Sands v Layne & Anor

Section 375(1) of the Insolvency Act 1986 permits a court to review, rescind or vary an order made by that court in its insolvency jurisdiction. It does not permit a first-instance court to review an order made by a higher court exercising appellate jurisdiction. An offer to secure or compound a petition debt may justify dismissal of a bankruptcy petition even where the debtor is insolvent. The court should not refuse that relief merely to protect other unsecured creditors, since the legislation provides targeted remedies for any later preference. A trustee in bankruptcy has no standing to participate in an appeal whose purpose is to determine whether the bankruptcy order should stand, because the trusteeship and vesting depend upon that order.

Wycombe District Council obtained a bankruptcy order against Carlos Layne for rent, business rates and council tax arrears. On an application for permission to appeal, the High Court made a consent order setting aside the bankruptcy order after Layne agreed to charge his interest in his home to secure payment of £61,000.

Mark Sands, the trustee in bankruptcy, later applied under section 375 of the Insolvency Act 1986 to rescind the consent order. He argued that Layne and the Council had failed to protect the interests of unsecured creditors. The application raised the jurisdiction of section 375(1), the relevance of other creditors under section 271(3), and the trustee’s standing.

1. Jurisdiction. The application was dismissed in limine. Section 375(1) contemplates review by a court of an order made by that court. It does not confer jurisdiction to review an order made by the High Court for the first time while exercising appellate jurisdiction. The judge followed and applied the reasoning of Briggs J in Appleyard v Wewelwala [2013] 1 WLR 752.
2. Alternative analysis under section 271(3). The statutory ground based on an offer to secure or compound a petition debt must have application where the debtor cannot pay all his debts; otherwise it would add nothing to the separate solvency ground. The court’s discretion under “may” could not properly be used to defeat that statutory scheme.
3. Other unsecured creditors were not required to be protected through the original bilateral dispute between the petitioning creditor and debtor. If appropriate, they could present a fresh petition. Sections 340 and 341 provided the targeted mechanism for setting aside security as a preference, subject to the requirements of section 340(4). The court should not anticipate or pre-empt that process.
4. Standing. The trustee could not have been joined to oppose the appeal. His status resulted from the bankruptcy order, and if that order fell, the trusteeship and vesting of property would disappear. He therefore had no independent interest in the outcome.
5. Even if standing existed, the court would have had to consider the substantial delay before the application was made and subsequent events. That discretionary issue was unnecessary to decide.

The application was dismissed.

The district judge made the bankruptcy order. The High Court later set it aside by consent on an appeal application, recording security over Layne’s home. The present application to rescind that consent order was transferred from the district judge to the High Court and was dismissed.