Oraki & Anor v Dean & Dean

A bankruptcy order based on a judgment obtained by fraud is not automatically void. The statutory scheme provides specific routes for annulment, review, variation or rescission, and the court retains a discretion. Acts done before annulment may remain valid, particularly where third-party creditors and the trustee in bankruptcy may be affected. An order made by a court of unlimited jurisdiction remains effective unless and until set aside. A party seeking review on the basis that the court was misled must show that the alleged error could have affected the order. The trustee in bankruptcy should ordinarily be joined to an application affecting the bankruptcy order, both to address costs and to assist the court.

The applicants were subject to bankruptcy orders made in proceedings arising from a judgment debt. The court had previously made an order conditionally annulling the bankruptcies, but the conditions had not been satisfied. The applicants applied again, relying on Insolvency Act 1986, sections 264 and 375(1). They argued that the underlying judgment had been obtained by fraud and that the court had previously been misled about creditors’ proofs of debt. The trustee in bankruptcy was joined after the application had initially been issued without notice to her. The central issues were whether the bankruptcy orders were void and whether the previous order should be reviewed, varied or rescinded.

1. Joinder of trustee. The trustee in bankruptcy should be joined to an application to annul or otherwise affect a bankruptcy order. The Insolvency Rules contemplate the trustee being notified and attending such hearings. Joinder permits provision for the trustee’s costs and expenses, protects creditors, and ensures that the trustee is aware of any order setting aside the bankruptcy.
2. Fraudulent underlying judgment. The court was prepared to accept that the original judgment had been obtained by fraud. That did not make the bankruptcy orders void. Sections 282 and 375(1) of the Insolvency Act 1986 provide specific discretionary mechanisms for dealing with a bankruptcy which ought not to have been made or otherwise seeking relief. Section 282(4)(a), which preserves the validity of acts done before annulment, was inconsistent with the applicants’ contention that the orders were nullities.
3. The reasoning in PricewaterhouseCoopers v Saad Investments Company Ltd (Bermuda) [2014] UKPC 35 supported the conclusion that an order made by a court of unlimited jurisdiction remains effective in law unless and until set aside. There is no concept of ultra vires applicable to such orders in the applicants’ proposed sense.
4. The statutory discretion was also justified by the need to protect third parties, including the trustee and other creditors. The first substantive argument was therefore rejected.
5. Alleged misleading information. Although counsel had initially stated that proofs of debt had been adjudicated upon and accepted, the position was corrected before the order was made. In any event, the applicants had not shown that the alleged misconception would have altered the order, since the underlying concern to protect creditors and putative creditors would have remained.
6. The application was adjourned with liberty to restore after the Court of Appeal had determined the related appeal. The time for applying for permission to appeal was extended.

The judgment records that an earlier conditional annulment order had been unsuccessfully appealed to the Court of Appeal: [2013] EWCA Civ 1629. Related professional-negligence proceedings had been dismissed at first instance by Proudman J in [2015] EWHC 2046 (Ch), with an appeal pending. The present application was adjourned pending that appeal.