Summary

A deputy registrar had erred in dismissing a discharged bankrupt's application for annulment of his bankruptcy on the basis that his main creditor bank remained unpaid, as the bank had told the trustee in bankruptcy clearly and unequivocally that it did not intend to prove for its debt. The registrar had also adopted a flawed approach to the trustee's application to change the basis of his remuneration from a percentage basis to remuneration by reference to time properly spent.

Facts

The appellant (S) appealed against a deputy registrar's dismissal of his application to annul his bankruptcy and the grant of applications by the respondent trustee in bankruptcy (T) to realise S's interest in two pension policies and to be remunerated by reference to time properly spent.

S had been made bankrupt in 1993 on the petition of a bank (B). The estimated debt of over £2.4 million arose from liabilities incurred by S as the guarantor of two companies he controlled. B had not submitted a proof of debt. There were four other unsecured creditors, for an aggregate amount of approximately £14,000, and each had proved its debt. At the first creditors' meeting T's fees were fixed on a percentage basis. The pension plans were S's only assets and could not be drawn down until 2002. S was automatically discharged from bankruptcy in December 1996. The creditors remained unpaid. S deferred taking his benefits under the pension plans until he reached 65, in May 2007. To take his pension plan benefits he had to have his bankruptcy annulled. He paid the four creditors who had submitted proof of debt. B stated that, due to the age of the case, it would not be making a claim. S issued his annulment application. He acknowledged that T was entitled to a reasonable fee for work done, but argued that the fees claimed were inflated. T applied to change the basis of remuneration from a percentage basis to time spent. He stated that settlement offers by S had been too low, and that he therefore intended to realise S's interests in the pension plans. The deputy registrar stated that the fact that B appeared to still be owed more than £2 million weighed against the exercise of any discretion to annul, for the reasons given in Gill v Quinn [2004] EWHC 883 (Ch), [2005] B.P.I.R. 129. He further stated that the sum offered by S as security was less than would be required for the payment of the bankruptcy expenses, not even including T's remuneration.

Held

(1) B's debt was irrelevant to the annulment decision. Unlike the position in Gill, B was the only unpaid creditor and, fully aware of the intended annulment application, had told T clearly and unequivocally that it did not intend to prove for its debt. The evidence showed that B had taken an informed policy decision after fully investigating the matter and considering its legal position. In those circumstances, there was no reason, in policy or principle, why the court should take any account of any debt due to B when considering whether to grant the annulment application, Official Receiver v McKay [2009] EWCA Civ 467, [2010] Ch. 303 applied, Gill considered (see paras 40-42 of judgment). (2) The registrar's approach to the remuneration application was flawed. The principles to be applied on such an application were comprehensively reviewed in Brook v Reed [2011] EWCA Civ 331, [2012] 1 W.L.R. 419. The deputy registrar did not mention Brook or the provisions in Part Five of the Practice Direction (Ch D: Insolvency Proceedings) [2012] Bus. L.R. 643, which applied to any remuneration application made under the Insolvency Act 1986 or the Insolvency Rules 1986, including an application to change the basis of the remuneration of a bankruptcy trustee under r.6.141. On any such application, the court should consider each of the guiding principles in the Practice Direction in the light of the evidence, Brook applied. The registrar had failed to adequately address four principles: that the remuneration should reflect the value of the service rendered, not simply reimburse the appointee in respect of time expended and costs incurred; that it should represent fair and reasonable remuneration for work properly undertaken or to be undertaken; that it should be proportionate to the nature, complexity and extent of the work completed or to be completed, and the value and nature of the assets and liabilities which with the appointee had had to deal; and that the court would take into account any delay in making the application. The proper approach was to begin by asking what had changed and what could not have been foreseen when the creditors made their decision. In the instant case, it was always known that the assets in the bankrupt estate were limited. Notwithstanding that, the creditors had resolved that T be paid on the percentage basis. T had not challenged that resolution and there had been no explanation for the delay in applying for a change of basis. The usual and proper course should be for the trustee to apply as soon as it became clear that an application was necessary. The application should, so far as practicable, be prospective and not retrospective. Unless there was good reason, it was not appropriate for the trustee to wait until all the work was done and then apply to the court as a fait accompli for a retrospective change. The decisions regarding annulment and remuneration would therefore be set aside and remitted to be determined afresh by a different registrar (paras 43-54). (3) It was not suggested on appeal that the benefit of the pension plans was not an asset of the bankrupt estate, and S's appeal regarding their realisation was dismissed (para.59).

Appeal allowed in part