Gavin Paul Carter v Terri Ann Davies & Ors

A bankruptcy order made while a debt respite moratorium is in force is not thereby a nullity. The making of the order is not enforcement action under regulation 7(7) of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. Although a pending bankruptcy petition must be stayed under regulation 10(2)(a), breach of that requirement does not attract the express nullity provision in regulation 7(12), nor does it create a fundamental lack of jurisdiction. The court retains a discretion under section 282(1)(a) of the Insolvency Act 1986 whether to annul the order. The appeal was dismissed because the first-instance judge’s exercise of that discretion was not separately challenged.

The appellant had been made bankrupt on a petition founded on an undisputed judgment debt. Before the hearing at which the bankruptcy order was made, he obtained a breathing space moratorium. The petitioning creditor failed to notify the court, and the petition was not stayed.

The appellant applied under section 282(1)(a) of the Insolvency Act 1986 to annul the order. District Judge Shorthose accepted that the order ought not to have been made but declined to annul it, taking account of the appellant’s apparent failure to disclose sufficient funds when applying for the moratorium. The appeal concerned whether the moratorium rendered the bankruptcy order null and void, or instead left a discretion to annul it.

1. The appeal was dismissed. District Judge Shorthose had retained a discretion under section 282(1)(a) of the Insolvency Act 1986 and no separate appeal was brought against the exercise of that discretion.

2. A bankruptcy order is not a step to collect a moratorium debt under regulation 7(7)(a) of the Debt Respite Scheme (Breathing Space Moratorium and Mental Health Crisis Moratorium) (England and Wales) Regulations 2020. Bankruptcy is a collective process for all unsecured creditors, rather than bilateral debt collection.

3. Nor is a bankruptcy order a step to enforce a judgment under regulation 7(7)(b). That provision addresses bilateral enforcement of judgments against the debtor. The inclusion of a bankruptcy petition within the prohibition on starting legal proceedings did not extend the provision to the making of a bankruptcy order in an existing petition.

4. Regulation 10(2)(a) required the pending petition to be stayed once the court was notified of, or became aware of, the moratorium. The failure to comply with that requirement contravened regulation 10, but regulation 7(12), which makes action contrary to regulation 7 null and void, did not apply.

5. The order was not implicitly null and void either. Bankruptcy affects third parties, including other creditors, and causes property to vest in the official receiver or trustee, while creating costs and restricting creditors’ remedies. Those collective consequences supported retaining a discretion to leave an order in place despite the procedural breach.

6. The moratorium did not create a fundamental lack of jurisdiction. It constituted a failure to comply with statutory requirements preceding the proper exercise of the bankruptcy jurisdiction.

• High Court, Chancery Appeals: District Judge Shorthose’s decision dated 24 November 2023 was affirmed on the issue of discretion, and the appeal was dismissed.