Azuonye v Kent

Future payments under an income payments order are subject to the broad insolvency rules on provable debts. Where a later bankruptcy begins after discharge from an earlier bankruptcy, those payments are provable in the later bankruptcy and are not enforceable by the trustee of the earlier estate. Section 335 of the Insolvency Act 1986 does not create an exception for this situation. The fact that an order is variable does not, by itself, make payments under an English court order non-provable. The special treatment of orders made in family proceedings does not extend to income payments orders.

The appellant was made bankrupt in April 2015 and was automatically discharged one year later. Before discharge, his trustee applied for an income payments order. The order was made after discharge and was later varied. The appellant became bankrupt again in December 2017, while future payments remained due under the order.

The County Court held that the later bankruptcy had not discharged the income payments order. Falk J dismissed the appellant’s appeal. The issue on this second appeal was whether future payments under the order were provable debts in the later bankruptcy, where that bankruptcy began after the appellant’s discharge from the earlier bankruptcy.

1. Appeal allowed. Future payments under the income payments order were provable debts in the appellant’s second bankruptcy. They were not enforceable by the trustee in the first bankruptcy, and recovery was restricted to proof in the second bankruptcy.
2. The insolvency legislation adopts a comprehensive definition of provable debts. Under sections 382(1), 382(3) and 382(4) of the Insolvency Act 1986, liabilities may be future, contingent, uncertain or unliquidated. Re Nortel GmbH (in administration) [2013] UKSC 52, [2014] 1 AC 209 confirmed the breadth of that approach. The statutory exceptions are specific and limited.
3. Section 335 applies where the later bankruptcy begins while the debtor remains undischarged from the earlier bankruptcy. In that situation, the income payments order and sums payable under it become relevant assets or claims of the later bankruptcy. Section 335(2) does not imply that future payments remain enforceable outside the later bankruptcy where the debtor has already been discharged. The word payable describes the debtor’s continuing liability, not continuing enforceability.
4. The respondent’s alternative common-law argument also failed. Cartwright v Cartwright [2002] EWCA Civ 931, [2002] 2 FLR 610, [2002] BPIR 895 concerned the enforcement of a variable order made by a foreign court and the requirement of finality and conclusiveness. It did not establish a rule excluding payments under a variable order of an English court. Re BradleyHole (A Bankrupt) [1995] 1 WLR 1097 concerned matrimonial periodical payments and the statutory treatment of family proceedings. Its reasoning could not be extended to income payments orders. The obiter observation in Booth v Mond [2010] EWHC 1576 (Ch), [2010] BPIR 1111 that uncertainty, rather than review, determines provability was not accepted.
5. The result did not mean that a debtor could simply defeat an income payments order by obtaining another bankruptcy order. The later order could be annulled under section 282(1)(a) if based on false evidence of insolvency; assets derived from post-bankruptcy income could vest in the later estate; and the later trustee could apply for a new income payments order.

• Court of Appeal (Civil Division): allowed the second appeal and held that future income payments were provable debts in the later bankruptcy.
• High Court: Falk J dismissed the appeal from the County Court order.
• County Court at Croydon: District Judge Coonan held that the income payments order had not been discharged by the subsequent bankruptcy.