Everything about insolvency petitions marks them apart from ordinary litigation. The Civil Procedure Rules are largely inapplicable. There are no parties in a strict sense, no statements of case nor disclosure and no oral evidence nor trial. Every hearing is a final hearing unless it is postponed to another final hearing. It is therefore of great importance for the practitioner to know and understand the law and practice of adjourning petitions. Unfortunately, this is not set out in the Act or Rules. Instead, it is largely derived from judge-made law. Even then, it is difficult for the uninitiated to find. The recent decision in Aabar Block S.A.R.L v Glenn Maud  EWHC 3681 (Ch) (‘Maud’) is a welcome review of the authorities. The simple message is that the discretion to adjourn/postpone is very wide and, whilst there are certain general rules of thumb, its exercise is highly fact-sensitive.
The two-stage test
Creditors are often well-rehearsed in the principles that the court will apply in response to an application to set aside a statutory demand, ie assuming the procedural formalities have been observed, whether the debtor appears to have a cross claim or disputes the debt. However, it is often assumed that once those arguments have been aired in full and leave is given to present a bankruptcy petition (again, assuming due compliance with the procedural and formal requirements as to service and filing), the bankruptcy order will be made. Various authorities have confirmed that, although no issue estoppel arises, arguments run in an earlier set-aside application cannot be re-litigated at the petition hearing absent a significant change of circumstance.
In fact, the court is emboldened at the petition hearing by the more general discretion provided in section 266(3) of the Insolvency Act 1986 which provides:
‘The court has a general power, if it appears to it appropriate to do so on the grounds that there has been a contravention of the rules or for any other reason, to dismiss a bankruptcy petition or to stay proceedings on such a petition; and where it stays proceedings on a petition, it may do so on such terms and conditions as it thinks fit’.
This is supplemented by rule 6.25(1) of the Insolvency Rules 1986 which provides that the court ‘may make a bankruptcy order if satisfied that the statements in the petition are true and that the debt on which it is founded has not been paid, or secured or compounded for’.
The general discretion to adjourn or dismiss a petition has deep, pre-1986 Act roots. Notwithstanding the fact that s 8 of the Bankruptcy Act 1869 had mandatory language, the court had a discretion to refuse to make a man bankrupt ‘for an improper purpose, and to annul an adjudication when the justice and the convenience of the case require it’. Examples of where the court would apply its discretion included where it was satisfied that the debtor’s sole asset would be destroyed and where there would be no value to the creditors if an order were to be made.
Section 5(3) of the 1914 Act, the predecessor to s 266(3), provided:
‘If the court is not satisfied with the proof of the petitioning creditor's debt, or of the act of bankruptcy, or of the service of the petition, or is satisfied by the debtor that he is able to pay his debts, or that for other sufficient cause no order ought to be made, the court may dismiss the petition.’
This discretion was a general one, its exercise being entirely dependent upon the facts of the case.
The same now applies under the current legislation. There is no room for the court on the final hearing of an insolvency petition for the modern approach to ordinary civil trials – where, eg under CPR PD 29 para 7.4, postponement of the final hearing is a ‘last resort’.
However, despite the seemingly wide ambit of the discretion, there have always been certain working rules and, on occasion, settled practices in relation to the adjournment and dismissal of insolvency petitions.
Dismissal of petitions
General practice has dictated a starting position that where the petitioning creditor has established that he has fulfilled all the statutory conditions, he is prima facie entitled to a bankruptcy order. This is akin to an evidentiary burden. It will be a very unusual case in which those conditions have been fulfilled and the petition is dismissed. In Shepherd v LSC  140, a bankruptcy order was made notwithstanding the fact that it was conceded by all sides that there were no assets to realise. In John Lewis v Pearson Burton  BPIR 70 it was held that a district judge had been wrong to have dismissed a petition using the discretion vested by s 266(3) because the creditor had refused an offer by the debtor to repay within 7 years. Even where there has been a delay of more than 4 months between the service of the statutory demand and the presentation of the petition, the court will not dismiss it unless the debtor has demonstrated that he has suffered prejudice as a result. Formal defects will not normally justify the dismissal of a petition. If there is an abuse of process, the petition will be dismissed. As set out in Re Majory  Ch.600:
‘court proceedings may not be used or threatened for the purpose of obtaining for the purpose of the person so using or threatening them some collateral advantage to himself, and not for the purpose for which such proceedings are properly designed and exist; and a party so using or threatening proceedings will be liable to be held guilty of abusing the process of the court and therefore disqualified from invoking the powers of the court by proceedings he has abused.’
However, an improper purpose or ulterior motive will not justify a dismissal of the petition where part of the purpose is to obtain the bankruptcy order.
Examples of unusual circumstances in which a petition has been dismissed include where there was an issue estoppel relating to the debt (Inland Revenue v Khan  BPIR 409) and where there was an incomplete previous bankruptcy in relation to which it was not clear whether there would be a surplus (Re Ross (A Bankrupt) No.2  BPIR 636).
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