Edginton v Sekhon & Anor

A petitioning creditor who establishes the statutory conditions has a prima facie entitlement to a bankruptcy order. An adjournment for payment should ordinarily be granted only where credible evidence shows a reasonable prospect that the petition debt will be paid in full within a reasonable time.

The court may consider the lateness and unexpected nature of the application. This is especially important in insolvency proceedings because delay can prejudice creditors collectively. A modest debt and the debtor’s professional status do not remove the need for evidence about assets, liabilities and the proposed payment arrangements.

A solicitor failed to pay a costs order obtained by former clients. After unsuccessfully opposing their statutory demand, he contested the resulting bankruptcy petition on several grounds. Only when the deputy district judge was about to make the bankruptcy order did he seek an adjournment to pay, without presenting a payment proposal or evidence of his ability to pay.

The deputy district judge refused an adjournment and made the bankruptcy order. Newey J held that this decision fell within the judge’s discretion. On the solicitor’s second appeal, the central issue was whether the deputy district judge was entitled to refuse the late application for time to pay.

1. Appeal dismissed unanimously. The deputy district judge was entitled to refuse the adjournment and make the bankruptcy order. Lewison LJ gave the judgment, with which Underhill LJ and the Master of the Rolls agreed.

2. The power to adjourn a bankruptcy petition derives from rule 3.1(2)(b) of the Civil Procedure Rules 1998, applied through rule 7.51A of the Insolvency Rules 1986. Rule 7.10 did not itself apply to bankruptcy petitions, although rule 6.29 envisaged that such a petition could be adjourned.

3. Insolvency proceedings are a collective enforcement process intended to preserve and distribute an insolvent debtor’s assets pari passu. They are not merely a means of collecting an individual debt. Since dispositions made after presentation of a petition may be void under section 284 of the Insolvency Act 1986, delay may adversely affect creditors generally.

4. Once a petitioning creditor establishes the statutory conditions, the creditor is prima facie entitled to a bankruptcy order. The established practice is that an adjournment for payment should be granted only where credible evidence demonstrates a reasonable prospect that the petition debt will be paid in full within a reasonable time. The authorities exemplifying that practice, including Addison, Harrison, Ross and Dickens, were applied.

5. The lateness of an application for an adjournment is relevant to the exercise of discretion. The court could also take account of the fact that an application was unexpected and had not been raised during the debtor’s substantive submissions. These considerations carried particular force in a collective insolvency process, where delay may affect creditors beyond the petitioning creditor.

6. The modest amount of the debt and the debtor’s status as a solicitor did not make evidence of ability to pay unnecessary. Without evidence of the debtor’s assets and overall liabilities, a court could not confidently conclude that payment would be made within a reasonable time. Here, the debtor supplied neither a formulated proposal nor supporting evidence.

7. The refusal of an adjournment was a discretionary case-management decision. Although another judge might have allowed a short adjournment, the decision could not be impugned merely because a different exercise of discretion was possible.

1. Court of Appeal (Civil Division): By [2015] EWCA Civ 816, unanimously dismissed the second appeal and upheld the refusal to adjourn the bankruptcy petition.
2. High Court, Chancery Division: Newey J held that the deputy district judge’s decision fell within the permissible ambit of his discretion.
3. Bankruptcy court: Deputy District Judge Caun rejected the debtor’s opposition to the petition, refused his late application for an adjournment and made a bankruptcy order.