Guest Post by Caroline Waterworth - Two Bankruptcy Orders?
The Croydon County Court was the venue for an application pursuant to s 282(1)(a) of the Insolvency Act 1986 by a bankrupt who had found himself subject to two bankruptcy orders: the first had been made in the High Court on 29 September 2011 and the second had been made in the Croydon County Court on 25 October 2011 (less than a month after the first order). For reasons that may never be understood, the usual searches did not reveal the first order.
Although the relevant law is limited and this is not a predicament which is likely to arise often, it may be helpful for practitioners to be alive to the issues which exist in similar circumstances.
The bankrupt applied to annul both bankruptcy orders: his grounds for the first were that there had not been good service and his grounds for the second were (1) that pursuant to the logical application of s 282(1)(a), if Croydon County Court had been aware of the first bankruptcy order in the High Court, then on the "grounds existing at the time the order was made, the order ought not to have been made", and, (2) there had not been good service.
The petitioning creditor of the first bankruptcy order agreed to its annulment by consent in January 2012. However, the petitioning creditor of the second bankruptcy order contested the annulment and the application of s 282(1)(a).
The court has power to annul a bankruptcy order where if it at any time it appears to the court-
(a) that, on the grounds existing at the time the order was made, the order ought not to have been made.
In the absence of any authorities on the point, the applicant's very simple submission was that a strict reading of s 282(1)(a) and the general operation of the laws of bankruptcy, by which an individual can only be subject to one bankruptcy order at a time, meant that whilst the court had discretion under s 282(1), on this application, the discretion was effectively restricted, and the judge was bound to conclude that if the judge who made the second bankruptcy order had known of the first bankruptcy order (ie on the grounds existing at the time the order was made) he would not have made the second bankruptcy order. The court was invited to annul the second bankruptcy order on that basis.
The submissions for the petitioning creditor were centred on the possibility of consolidating proceedings. The court was invited to allow the second bankruptcy order to remain as s 334 of the Insolvency Act allows for petitions to be consolidated. The petitioning creditor relied on the decision of Nicholas Strauss QC sitting as a deputy judge of the Chancery Division in Phelps v Spon-Smith and Co (A Firm)  BPIR 326,  All ER (D) 1268 where he said:
‘On 14 November 1995, the plaintiff was again adjudged bankrupt. The petition was based upon a judgment debt owed to the Inland Revenue on a judgment entered in April 1994. Clearly, the second petition was issued in error, and the debt should have been the subject of a proof in the existing bankruptcy. It was transferred to the Croydon County Court on 17 November and on 18 December, on an application made by the Official Receiver pursuant to Insolvency Rules 1986, r 6.236, an order consolidating the two proceedings was made and it was further ordered:
"(b) That the date of the Bankruptcy Order in the consolidated proceedings be deemed to be 31 October 1994.
(c) That the date of the presentation in the petition of the consolidated proceedings be deemed to be 15 August 1994."
It appears from correspondence with the Official Receiver that this type of order is sometimes made, as an alternative to annulling a second bankruptcy order, where it has been made on the basis of a debt for which the creditor could have proved in the original bankruptcy.'
In the Phelps case, the Croydon County Court had permitted the consolidation of the second petition (notwithstanding that a second bankruptcy order had been made on it) into the first set of proceedings. This was done as an "alternative to annulling a second bankruptcy order". From this it is clear that the second bankruptcy order cannot exist in its own right; it may be consolidated with existing proceedings or it may be annulled.
It is clearly possible for petitions to exist in duplicate; however, the problem for the petitioning creditor in this case was that the consolidation mechanism required the continued existence of the first bankruptcy order, and here it had been annulled. The only option which remained was annulment which Nicholas Strauss QC had indicated was the alternative if the second petition could not be consolidated.
The judge drew a distinction between consolidation of petitions where the first bankruptcy order remained and the position here when the first bankruptcy order had previously been annulled. She determined that as consolidation was not possible she was left to decide the correct interpretation of s 282(1)(a).
She concluded that if the court had been aware of the first bankruptcy order when it made the second order, it would not have made the second order, and as such she had to exercise her discretion to annul the second order of 25 October 2011.
The bankrupt was successful but if the bankrupt had not been able to annul the first bankruptcy order, it appears on the limited authorities that it would have been open to the court to consolidate the second set of proceedings with the first and a bankruptcy order would have remained in place. It was not necessary for the court to consider if the second order would have been void ab initio. Perhaps that will be the next insolvency decision of note for Croydon County Court to consider.
Chambers of Tony Baldry MP, March 2012
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