Summary

On the facts, the applicant company was entitled, under the Insolvency Act 1986 s.346(6), to relief from the consequences of s.346(1)(a) so that it could retain the benefit of a charging order over a property which it would otherwise have lost due to the intervening bankruptcy of the property owner.

Facts

The applicant company (T) applied pursuant to the Insolvency Act 1986 s.346(6) for relief from the consequences of s.346(1)(a) so that it could retain the benefit of a charging order over property vested in the name of a bankrupt (M).

T was the beneficiary of a judgment obtained by another company (P), P having issued proceedings against M alleging misappropriation of significant sums of money from P. T had obtained an interim charging order over M's property. However, the charging order was not finally made absolute until one day after M procured his own bankruptcy on his own petition, the application for the charging order having been made in ignorance of M's bankruptcy. T maintained that M's decision to petition for his own bankruptcy was a deliberate one that was not taken in the interests of his creditors, but in order to disadvantage T and to frustrate the charge. T relied on various pre-judgment events, M's conduct in the litigation and the judge's findings as to M's dishonest behaviour.

Held

The following principles, extracted particularly from Landau v Purvis Times, August 12, 1986, were applicable, Landau applied. Firstly, the court had discretion under s.346(6). Secondly, in judging fairness, the extent to which, and the reasons for which, the enforcement of the judgment had been frustrated had to be considered. Thirdly, emphasis had to be placed on post-judgment events. Fourthly, it was open to the court to consider pre-judgment events to enable the court to draw an inference as to the motivation behind post-judgment events that might otherwise not be a proper inference to draw, Buckingham International Plc (In Liquidation) (No.2), Re [1998] B.C.C. 943 considered. Fifthly, the jurisdiction under s.346(6) had to be exercised with great caution and only in an exceptional case. Finally, the burden was on the applicant to show that, if the execution was not allowed to stand, the events would have generated sufficient unfairness to generate an exception in his favour. In the instant case, M's conduct underlying the claims and his conduct in the litigation would lead to the conclusion that M's decision to petition was a deliberate one, taken in order to disadvantage T. The judgment awarded in P's favour clearly demonstrated that M was a fraudster who had not hesitated to lie, conceal and steal. The fact that M had obtained an adjournment of the summary judgment hearing on the basis that he had not seen the evidence, demonstrated that M was probably prepared to lie to the court as well; M was clearly capable of manipulating a given situation to his advantage. M had also suggested to the court after the judgment that nothing was likely to happen which would affect the charging order, if obtained. However, the obtaining of the bankruptcy order had had exactly that effect. On the other hand, T had acted promptly and had pursued their charging order applications with appropriate diligence. M had also not given any notice of his intention to present his own petition and he had no pressing creditors apart from T. It was highly unlikely that M's decision to petition for his bankruptcy was taken because it was the correct thing to do in the interests of his creditors, or to relieve him of a debt burden; it was likely that the petition for bankruptcy was another act of manipulation. The appropriate degree of unfairness had therefore been established in the case. A small, but only a small, amount of weight would be given to the sums involved; the relative sizes of the interests of unsecured creditors could not be totally ignored, as T was an unsecured creditor with the principal interest in the bankruptcy. Accordingly, it was appropriate for the court to exercise its discretion under s.346(6).

Application granted