Mowbray v Sanders & Anor

An annulment under section 282(1)(a) of the Insolvency Act 1986 may be appropriate where new material, even if produced by the petitioning creditor, materially changes the legal landscape and shows that the bankruptcy order may have been made on a genuinely and substantially disputed debt. Bankruptcy proceedings are unsuitable for resolving substantial factual disputes requiring disclosure, a trial and cross-examination.

Although annulment remains discretionary, refusal is exceptional where the petition debt could not properly support bankruptcy. The court must also protect other creditors and ensure that proper trustee costs and expenses are addressed, commonly by imposing conditions.

Julie Ann Mowbray appealed against the refusal of her application to annul a bankruptcy order made on a petition based on an assigned overdraft debt. She contended that the debt was unauthorised and, in any event, statute-barred.

The petitioning creditor relied belatedly on an alleged £20 part-payment as an acknowledgment restarting the limitation period. The Deputy District Judge treated ledger records as determinative, upheld the debt and refused annulment, also relying on delay, costs and the interests of creditors.

The appeal concerned whether the later evidence justified review under section 282(1)(a) of the Insolvency Act 1986, whether the debt was genuinely and substantially disputed, and how the court should exercise its discretion.

1. Appeal allowed conditionally. The bankruptcy order was to be annulled, subject to payment of the Appellant’s unsecured creditors and her share of the trustee’s proper costs and expenses.
2. Section 282(1)(a) requires grounds existing when the bankruptcy order was made which show that it ought not to have been made. An annulment application should not ordinarily re-litigate matters already adjudicated; that is normally the function of an appeal. However, review may be justified where new material, sufficiently different and material to the decision, could have led to a different result.
3. The relevant new material need not originate with the applicant. The petitioning creditor’s belated disclosure of the alleged £20 payment, without explanation for its earlier omission, materially altered the legal landscape and constituted exceptional circumstances justifying review.
4. The Deputy District Judge had erred by treating untested ledger evidence as authentic, definitive and determinative of the payment and limitation issue. The Appellant’s unequivocal denial, gaps in the records, the delay in producing the evidence and the inherent improbability of the alleged payment made summary determination unsafe. The dispute required disclosure, a trial and cross-examination.
5. A debt disputed on genuine and substantial grounds cannot ordinarily support a bankruptcy order. Bankruptcy proceedings are not intended to resolve such disputes, even where the debtor’s ultimate prospects of success are uncertain.
6. Where the petition debt could not properly support bankruptcy, it would be exceptional to refuse annulment. Nevertheless, the court had to consider the interests of other creditors, any other evidence of insolvency, and the trustee’s proper costs. The annulment was therefore made conditional, with further submissions directed on costs, creditor payments and the quantification of proper bankruptcy expenses.

• High Court (Chancery Division): The appeal from the Chelmsford County Court was allowed conditionally and the bankruptcy order was to be annulled subject to specified payments and further consequential directions.