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Insolvency Law

Expert guidance on all aspects of corporate and personal insolvency

04 JUL 2011

White v Davenham Trust Ltd [2011] EWCA Civ 747 (28 June 2011) - setting aside statutory demands

The Court of Appeal (Lord Justice Maurice Kay, Lord Justice LLoyd (giving the main judgment) and Lord Justice Elias) has handed down its decision in White v Davenham Trust Ltd [2011] EWCA Civ 747 (28 June 2011). The case concerns an appeal from Deputy Registrar Schaffer setting aside a statutory demand served by Davenham Trust Limited (DTL) on Mr Mark White. Mr Justice Floyd allowed the appeal from Registrar Schaffer. The judgment contains some interesting discussion of the nature of bankruptcy. For example, at paragraph 6 it is noted that "A creditor who seeks to enforce his debt against an individual debtor may commence an action against him in a relevant court. Alternatively he may wish to take bankruptcy proceedings immediately. If there is a genuine dispute about the entire debt, or a cross claim which would equal or exceed the debt, he is precluded from invoking the bankruptcy system, by virtue of provisions which I will mention. In order to start bankruptcy proceedings the creditor must satisfy the provisions of ss.267 and 268 of the Insolvency Act 1986." The learned judge goes on to note, "The prohibition on a secured creditor presenting a petition is subject to two exceptions, under s.269. The first is if the creditor states that, if a bankruptcy order is made, he is willing to give up his security for the benefit of all creditors. In that case, therefore, the creditor is secured but if the bankruptcy process follows he will be treated as unsecured and the asset over which the security exists will form part of the bankruptcy estate available for distribution as between all the creditors. The second case is where the petition is expressed not to be made for the secured part of the debt and the estimated value of the security is stated. In that case there are deemed to be two separate debts, one secured (to the amount of the value of the security) and the other unsecured (for the balance) and the bankruptcy petition is only for the unsecured balance..." Finally it is noted that, "Lying behind these arrangements is the fact that bankruptcy proceedings are not intended as a means for a single creditor to enforce his debt against the debtor but rather as a method of collective realisation of the assets of a debtor who cannot pay his debts, to be distributed for the benefit of all creditors with claims on those assets. A creditor who is fully secured over assets of that debtor does not need to take bankruptcy proceedings, and should not do so, unless he is willing to give up the security, because the asset over which the security exists will not be part of the estate divisible for the benefit of the creditors generally. That is why a secured creditor cannot present a bankruptcy petition under s.267(2)(b) unless either he is willing to give up the security or his security is not adequate to cover the whole debt, in which case he ranks with the other unsecured creditors but only so far as the shortfall is concerned. That summary goes back to first principles of bankruptcy law as set out in the Insolvency Act 1986 and the related rules, but it is worthwhile to bear it in mind when considering the provision on which this appeal turns."

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