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Mr Justice Henderson has handed down his judgment in Ross & Anor v HM Revenue & Customs  EWHC 13 (Ch). The case is particularly noteworthy as it concerns an appeal from the Chief Registrar and because the debtors where both solicitors. The learned judge notes:
"Mr Ross and Mr Holmes are solicitors, and for a number of years they had been the only partners in the firm of Walter Scott & Ross ("the Firm") which carried on business in Ilkeston, Derbyshire. At all material times Mr Ross was the senior and sole equity partner. Mr Holmes had been the junior partner since 1994, and was entitled to a fixed share of the profits amounting (at least from 2004 onwards) to £40,000 a year. The Firm had been founded in 1931, and although it had only two partners it had up to 30 employees...The amount claimed in the statutory demand served on Mr Ross was £339,168.85."
In terms of the Chief Registrar's judgment and creditors who have acted unreasonably in relation to offers of security, Mr Justice Henderson notes:
"The Registrar began by referring to section 271(1) of the Insolvency Act 1986, which provides that:
"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 …"
Rather curiously, he did not go on to cite subsection (3), although he must have had it well in mind. Subsection (3) provides as follows:
"(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."
31. The Registrar then referred to three authorities. The first was In re A Debtor (No. 32 of 1993)  1WLR 899, a decision of Mr Timothy Lloyd QC, as he then was, and which the Registrar described as "probably still the leading authority on the topic". The second was the decision of Robert Walker J (as he then was) in IRC v a Debtor  BCC 971. The third, which the Registrar described as "perhaps less well-known", was HM Customs & Excise v Dougall  BPIR 269, from which he cited the following summary of the relevant principles given by Lightman J at 272. With the correction of an obvious error in the report, the summary reads as follows:
"First, the test of unreasonableness is whether a reasonable creditor in the position of the petitioning creditor and in the light of the actual history as disclosed to the court could have reached the conclusion that the petitioning creditor reached. There may be a range of reasonable positions on the part of the hypothetical reasonable creditors and a rejection of an offer by the petitioner is only to be categorised as unreasonable if no reasonable creditor would have refused the offer and accordingly the refusal is beyond the range of reasonable responses to it. Secondly, the test is objective, namely the response of the hypothetical reasonable creditor. The court is not limited to considering the considerations that were taken into account by the petitioning creditor himself when he refused to agree to the offer. The court must look at all the relevant factors and decide what are the relevant factors and what impact those relevant factors would have on the hypothetical reasonable creditor. The third proposition is that the debtor must be full, frank and open and provide all the necessary information to enable an informed decision to be made by the creditor."
32. Having thus directed himself, the Registrar then stated his conclusions on this issue:
"14. Dealing with that third principle I can say simply that there has not been any suggestion that Messrs Holmes and Ross have been other than full and frank in relation to their disclosure. The relevant matters I think I have to look at are the history and whether, in the light of that and all the relevant factors the reasonable hypothetical creditor posited by Timothy Lloyd QC could be said to have been reasonable in rejecting that offer, and I can deal with that really quite shortly. The first offer was to the effect that the Inland Revenue would be paid by October or November 2008 and it is common ground that they were not. Secondly, it was then said by Mr Holmes and Mr Ross that the debts would be paid by 31 March 2009 and again it is common ground that they were not – or at least they were not paid in full. Those factors alone, it seems to me, make it reasonable for the reasonable hypothetical creditor to reject a further offer, but there are other reasons as well. Thirdly, there was a cheque for £50,000 that was received on 27 October 2008 that was returned unpaid; and fourthly, there is or has been, as Dr Lopian has said, and as is clear from the correspondence I have already referred to, a history of disorder in the tax affairs of both debtors and failure to make returns on time and a history of failure to pay on time. The fifth factor is one that goes to Mr Holmes' position only. He has an unsatisfied judgment – or balance of a judgment debt going back to 2006 which, as far as he is concerned, is something that the petitioners are entitled to take into account as they are, finally, the fact that further arrears have been accruing as I understand it since these petition debts were incurred [he then referred to the letters from HMRC dated 27 April 2009 mentioned in paragraph 26 above]. It cannot, to my mind, be said to be unreasonable for a creditor to refuse an offer where previous promises, whether rejected or not, have been unfulfilled, a cheque has bounced and further sums have fallen due.
