Lock v Aylesbury Vale District Council

A bankruptcy order is discretionary and is not automatic merely because a liability order and statutory demand remain in force. The court should refuse the order where the evidence shows that the debtor has no assets, present or prospective, and that bankruptcy would serve no useful purpose. A debtor bears a heavy burden on those issues. However, a public authority petitioning for bankruptcy should first raise a prima facie case that the order will achieve a proper purpose, particularly where its own assessment identifies no clear assets. The debtor must have a fair opportunity to address any suggested asset, such as a possible inheritance. Where the lower court fails to consider that issue, the appeal court may exercise the discretion afresh.

Aylesbury Vale District Council presented a bankruptcy petition against Harriet Lock for unpaid council tax. The County Court at Milton Keynes made a bankruptcy order on 17 January 2017, treating the existing liability order and statutory demand as sufficient to establish the council’s entitlement. The district judge did not consider the debtor’s submission that she had no assets and that bankruptcy would serve no useful purpose.

Morgan J granted permission to appeal on that ground. The appeal concerned whether the bankruptcy order should have been made under the court’s general discretion to dismiss a petition where appropriate, and whether the evidence disclosed any useful purpose in bankruptcy.

1. Appeal allowed. The bankruptcy order was set aside. The district judge had failed to consider whether the order would serve any useful purpose and had therefore failed properly to exercise the discretion under Insolvency Act 1986, section 266(3).
2. A bankruptcy order has purposes including collective execution against the debtor’s property, fair distribution among creditors, investigation of assets and affairs, protection from misconduct, and the debtor’s eventual release from bankruptcy debts. A debtor bears a heavy burden in showing both that there are no assets available for distribution and that no useful investigation could be undertaken.
3. That burden does not remove the need for a public authority petitioning creditor to raise a prima facie case that bankruptcy will achieve some useful purpose. The council’s own bankruptcy checklist identified the case as unusual, recorded that there were no clear assets, and relied only on a possibility of inheritance which was unsupported by documents. That possibility should have been put fairly and squarely before the court and the debtor, so that it could be addressed in evidence.
4. The evidence showed no present or prospective assets capable of realisation and nothing indicating that an investigation would disclose any. The unraised possibility of an inheritance did not justify bankruptcy. The court therefore exercised the discretion afresh and dismissed the petition by setting aside the order.
5. It was unnecessary to determine the remaining grounds of appeal or the application to adduce fresh evidence. Those matters had become academic and pursuing them would not accord with the overriding objective.

• High Court (Chancery Division): Appeal allowed and the bankruptcy order made by the County Court at Milton Keynes on 17 January 2017 set aside.
• County Court at Milton Keynes: District Judge Sweeney made the bankruptcy order on the basis of an unsatisfied liability order and statutory demand, without considering whether bankruptcy would serve a useful purpose.