IN THE MATTER OF MOSE KRAUS (IN BANKRUPTCY)

On an application under section 366 of the Insolvency Act 1986, the absence of a final order for private examination does not itself make the trustee unsuccessful for costs purposes. The court must assess the practical outcome, including information and documents supplied only after proceedings were issued.

Although the trustee’s own costs ordinarily fall on the bankrupt’s estate under rule 12.22(3), the court retains its discretion. It must consider all the circumstances and the parties’ conduct. A material consideration is whether the office-holder was reasonably entitled to conclude that there was a serious risk of non-co-operation without the discipline of proceedings.

The trustee in bankruptcy investigated an asserted secured loan of £300,000 made by Eurobeam Services Ltd to the bankrupt. The trustee sought information and documents from Eurobeam, its former solicitors and Mr Roth, Eurobeam’s director. The responses were late, incomplete and at times inconsistent.

The trustee issued an application under section 366 of the Insolvency Act 1986. After further directions, Mr Roth was joined personally. The trustee ultimately elected not to pursue a private examination after Mr Roth supplied a further witness statement. The remaining issue was the costs of the section 366 application, the joinder application and the later costs application.

1. Application granted. Eurobeam and Mr Roth were liable for the trustee’s costs on the terms set out below. The trustee had substantially achieved the purpose of the section 366 proceedings, notwithstanding that no order for private examination was ultimately made.

2. Rule 12.22(3) of the Insolvency (England and Wales) Rules 2016 creates the starting point that a trustee’s costs are payable from the bankrupt’s estate unless the court orders otherwise. Rule 12.22 does not determine a respondent’s costs where no examination or delivery-up order has been made. By rule 12.1, CPR 44.2 therefore applied, subject to the statutory context.

3. Success in a section 366 application is not determined solely by whether a private examination is ordered. Such applications may proceed iteratively, with respondents providing information and documents in response to the proceedings to avoid formal relief. The court must evaluate the practical realities, the material obtained, and the parties’ conduct.

4. In assessing conduct, the relevant question included whether the trustee was reasonably entitled to conclude that there was a serious risk that the proposed examinee would not co-operate without the discipline of proceedings. Eurobeam’s pre-issue responses were largely absent, partial or conflicting. The application prompted important disclosure. Mr Roth’s later failure to engage constructively justified his joinder and the continued pursuit of the application.

5. Eurobeam was ordered to pay the trustee’s costs of the section 366 and joinder applications up to and including 9 October 2018. Mr Roth was jointly and severally liable with Eurobeam for the joinder costs to that date, and solely liable for the section 366 costs from his joinder until the trustee’s April 2020 election not to proceed. Both were also ordered to pay the costs of the costs application. Costs were subject to detailed assessment if not agreed; unrecovered trustee costs were costs in the bankruptcy.

High Court: This was a first-instance determination of reserved costs arising from a section 366 application commenced in the County Court at Central London. The underlying bankruptcy proceedings were transferred to the High Court in 2021, after which the costs issue was listed for determination.