Woolsey v Payne

On an application to annul a bankruptcy order because the petition debt was disputed, the court should apply substantially the same threshold as on an application to set aside a statutory demand: whether there is a genuine dispute on substantial grounds. The court retains a discretion to annul.

In assessing consumer-credit exemptions, the court must apply a purposive interpretation of the Consumer Credit Act 1974. A company director may enter an agreement for the purposes of a business carried on by him even where the business is conducted through his company. Whether lending occurred in the course of a business is a fact-sensitive inference requiring consideration of all relevant circumstances and may be unsuitable for summary determination.

The petitioning creditor appealed against orders made by Chief Registrar Baister in insolvency proceedings concerning the same loan agreement. The statutory demand against Russell Payne had been set aside, and the bankruptcy order against Katie Payne had been annulled.

The Chief Registrar had found substantial issues concerning whether the agreement was regulated under the Consumer Credit Act 1974 and whether it was a non-commercial agreement exempt from Part V. The appeal concerned the appropriate test for annulment, the construction and application of section 16B, and the application of section 74(1)(a).

1. Annulment test. The appeal court followed the approach in Guinan III v Caldwell Associates Ltd, [2004] EWHC 3348 (Ch). The relevant threshold is substantially the same at the statutory-demand, petition and annulment stages: whether there is a genuine dispute on substantial grounds. The court retains a discretion under section 282(1)(a), including to take account of delay and practical prejudice to third parties. The approach in Flett v HMRC and Daly, [2010] EWHC (Ch), was not adopted.
2. Section 16B. The declaration in the agreement engaged the statutory presumption that the borrowing was predominantly for business purposes. Section 16B(3) nevertheless required consideration of both the creditor’s actual knowledge and whether he had reasonable cause to suspect that the purpose was not predominantly business. “Business carried on ... by him” should not be construed narrowly by treating the company and its director as wholly separate for this consumer-protection purpose. The authorities concerning directors acting for business purposes supplied relevant support, although they arose under different legislation.
3. Even on that wider construction, the parties’ conflicting evidence created a substantial dispute about the purpose of the loan and the creditor’s knowledge or reasonable cause for suspicion. That issue could not be resolved summarily.
4. Sections 74(1)(a) and 189. The Chief Registrar erred by treating regulation of the agreement as necessarily implying that the creditor carried on a lending business. The question whether the agreement was made in the course of a business required findings of fact followed by application of the statutory definition of a non-commercial agreement.
5. Whether the lending formed part of a business was a secondary factual inference. Relevant considerations included the number, period, size and profitability of loans, together with matters such as whether lending was ad hoc, secured, documented, regularly repaid and undertaken to foster goodwill. The balance could be drawn only after disclosure and cross-examination. The appeals therefore failed.

• High Court (Chancery Division): Appeals from orders of Chief Registrar Baister were dismissed. The order setting aside the statutory demand and the order annulling the bankruptcy order remained effective.