term expired the statutory notice requirements were no longer an obstacle to possession.

Background: The claimants, Mr and Mrs Evans, purchased a car by paying a deposit and borrowing the balance from Finance-U-Limited (FUL) under a regulated loan agreement dated 20 April 2007. The loan was secured by a bill of sale granted contemporaneously and registered. The loan term was 48 months.

Facts and procedural posture: Mr Evans went bankrupt on 1 October 2007 and FUL proved in his bankruptcy for the whole amount of its claim without specifying a value for the security; it received a small dividend. Mrs Evans was later made bankrupt and discharged in January 2009; she continued to make many instalment payments until 2010. By February 2011 the Evanses issued proceedings seeking a declaration that the car was their property free from FUL's claim. FUL counterclaimed for delivery up of the car relying on alleged default and its rights under the bill of sale and the bankruptcies.

Nature of claim: The claimants sought a declaration that the car was released from the bill of sale and that FUL had no enforceable claim; FUL sought delivery up of the vehicle as secured creditor.

Issues framed by the court:

• whether proving for the full amount in Mr Evans' bankruptcy extinguished or prevented FUL from enforcing the bill of sale;
• whether the loan agreement and bill of sale continued to bind Mrs Evans after the bankruptcies and whether non-payment of instalments could validly support a s.87 default notice under the Consumer Credit Act 1974;
• whether any failure by FUL to enforce its security earlier amounted to waiver, election or estoppel defeating its later claim.

Court of Appeal reasoning: The court concluded that the bankruptcy of a debtor replaces the creditor's personal contractual remedy against that debtor by a right to prove in the bankruptcy (Insolvency Act 1986 s.285(3)), but it does not extinguish or require abandonment of the creditor's proprietary/security rights (s.285(4)). A secured creditor is not obliged, when proving, to renounce security; the practice under the insolvency rules allows provisional proofs without abandoning security. Consequently FUL retained its right to enforce the bill of sale despite having proved in Mr Evans' bankruptcy. The court also held that the particulars of the form of notice relied on at first instance (a s.87 default notice) were arguable defects while the regulated agreement remained in term, but by trial the term had expired so statutory notice requirements under s.76 or s.98 were no longer fatal. The Court of Appeal therefore allowed the appeal, holding that the counterclaim could have been pursued on the basis of the bankruptcies and ordering delivery up of the car. The court observed that arguments about costs arise from the alternative ground not advanced below.

Subsidiary findings: The trial judge had construed the bill of sale as creating joint rather than joint and several obligations, but the appellate court’s decision turned on insolvency and secured-creditor principles rather than any estoppel or election finding. The court noted the limited scope of the claimants' original submissions and that some arguments about the form of notice (s.87 v s.98) might have prevented immediate repossession if advanced at trial, although that point was overtaken by the expiry of the agreement term.

Appeal allowed. The Court of Appeal held that the judge was wrong to conclude that FUL had lost its rights to enforce the bill of sale by proving in Mr Evans' bankruptcy or by permitting the debt to be treated in the bankruptcy distribution. A secured creditor who proves for a debt does not thereby forfeit its security; FUL retained the right to enforce the bill of sale and the court ordered delivery up of the car. The court also noted statutory notice points under the Consumer Credit Act 1974 but found them moot insofar as the agreement term had expired by the time of trial.

Appeal from an order of HH Judge Chambers QC in Cardiff County Court (order made 28 May 2012). The appeal was heard by the Court of Appeal (Civ Div) and judgment handed down 18 July 2013, neutral citation [2013] EWCA Civ 869.