Digby-Rogers v Speechly Bircham LLP

Where a bankruptcy petition is opposed by other creditors, the court must undertake two distinct discretionary exercises. It must first evaluate the interests and views of the creditor class, including the number and value of creditors, the nature and quality of their debts, their reasons, and the petitioning creditor’s reasons. It must then consider whether credible evidence shows a reasonable prospect that the petition debt will be paid within a reasonable time. A court must not treat the second inquiry as a substitute for the first. A creditor with a material interest in the petition, who has filed evidence and is identified as intending to appear, should be given a fair opportunity to be heard.

The appellant appealed against a bankruptcy order made by District Judge Rouine on 18 September 2018. The respondent’s judgment debt was undisputed. The appellant sought repeated adjournments because he expected a substantial fee from a Mongolian mining project, which he said would be lost if he became bankrupt. Most other creditors opposed the bankruptcy order and supported another adjournment. The lower court considered only whether there was credible evidence of a reasonable prospect of payment within a reasonable time. The appeal concerned whether that approach was legally sufficient, whether the interests and views of the creditor class had been evaluated, whether a principal opposing creditor should have been heard, and whether the evidence had been properly considered.

1. Appeal allowed. The lower court had properly examined the evidence concerning the anticipated project fee and was entitled to conclude that it did not show a reasonable prospect of payment within a reasonable time. Any overstatement in describing the payment prospect as having taken a significant step backwards did not undermine that conclusion.
2. That inquiry was not, however, the whole discretionary exercise. Where a bankruptcy petition is opposed by other creditors, the court must separately and beforehand consider the interests of the creditor class and evaluate the weight to be given to the views of creditors supporting and opposing the order. The relevant considerations include the number and value of the creditors, the nature and quality of their debts, the reasons for their views, the petitioning creditor’s objectives, and any reason to doubt the motives or evidence of the opposing creditors.
3. The lower court failed to undertake that critical stage. It did not address the fact that creditors representing 87 per cent of the debt opposed bankruptcy, the professional qualifications and evidence of several creditors, the international-finance expertise of Mr Leatherdale, or the absence of evidence from the petitioning creditor as to what bankruptcy was likely to achieve. The previous hearings did not relieve the new judge of the obligation to consider the fresh evidence.
4. Mr Leatherdale should also have been told that he could address the court. His witness statement, his position as the principal creditor by value, and his inclusion on the list of creditors intending to appear made the failure to hear him a serious procedural irregularity. It was not an answer that he could have spoken up without invitation.
5. The petition was therefore to be relisted before a district judge, with an opportunity for updated evidence and submissions.

• District Judge Rouine: made a bankruptcy order on 18 September 2018 and refused the appellant’s application for an adjournment.
• High Court, on permission application: His Honour Judge Cooke granted permission to appeal on 24 October 2018.
• High Court (Chancery Division): allowed the appeal. The petition was to be relisted before a district judge for reconsideration.