Jody Kennedy v The Official Receiver

A Bankruptcy Restrictions Order is assessed by reference to the bankrupt’s misconduct, viewed broadly and with regard to aggravating and mitigating factors. The statutory examples are non-exhaustive. The seriousness of the misconduct is ordinarily placed within the three tariff brackets used for director disqualification. Relevant earlier decisions should be considered, particularly where the body of authority concerning bankruptcy restrictions remains small, although comparisons should not become excessively technical. Dissipating assets and incurring fresh borrowing are distinct forms of misconduct in personal bankruptcy because fresh borrowing may prejudice the individual creditor who extended credit in ignorance of the bankruptcy. An appellate court may intervene where an identifiable flaw undermines the lower court’s evaluation. The eight-year order was reduced to four years.

The appellant appealed against an eight-year Bankruptcy Restrictions Order made by Deputy District Judge Wright in the County Court at Hertford on 17 September 2021. The order had been made under section 281A and Schedule 4A to the Insolvency Act 1986.

Two grounds were advanced. First, the appellant argued that the Deputy Judge had wrongly distinguished cases involving dissipation of assets from cases involving further borrowing, leading to an excessive tariff. Secondly, he challenged the finding that he had failed to disclose withdrawals of £10,000 and £7,000 to the Official Receiver. The appeal therefore concerned both the reliability of the factual finding and the proper assessment of the length of the order.

1. Ground 2 dismissed. The Deputy Judge had understood that the alleged non-disclosure was disputed and had found both that the appellant failed to disclose the withdrawals and that the failure was wilful. Her preference for a bona fide contemporaneous file note over hesitant oral evidence was open to her. The appellate court should be slow to interfere with primary findings of fact, particularly where credibility is involved. The absence of cross-examination of the note’s maker did not justify interference, since no application had been made to call that person as a witness.
2. Applicable principles. Under paragraphs 1 and 2 of Schedule 4A to the Insolvency Act 1986, the court may make an order where appropriate having regard to the bankrupt’s conduct, before or after the bankruptcy order. The listed behaviours in paragraph 2(2), including incurring unaffordable debt, gambling and failing to co-operate, are not exhaustive. The conduct must involve misconduct, neglect or financial irresponsibility, ordinarily involving culpability or irresponsibility. The length of the order is assessed by the gravity of the misconduct, together with proper aggravating and mitigating factors, using the three Sevenoaks Stationers brackets and applying the assessment with a broad brush.
3. Use of earlier decisions. Although courts should avoid an unduly forensic comparison of previous cases, the limited number of Bankruptcy Restrictions Order decisions made it appropriate to review factually relevant authorities, especially those bearing on culpability. The principle that similar misconduct should attract broadly similar periods of restriction remained relevant.
4. Dissipation and borrowing. It was legitimate to distinguish dissipating assets from obtaining fresh credit while bankrupt. Fresh borrowing may harm the individual creditor who extended credit without knowing of the bankruptcy, and obtaining credit while bankrupt also engages the offence in section 360 of the Insolvency Act 1986. Wrongful-trading authorities concerning companies operated in a materially different context and did not require the same approach to personal bankruptcy.
5. Ground 1 allowed in part. The Deputy Judge may have been misinformed about the tariff imposed in Randhawa and may have given insufficient weight to the features of May which made it more than a simple dissipation case. These were identifiable flaws undermining the cogency of the tariff assessment. The appellant’s conduct was not qualitatively more serious than the conduct in those cases and fell within the lowest bracket. The order was therefore amended by reducing its term from eight years to four years.

• High Court (Chancery Division): [2022] EWHC 1973 (Ch) — permission to appeal granted; Ground 2 dismissed; Ground 1 succeeded to the extent that the term of the Bankruptcy Restrictions Order was reduced from eight years to four years.
• County Court at Hertford: Order of Deputy District Judge Wright dated 17 September 2021 — an eight-year Bankruptcy Restrictions Order was made.