Debra Elizabeth Adjei v The Official Receiver & Anor

In an annulment-related costs decision, the court must identify whether the bankruptcy order was properly made and exercise its costs discretion in light of the statutory basis for the debt and the parties’ conduct.

Where a petition debt was never legally due because the petitioner had no lawful basis for demanding it and no relevant assessment or determination existed, the petition was not well-founded. A certificate of non-payment cannot create liability where none exists. In such circumstances, the petitioner may bear the costs caused by the bankruptcy, including the Official Receiver’s and trustees’ costs.

HMRC presented a bankruptcy petition for £115,862.23, alleging that the applicant was personally liable for PAYE, NICs, student loan deductions and self-assessment penalties. The applicant maintained that she was an employee of the medical practice and had no personal liability for most of the claimed sums.

The bankruptcy order was later annulled under section 282(1)(a) of the Insolvency Act 1986 and the petition dismissed. The remaining issues concerned the petition costs, the annulment application costs, the Official Receiver’s costs and the trustees’ costs and expenses.

1. Costs of the petition. The court ordered no order as to costs. Apart from a small disputed sum below the bankruptcy limit, the petition debt was never due from the applicant. HMRC identified no return, assessment or formal determination establishing personal liability for the PAYE, NICs or student loan deductions. The statutory demand was therefore ultra vires and a nullity.

2. Section 25A of the Revenue & Customs Act 2005 did not assist HMRC. Mr Doyle’s witness statements were not certificates within the section. In any event, the provision concerned whether a sum was unpaid, not whether it was legally due, and could not create liability where none existed.

3. The court distinguished Redbridge LBC v Mustafa and Amin v London Borough of Redbridge, which involved liability orders constituting statutory debts until set aside. Here, no equivalent statutory debt or assessment existed.

4. Annulment application. Although the applicant succeeded, the appropriate order was no order as to costs. HMRC had actively opposed and prolonged the application, but the applicant could have produced her employment contract earlier and HMRC eventually withdrew its opposition.

5. Bankruptcy costs. HMRC was ordered to pay the Official Receiver’s costs and expenses and the trustees’ costs and expenses. HMRC should not have pursued the petition and should have conceded the application by July or August 2021. Had it done so, the bankruptcy administration and trustees’ costs would not have been incurred.

First-instance decision on costs following annulment of a bankruptcy order. The judgment records that the bankruptcy order was annulled under section 282(1)(a) of the Insolvency Act 1986 and the petition dismissed on 22 March 2023.