Day v Refulgent Ltd

A freezing order prevents dissipation of assets but does not create security for the claimant’s debt. In bankruptcy proceedings, an adjournment to permit payment should be granted only where credible evidence shows a reasonable prospect that the petition debt will be paid in full within a reasonable time. A debtor seeking dismissal because an offer of security was unreasonably refused must show that no reasonable creditor in the circumstances would have refused it. An appellate court should not interfere with a discretionary bankruptcy decision merely because it might have reached a different conclusion.

Mr Day appealed against a bankruptcy order made by Deputy District Judge Kelly on Refulgent Ltd’s petition for unpaid costs of £30,000. He argued that the hearing should have been adjourned pending an application to vary a freezing order, that his proposals for realising property assets had not been properly considered, and that the freezing order secured Refulgent’s debt.

Permission to appeal was granted. The central issues were whether the freezing order created security, whether Refulgent had unreasonably refused an offer to secure or compound the debt, and whether the bankruptcy petition should have been adjourned to allow proposed property transactions to proceed.

1. The appeal was dismissed. The bankruptcy order and refusal to adjourn were upheld.

2. A freezing order is not equivalent to a charge or other security. Following Fourie v La Roux [2007] UKHL 1, its purpose is to prevent dissipation of assets and protect the efficacy of proceedings. It does not give the claimant advance security. Refulgent therefore remained an unsecured creditor entitled to pursue the bankruptcy petition.

3. Under section 271(3) of the Insolvency Act 1986, dismissal based on an offer to secure or compound the petition debt requires an unreasonable refusal. The relevant question is whether a reasonable creditor, having regard to the actual history, would have accepted the offer. The refusal is unreasonable only if no reasonable hypothetical creditor could have refused it. Refulgent was entitled to raise questions about the proposed transactions, including their apparent undervalue, the solvency of the proposed purchaser, and conditions requiring payments by its solicitors.

4. The court has a discretion to adjourn a bankruptcy petition, but only where credible evidence establishes a reasonable prospect of payment in full within a reasonable time. Deputy District Judge Kelly was entitled to find that the proposed transaction lacked reliable evidence of completion, involved an undervalue, and was contradicted by the purchaser’s solicitor’s more recent statement that it would not proceed. The later email relied on by Mr Day was subject to contract, unexplained, inconsistent with the earlier evidence, and did not establish a realistic prospect of payment.

5. The judge had considered the other property proposals and was entitled to conclude that they did not offer a sufficiently detailed or timely prospect of payment. Her decision was within the proper ambit of discretion and disclosed no material error.

• High Court (Chancery Division): Deputy District Judge Kelly made a bankruptcy order on 7 August 2015. The High Court granted permission to appeal but dismissed the appeal.