15. As to the question of the offer of security I would say it is unfortunate and perhaps ill-advised that the petitioners have given a glimpse of what appears to be (and appears to have been) a long established policy stance indicating that they reject offers of security out of hand without giving them individual consideration. But it is unnecessary for me to consider that today because even the offer of security as most recently made is hedged around. Not all the charges will be first charges, which is arguably not of crucial importance, but the ability to realise the security will, on the basis of the offer as made, be deferred for up to six months, so the purpose of granting it, namely an immediate ability to realise the asset and turn it into money, is defeated or deferred amounting to yet a further delay in payment of the debt.
16. For all those reasons I reject the s.271(1) ground of opposition."
Mr Justice Henderson revisits these authorities in his own judgment (at paragraph 44) when he observes:
"I have already set out in paragraph 31 above the helpful summary of the relevant legal principles given by Lightman J in HM Customs & Excise v Dougall  BPIR 269 at 272. There are, however, some further points which can usefully be gleaned from the authorities.
45. First, in In re A Debtor (No. 32 of 1993), loc.cit., Mr Timothy Lloyd QC held that the district judge had erred in attaching little significance to the past history of offers and payments in that case. He said at 910F:
"It seems to me that the past history would be of substantial relevance to the hypothetical reasonable creditor when deciding whether or not to accept an offer or rather to press for a bankruptcy order."
Having commented that there was "a good deal of justification" for describing the debtor's attitude as one of prevarication and delay, the deputy judge said again at 910H that in his view
"the hypothetical reasonable creditor, on the facts of this case, might well be influenced, in deciding whether to accept the offer or to press for a bankruptcy order, by the unsatisfactory record of the debtor's past dealings."
46. It follows from these observations, with which I respectfully agree, that the Registrar in the present case cannot in my judgment be criticised for having had regard to the history of the matter as a factor which a reasonable creditor would have taken into account in deciding whether or not to accept the offer of security. Of course it is true that the purpose of such an offer is to guarantee that payment will be made in full at a future date, but in the light of a history of default, partial payments and promises which come to nothing, there comes a time when a reasonable creditor may prefer to press for an immediate bankruptcy order. That is particularly so where, as in the present case, the debtor appears to have ample assets to meet his debts, with the consequence that the making of a bankruptcy order is still likely to lead to full recovery for the creditor, albeit at a considerably greater cost to the debtor (because of the costs of the bankruptcy, and the forced realisation of assets by the trustee).
47. Secondly, and following on from the point which I have just made, in IRC v a Debtor, loc.cit., Robert Walker J said at 974B that it seemed to him reasonably clear:
"that in considering an offer a creditor is entitled to have regard to his own interests (so long as they are his interests as a creditor, and not in some other capacity so as to bring in collateral considerations). The creditor is not required to balance his interests against those of the debtor, or to take a chance, or to show patience or generosity, even though some creditors might do so. As Lord Phillimore put it in Viscount Tredegar v Harwood & others  AC 72 at p.82, acting reasonably is not the same as acting justly, fairly or kindly. That was a landlord and tenant case but this point at least is of general application."
48. In the same case, the judge made some pertinent comments about the position of the Revenue, which had refused an offer of a third charge over the debtor's house to secure a debt of about £36,000. The house was worth around £150,000, but was subject to first and second charges totalling about £80,000 and there was evidence that enforcement by sale would probably be difficult and protracted: see in particular 976F-G. The judge doubted (differing on this point from Mr Timothy Lloyd QC) whether there could be any strong presumption that large and impersonal creditors, such as the insurance company in In re A Debtor (No. 32 of 1993) or the Revenue, are unlikely to act unreasonably. As he said at 974G:
"Large and impersonal bodies are much less likely to act unreasonably from motives of personal vindictiveness … but bureaucratic inflexibility can sometimes produce an impersonal sort of oppression. On the other hand, large organisations constantly have to take decisions affecting large numbers of debtors (whether they are taxpayers, borrowers or trade debtors) and they can sensibly do so only by delegating the decisions to be made in accordance with coherent in-house policies."
49. After setting out the factors which weighed both for and against the taking of security, Robert Walker J stated his conclusion at 976G:
"Having looked at the rival submissions in some detail I remind myself that the crucial question is: am I satisfied that the Revenue has acted unreasonably in rejecting the offer? The Revenue is, as Mr Tidmarsh says, under a statutory duty to collect tax (and interest on tax) that is due but unpaid. The officials of the Revenue concerned with collection ought not (and therefore are, on the face of it, unlikely) to refuse an offer which increases the likely net recovery to public funds. But the Revenue is, on the face of it, the best judge of what internal costs and diversion of resources may be involved in accepting security in a case like this. Without going back on what I have said about the possibility of institutional oppression, I see no real evidence of it in this case. At worst some officials have been careless and imprecise in explaining the Revenue's position."
