Michael v The Official Receiver

On an appeal from a bankruptcy restrictions order, the appellate court must respect factual findings unless they are against the weight of the evidence, while correcting errors of law and reviewing the exercise of discretion. The burden of proving misconduct remains on the Official Receiver; the bankrupt bears the evidential burden for extenuating circumstances. Failure to keep adequate business records may support a bankruptcy restrictions order even though the former criminal offence has been repealed. The duration of a restriction order must reflect the gravity of the misconduct and all relevant circumstances, assessed broadly. An excessive period may be reduced on appeal.

Spencer Michael applied for permission to appeal against Chief Registrar Baister’s order of 13 December 2011 imposing an eight-year bankruptcy restrictions order. The alleged misconduct concerned inadequate accounting records, acting as a director while an undischarged bankrupt, and granting tenancies over properties in the bankrupt estate.

He challenged the fairness of the hearing, procedural corrections to the draft judgment, the burden of proof, the factual findings, the legal basis of the tenancies allegation, the duration of the order and costs. The central issues were whether the order was justified, whether the tenancy allegation had materially changed, whether eight years was excessive and whether the costs order should stand.

The court granted permission to appeal on alleged unfairness, the tenancy allegation and the duration of the bankruptcy restrictions order. The appeal was dismissed on the first two issues and allowed on duration. The eight-year period was set aside and replaced by six and a half years. The costs order remained unchanged.

1. The applicable apparent-bias test was whether a fair-minded and informed observer would conclude that there was a real possibility of bias. Interruptions and an indication that the judge regarded evidence as dishonest did not, in the circumstances, meet that test.
2. A judge may amend a draft judgment before hand-down. The slip rule does not govern such changes. Although communications from one party to the court should ordinarily be disclosed to the other, the late disclosure caused no material injustice here.
3. The Official Receiver bore the burden of proving misconduct on the balance of probabilities. The bankrupt bore the evidential burden of establishing extenuating circumstances. Failure by a sole trader to keep adequate records could support a BRO under Schedule 4A, paragraph 2(2)(a), of the Insolvency Act 1986, notwithstanding repeal of the former criminal offence.
4. Section 11 of the Company Directors Disqualification Act 1986 creates alternative prohibitions. Acting as a director while an undischarged bankrupt is itself sufficient; it is unnecessary also to prove participation in promotion, formation or management.
5. The correction that the estate had not vested in a trustee did not create such a fundamental change of case as to cause procedural unfairness. Management of the bankrupt’s estate was nevertheless in the Official Receiver by virtue of section 287(1) of the Insolvency Act 1986. The tenancy allegation was established, but its culpability was reduced by the surrounding circumstances. It was excessive to characterise it as showing want of probity.
6. The duration of a BRO must reflect the gravity of the proved misconduct and aggravating or mitigating circumstances, assessed broadly. The period of bankruptcy is not ordinarily an automatic mitigating credit. The Chief Registrar gave excessive weight to the tenancy allegation, so six and a half years was substituted.
7. Costs against a bankrupt in BRO proceedings are unusual but may be ordered where the bankrupt’s conduct substantially prolonged or increased the expense of the proceedings.

High Court (Chancery Division): Appeal from Chief Registrar Baister’s order of 13 December 2011 imposing an eight-year bankruptcy restrictions order. The High Court dismissed the challenges to fairness and the tenancy allegation, allowed the appeal on duration, substituted six and a half years and upheld the costs order.