Mohammad Razi Khan v Arvinder Singh-Sall & Anor

The Court of Appeal dismissed the appellant's challenge to refusals to annul a bankruptcy order under s. 282(1)(a) (as discussed in the judgment) of the Insolvency Act. The primary legal findings were that the bankruptcy order 'ought not to have been made' because (i) the petition debt was genuinely disputed on substantial grounds and (ii) the petition failed to disclose security for the petition debt contrary to the statutory provisions (notably s. 267(2)(b) and s. 269(1) as discussed).

However, the court held that those defects did not deprive the court of all jurisdiction to make the bankruptcy order; rather s. 282 confers a discretion to annul and that discretion must be exercised having regard to all relevant circumstances, including the debtor's solvency, the debtor's conduct and the potential impact on other creditors. The Court of Appeal agreed with the High Court that, weighing those factors (including the practical consequences for unsecured creditors and possible limitation consequences), the discretion to annul should not be exercised in this case.

The appellant, Mr Mohammad Razi Khan, sought annulment of a bankruptcy order made on a petition presented by Habib Bank AG Zurich. The application to annul was dismissed by DJ Hart in the County Court and that dismissal was upheld by the High Court ([2022] EWHC 1913 (Ch)). The present appeal challenges those decisions.

The matters determined in the proceedings included:

• Nature of the application: an application to annul a bankruptcy order under s. 282(1)(a) on the grounds that the order ought not to have been made.
• Key issues framed: (i) whether the bankruptcy order ought to be set aside as of right (or only in exceptional circumstances) if it ought not to have been made; (ii) whether specified defects (a genuinely disputed petition debt and failure to disclose security) meant the court lacked jurisdiction to make the order; and (iii) the effect of an annulment on the running of limitation periods for provable debts.

The court recited the factual background: the Bank presented a petition based on a claim under a guarantee and following a statutory demand; Mr Khan was made bankrupt in January 2018; he applied to annul and relied on the disputed nature of the petition debt and the Bank's failure to disclose security.

On the first set of issues the Court of Appeal accepted the established practice that the court will not normally make a bankruptcy order where a debt is bona fide disputed on substantial grounds, and accepted DJ Hart’s finding that there was a genuine triable issue. It also agreed that the petition omitted to disclose security in breach of the statutory scheme (s. 267 and s. 269 as discussed). But the court held (following earlier authorities such as Raiffeisenlandesbank Oberösterreich AG v Meyden and related decisions) that those defects did not amount to a lack of jurisdiction of the kind that requires annulment as of right. The COMI jurisprudence described a different, more fundamental, absence of jurisdiction (for example under the Insolvency Regulation) which was not analogous to the present case. Instead, s. 282 confers a discretion to annul which the court must exercise having regard to all relevant factors.

On the discretionary exercise the court upheld DJ Hart’s approach and conclusion that, having regard to Mr Khan’s insolvency, his conduct and the potential prejudice to other unsecured creditors (and the Bank) — including the practical uncertainty about limitation consequences and the prospect of another petition — annulment should be refused in this case.

On limitation, the Court of Appeal declined to decide the point definitively. The High Court had held that annulment operates ab initio so that time was deemed to have run during the bankruptcy; the Court of Appeal expressed doubt about that conclusion and preferred to leave the issue open for a case in which it must be decided, although it acknowledged compelling policy arguments that limitation should not run during a period in which unsecured creditors could not bring proceedings.

The appeal was dismissed. The Court held that (i) although the bankruptcy order ought not to have been made because the petition debt was disputed and security had not been disclosed, those defects did not amount to the kind of lack of jurisdiction that requires annulment as of right; (ii) s. 282 confers a discretion to annul which must be exercised in the light of all relevant circumstances, and on the facts (insolvency, debtor’s conduct and prejudice to other creditors) the discretion should not be exercised to annul; and (iii) the precise effect of annulment on the running of limitation periods was left open, the Court not persuaded to uphold the High Court’s definitive view on that point.

The application to annul was heard and dismissed by DJ Hart in the County Court at Central London (DJ Judgment 26 August 2021). Mr Khan's appeal to the High Court was dismissed by David Mohyuddin QC ([2022] EWHC 1913 (Ch), judgment 21 July 2022). Permission to appeal to the Court of Appeal was granted by Arnold LJ and the Court of Appeal dismissed the appeal ([2023] EWCA Civ 1119, 6 October 2023).