Bearing in mind the range of reasonable positions open to the hypothetical creditor, the judge held, reversing the decision of Mr Registrar Rawson, that the Revenue had not gone outside that range and acted unreasonably.
50. Thirdly, the decision of Lightman J in HM Customs & Excise v Dougall is of interest because one of the arguments advanced by the debtor was that the Commissioners operated a rigid institutional policy of conceding nothing to a debtor who had defrauded them. The judge said at 273H that it was clear to him that the Commissioners did not regard themselves as bound to adhere to any rigid policy, and they viewed the debtor's proposal on its merits, as they were obliged to do. He then referred to certain aspects of the evidence which supported this conclusion, and continued at 274A:
"I should, however, add, that even if I had held that there was a rigid policy which constrained the [Commissioners] in regard to the proposal made, I would not have regarded that as a matter of any significance for this simple reason: the exercise required, as I have already said, is an objective valuation of the offer and subjective considerations which operated on the mind of the creditor are not matters of any weight."
51. This last point is a significant one, because like the Registrar I find it disturbing that Mr Ross and Mr Holmes were repeatedly told that it was the policy of HMRC not to accept security in the form of legal charges over land. A variety of explanations for this policy were given, but its existence was never denied, and consistently with its existence there is no indication that the security offered by Mr Ross and Mr Holmes was ever considered on its merits. In the course of the hearing Mr Lopian told me, on instructions, that despite all appearances to the contrary in the present case HMRC do not, in fact, have a rigid policy, and all offers of security are (or should be) considered on their merits. I do not doubt that Mr Lopian's instructions were to this effect, but I have to say that there is no evidence in the present case of the application of a flexible policy of that nature, and there is instead every indication that the offer of security was rejected out of hand without any serious consideration. I think it is regrettable, to say the least, and especially so in view of the comments made by Robert Walker J in IRC v a Debtor, that if HMRC do have a coherent in-house policy in this area, effective steps have apparently not been taken to ensure that it is known to, and applied by, the enforcement officers who actually deal with debtors. In the circumstances, it is not surprising that Mr Ross and Mr Holmes gained the firm impression that their offer of security was for all practical purposes ignored. Furthermore, there is in my judgment a real risk of institutional oppression if a rigid policy is unthinkingly applied, and debtors are fobbed off with inadequate or generalised justifications for the policy.
Mr Justice Henderson then concludes:
"Having now set the scene, at I fear considerable length, and referred to the guidance to be found in the authorities, I can state my conclusions on this part of the case. It seems to me that, viewed objectively, HMRC's refusal to accept the April 2009 offer was well within the range of reasonable responses open to a hypothetical creditor in HMRC's position. By the date of the hearing on 20 July 2009, well over a year had elapsed since service of the statutory demands, and over 10 months since presentation of the petitions. The debtors' tax affairs were still in a state of disarray, no up to date accounts were available, and there were very substantial post-petition tax and NIC liabilities which remained unpaid. Despite numerous adjournments, the promised payment in full of the petition debts had not materialised, and two substantial cheques had been dishonoured on presentation. In addition, the SRA had intervened into the debtors' practices on grounds which included accounting irregularities and suspected dishonesty. In those circumstances it would in my judgment have been perfectly reasonable for the hypothetical creditor to take the view that the time for negotiation had passed and the interests of the exchequer would be best served by pressing for bankruptcy orders to be made.
63. In the light of the evidence of assets, the prospects of receiving payment in full from a trustee in bankruptcy were good. Nor was there any clear timing advantage to be gained by accepting the offer of security, in view of the fact that several planning matters remained to be sorted out and the offer was apparently made subject to the condition that marketing should not even begin until 6 months had elapsed (or, if earlier, the hoped for planning consents had been obtained). The security offered was over a portfolio of properties, and included second and third charges as well as first charges. If accepted, HMRC might well have been obliged to become involved in planning and marketing decisions, and in negotiations with prior encumbrancers. They do not have the resources for such activities, and if offers of this kind were regularly accepted they might soon find themselves, as the Registrar memorably put it in the course of argument, as "the biggest property owner in the country".
"I have already quoted the Registrar's conclusions on this part of the case in paragraphs 14 and 15 of his judgment. In substance, I respectfully agree with his approach and his conclusion. I have dealt with the matter in greater detail, in deference to the clear and attractive submissions advanced to me by Mr Ross; but in the end I feel no real doubt about the answer. In the circumstances, I would grant Mr Ross and Mr Holmes permission to appeal on the first issue, but would dismiss this ground of appeal."
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