Clarke v Cognita Schools Ltd (t/a Hydesville Tower School)

An order dismissing an application to set aside a statutory demand under rule 6.5(1) of the Insolvency Rules 1986 need not contain the statement required by CPR 3.3(5) for orders made under CPR 3.3(4). Such an order is effective unless and until set aside. The omission of a statement about applying to set aside, vary or stay the order does not leave an “outstanding application” for the purposes of section 267(2)(d) of the Insolvency Act 1986. A bankruptcy petition may therefore proceed once the application to set aside the statutory demand has been dismissed.

Cognita Schools Ltd obtained judgment against Mrs Cherry Clarke and Mr Lambert Clarke and later served statutory demands. The Clarkes applied to set aside the demands. Their applications were dismissed under rule 6.5(1) of the Insolvency Rules 1986, but the orders did not state that they could apply to have them set aside, varied or stayed.

Bankruptcy petitions were subsequently presented and bankruptcy orders made. On appeal, the Clarkes argued that the orders were defective and that their applications remained outstanding within section 267(2)(d) of the Insolvency Act 1986. The issues were whether CPR 3.3(5) applied and, if so, what effect the omission had.

1. The appeals were dismissed.

2. CPR 3.3(5) is tied to an order made under CPR 3.3(4). The orders dismissing the applications were made under rule 6.5(1) of the Insolvency Rules 1986, not CPR 3.3(4). Rule 7.51A did not make CPR 3.3(5) applicable in those circumstances.

3. An order under rule 6.5(1) does not have to state that the debtor may apply to have it set aside, varied or stayed. The orders were accordingly not defective. The statutory scheme permits the creditor to present a bankruptcy petition after dismissal, while leaving the debtor free to dispute liability in the petition proceedings and potentially to seek relief under section 375 of the Insolvency Act 1986.

4. Alternatively, even if such a statement ought to have been included, its omission would not make the orders ineffective. An order made by a court of unlimited jurisdiction must generally be obeyed unless and until set aside, as illustrated by Isaacs v Robertson [1985] AC 97 and Re Mid East Trading Ltd [1998] BCC 726.

5. Once the applications to set aside the statutory demands had been dismissed, there was no outstanding application within section 267(2)(d), even if an appeal or further challenge remained possible. The reasoning in Ahmad v Commissioners of Inland Revenue [2004] EWHC 2292 (Ch) and [2005] BPIR 541, and In re a Debtor (No 44 of 1978) [1980] 1 WLR 665, supported that conclusion.

The judgment was an appeal from bankruptcy orders made by District Judge Bull in the County Court at Birmingham. The High Court dismissed both appeals.