Mohammad Razi Khan v Arvinder Singh-Sall & Anor

Section 282(1)(a) of the Insolvency Act 1986 confers a genuine discretion to annul a bankruptcy order which ought not to have been made. There is no requirement that refusal of annulment must be justified by exceptional circumstances. The court must consider all relevant circumstances and will usually require something of weight on the other side before refusing annulment. Solvency and creditors’ interests are often particularly important. A genuinely disputed debt and failure to disclose security may mean that an order ought not to have been made, but neither defect necessarily deprives the court of jurisdiction. The Court left open whether limitation time runs during bankruptcy before annulment.

Mr Khan was made bankrupt on the Bank’s petition. The first-instance judge found that the petition debt was genuinely disputed on substantial grounds and that the Bank had failed to disclose security, so the bankruptcy order ought not to have been made. She nevertheless refused annulment, taking account of Mr Khan’s conduct, insolvency, creditor interests and possible limitation consequences. The High Court dismissed his appeal in [2022] EWHC 1913 (Ch). On second appeal, the issues were whether the defects deprived the court of jurisdiction, whether refusal required exceptional circumstances, and how annulment affected limitation periods.

Lord Justice Nugee gave the leading judgment. Lord Justice Snowden and Lord Justice Lewis agreed. The appeal was dismissed.

1. Jurisdiction. The Court distinguished a fundamental absence of jurisdiction from non-compliance with statutory conditions for making a bankruptcy order. The COMI cases, including Raiffeisenlandesbank Oberösterreich AG v Meyden [2016] EWHC 414 (Ch), concerned a court that lacked authority over the debtor altogether. In such a case the order could be set aside as of right. By contrast, the court had power to hear creditor bankruptcy petitions and authority over Mr Khan. The disputed debt and undisclosed security were defects in the petition, not jurisdictional defects.
2. Liquidated debt and disputed debt. A liquidated sum is a definite debt, whether quantified from the outset or capable of ascertainment. A dispute about liability does not convert a debt into an unliquidated claim. Claims for damages remain unliquidated even if precisely quantified. A genuine dispute on substantial grounds normally leads to setting aside the statutory demand or dismissal of the petition, but that is a rule of practice rather than law. The court retains jurisdiction to entertain the petition.
3. Security. Under sections 267(2)(b) and 269(1) of the Insolvency Act 1986, a secured creditor may petition by surrendering its security or valuing it and petitioning only for the unsecured balance. Failure to comply meant that the order ought not to have been made, but did not deprive the court of jurisdiction.
4. Discretion. Section 282(1)(a) confers a discretion to be exercised in all the circumstances. There is no exceptional-circumstances threshold. Usually, something of sufficient weight must favour refusal once it is established that the order ought not to have been made. Solvency and creditor interests are likely to be the most significant considerations. Conduct may be relevant, but annulment applications should not be diverted into extensive and contentious inquiries into conduct, particularly where alleged misconduct is advanced mainly in relation to costs.
5. Limitation. The Court did not decide whether time is deemed to run during the bankruptcy or resumes on annulment. It considered the High Court’s conclusion open to doubt and left the issue for a case in which it was necessary to decide it. The first-instance judge’s alternative analysis nevertheless provided a sufficient basis for refusing annulment: annulment might prejudice the Bank through limitation, or provide no practical benefit if a fresh petition and bankruptcy followed.

1. Court of Appeal (Civil Division): The second appeal was dismissed.
2. High Court: Mr Mohyuddin QC, sitting as a Deputy High Court Judge, dismissed Mr Khan’s appeal from the County Court on all grounds in [2022] EWHC 1913 (Ch).
3. County Court at Central London: DJ Hart found that the bankruptcy order ought not to have been made but exercised the discretion under section 282(1)(a) of the Insolvency Act 1986 against annulment.