Sykes v Shillito

In individual insolvency proceedings, a County Court’s decision whether to make, stay, adjourn or dismiss a bankruptcy petition involves an exercise of discretion. An appellate court will intervene only where the discretion was exercised on an erroneous principle or outside its generous ambit. A debtor cannot ordinarily re-argue matters previously rejected when setting aside the statutory demand unless there has been a material change of circumstances. The later acknowledgement, progression or formalisation of claims against third parties will not necessarily constitute such a change. Where the debtor is substantially insolvent and lacks funding, an adjournment is unjustified if there is no reason to believe that the debtor could pursue the claims more effectively than a trustee in bankruptcy.

The appellant sought permission to appeal against a bankruptcy order made by District Judge Khan in the County Court at Manchester on 3 August 2017 on the petition of the respondent creditor. The proposed appeal concerned claims against a barrister, a law firm and RBS, and whether those claims justified staying, adjourning or dismissing the bankruptcy petition.

Permission to appeal had previously been refused on paper. The appellant requested an oral reconsideration, relying on alleged changes of circumstance, the strength and complexity of the third-party claims, lack of funds in the bankruptcy estate, and the asserted inability of a trustee in bankruptcy to pursue them. The court first considered its jurisdiction under the insolvency appeal provisions and then the merits of the renewed application.

1. Jurisdiction. The court had jurisdiction to hear the renewed application. An appeal in individual insolvency proceedings lay from the County Court to a single judge of the High Court under section 375(2) of the Insolvency Act 1986. The judge was authorised to sit as a High Court judge under section 9(1) of the Senior Courts Act 1981. The relevant insolvency provisions also varied the application of CPR Part 52 and excluded the restriction in paragraph 4.4 of Practice Direction 52A.
2. No material change of circumstances. The confirmation of professional indemnity insurance, service of a preliminary notice, and the sending and acknowledgement of the letter of claim to RBS did not materially change the circumstances existing when the earlier application to set aside the statutory demand had failed. The district judge was entitled to refuse to reopen those arguments.
3. Trustee’s ability to pursue claims. The district judge was entitled to conclude that the third-party claims could be pursued by a trustee in bankruptcy to the same extent as by the appellant. The appellant’s substantial insolvency and lack of funding gave no reason to suppose that he was in a better position than the trustee. The possibility of a no-win, no-fee arrangement did not alter that conclusion.
4. Exercise of discretion. The district judge was entitled to make an immediate bankruptcy order rather than adjourn the petition for three or six months. There was no reason to think that an adjournment would enable the appellant to pursue the claims more effectively. The renewed application therefore disclosed no real prospect of a successful appeal.
5. Permission to appeal was refused. The court indicated that a transcript could be ordered at public expense and observed that any challenge to the jurisdiction ruling would require an application to the Court of Appeal.

• High Court (Chancery Division): On the renewed oral application, permission to appeal against the bankruptcy order was refused.
• County Court at Manchester: District Judge Khan made a bankruptcy order on 3 August 2017.