Nakamura v Armstrong

A bankruptcy petition is a class remedy, not merely a debt-collection process. Where the statutory conditions are satisfied, the petitioning creditor is prima facie entitled to a bankruptcy order. The court may adjourn to allow payment only where the debtor provides credible evidence of a reasonable prospect that the petition debt will be paid in full within a reasonable time. A bare assertion, uncertain future realisation of assets, or hoped-for family funding is insufficient. The court must also consider the views of creditors, whose interests may be affected by delay. Declining to make a bankruptcy order altogether is exceptional and requires a heavy burden, such as showing that the order would serve no useful purpose. A conditional payment obligation under a guarantee gives rise to a liquidated debt for the purposes of section 267(2)(b) of the Insolvency Act 1986.

The petitioner sought a bankruptcy order against the debtor for the balance due under a loan agreement. The debtor guaranteed repayment by the borrowing company and did not dispute either the company’s liability or his own liability under the guarantee.

The petition had been repeatedly adjourned, largely pending financial remedy proceedings. At the hearing, the debtor sought a further adjournment, relying on a proposed family-court order, possible realisation of property and possible financial assistance from his father. The central issues were whether the petition debt was a liquidated sum and whether there was a reasonable prospect of payment within a reasonable time.

1. The bankruptcy order. The court refused the debtor’s application for a further adjournment and made a bankruptcy order at 16.30 on 11 February 2021. The petition debt was undisputed, and the creditors who appeared in support favoured an immediate order. [2021] EWHC 654 (Ch) [68]-[69].
2. Liquidated debt. The guarantee imposed a conditional payment obligation. Applying Norwich and Peterborough Building Society v McGuinness [2011] EWCA Civ 1286 [7], [42] and the two-question analysis stated in Dunbar Assets Plc v Fowler [2013] All ER (D) 02 (Jan) [13], the guarantor was obliged to pay the principal debtor’s debt if the borrower failed to do so. Such an obligation is a liquidated debt for section 267(2)(b) of the Insolvency Act 1986. [15]-[17]
3. Adjournment for payment. Bankruptcy is a class remedy. The court must consider the position of creditors, and delay may prejudice creditors generally. Although the court retains a discretion to adjourn, the debtor bears the practical burden of producing credible evidence of a reasonable prospect that the petition debt will be paid in full within a reasonable time. Glenn Maud v Aabar Block S.a.r.l. and Ors [2016] EWHC 2175 [82], [99]-[101] and Sekhon v Edginton [2015] 1 WLR 4435 [15]-[19] were adopted as the applicable framework. [20], [25]-[27]
4. The debtor’s evidence did not meet that standard. The proposed family-court order was conditional on validation under section 284, did not establish the net value or timing of any realisation, and did not show how the petition debt would be paid. Possible borrowing from the debtor’s father was unsupported and disputed within the family. [31]-[66]
5. Exceptional discretion. The court also considered section 266(3) of the Insolvency Act 1986. There were assets capable of realisation and no credible evidence that creditors would obtain a better outcome without bankruptcy. The exceptional discretion not to make an order was therefore not exercised. [28], [67]