Insolvency Act 1986, section 271

Proceedings on creditor’s petition

Part IX Bankruptcy

(1)The court shall not make a bankruptcy order on a creditor’s petition unless it is satisfied that the debt, or one of the debts, in respect of which the petition was presented is either—

(a)a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured or compounded for, or

(b)a debt which the debtor has no reasonable prospect of being able to pay when it falls due.

(2)In a case in which the petition contains such a statement as is required by section 270, the court shall not make a bankruptcy order until at least 3 weeks have elapsed since the service of any statutory demand under section 268.

(3)The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied—

(a)that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented,

(b)that the acceptance of that offer would have required the dismissal of the petition, and

(c)that the offer has been unreasonably refused;

and, in determining for the purposes of this subsection whether the debtor is able to pay all his debts, the court shall take into account his contingent and prospective liabilities.

(4)In determining for the purposes of this section what constitutes a reasonable prospect that a debtor will be able to pay a debt when it falls due, it is to be assumed that the prospect given by the facts and other matters known to the creditor at the time he entered into the transaction resulting in the debt was a reasonable prospect.

(5)Nothing in sections 267 to 271 prejudices the power of the court, in accordance with the rules, to authorise a creditor’s petition to be amended by the omission of any creditor or debt and to be proceeded with as if things done for the purposes of those sections had been done only by or in relation to the remaining creditors or debts.

Definitions used in section 271 1

the debtor

(2) In Schedule 6 “the debtor” means the company or the individual concerned.

Defined in s.386(2) · see it in the full Act

Cases considering section 271 36

Mohammad Razi Khan v Arvinder Singh-Sall & Anor

[2023] EWCA Civ 1119 · 6 October 2023

The court used section 271(1) to explain why a genuinely disputed debt will normally prevent a bankruptcy order: the court cannot ordinarily establish that the debt is unpaid or that the creditor is entitled to petition. (see para [33])

Sands (as trustee in bankruptcy) v Layne & Anor

[2016] EWCA Civ 1159 · 29 November 2016

The section permits dismissal of a bankruptcy petition following the unreasonable refusal of an appropriate offer relating to the petition debt, notwithstanding other unpaid debts. (see paras [53]-[55]) The court may dismiss a petition where an offer to secure or compound the petition debt would have required dismissal and was unreasonably refused. The power may be exercised despite the debtor’s insolvency or other unpaid debts. (see paras [54]-[55])

Popely v Popely

[2004] EWCA Civ 463 · 30 April 2004Limits

The provision was cited as preventing a bankruptcy order unless the petition debt remains unpaid, unsecured or uncompounded. (see para [37]) The debtor's ability to pay all debts, including contingent and prospective liabilities, is a matter for the petition stage. Alleged impecuniosity should not be investigated on an application under rule 6.5(4)(a). (see para [120])

16 more judgments, and what each says about section 271, are in the case-law panel in the full Act.

Amendments and notes

2 notes from legislation.gov.uk

Modifications

  1. C958S. 271 applied (with modifications) (1.12.1994) by S.I. 1994/2421, arts. 8(3)(9), 10(1)(a), Sch. 4 Pt. II para. 9, Sch. 6 para. 3 (as amended (8.12.2017) by The Insolvency (Miscellaneous Amendments) Regulations 2017 (S.I. 2017/1119), reg. 1(1), Sch. 2 para. 3)
  2. C959S. 271 applied with modifications by S.I. 1986/1999, art. 3, Sch. 1 Pt. II (as amended (8.12.2017) by The Insolvency (Miscellaneous Amendments) Regulations 2017 (S.I. 2017/1119), reg. 1(1), Sch. 3 para. 1(2)(3)(d))