Debt owed should be considered in adjournment of bankruptcy petition
Court states debt owed to supporting creditors should be considered when deciding to adjourn a bankruptcy petition
Case summary
In Robertson v Wojakovski [2020] EWHC 2737 (Ch) the circumstances in which a court will use its discretion to adjourn a bankruptcy petition hearing was challenged. The court considered whether a debtor who is seeking such an adjournment is required to provide credible evidence not only of their ability to pay the petition debt within a reasonable time, but also the debt of any supporting creditors.
Key facts and decision
The petitioning creditor sought a bankruptcy order to be made against the defendant. The statutory conditions for such an order were fulfilled. It was highlighted that the court retains a discretion not to make a bankruptcy order, even where the conditions have been met, provided there is a reasonable prospect of the debt being paid in full within a reasonable period. There must be credible and convincing evidence provided by the debtor to support such a prospect. The court is not likely to accept bare assertions by the defendant of his or her ability to pay.
Mr Justice Zacaroli was satisfied that the court had such discretion to adjourn. However, he questioned which debts must be payable within a reasonable time. He concluded that previous cases had not considered the ability of the defendant to pay the debt owed to supporting creditors.
The respondent in this case contended that there was a reasonable prospect of paying the debt of the petitioner but accepted that there was no reasonable prospect of being able to pay the substantially larger debt owed to the supporting creditors within a reasonable time.
Mr Justice Zacaroli, concluded, that because bankruptcy is a class remedy, the debt of all the supporting creditors should be considered. Once a petition has been presented by a creditor, the only remedy left to other creditors is to support the existing petition. The giving of such notice entitles the creditor to be substituted as petitioner if an adjournment is sought. The result of not considering the ability to pay all the supporting creditors would inevitably lead to these creditors applying to be substituted, at which point a bankruptcy order would likely be made if the debtor could not pay the newly substituted petitioner.
Significance
Although in this case the ability of the debtor to pay even the petitioner’s debt within a reasonable time was not established, the approach discussed in this case is likely to be highly persuasive in other cases, especially where there are supporting creditors with substantially greater debts than the petitioner.
The likelihood of being successful in seeking adjournment of a bankruptcy order will depend on the debtor’s ability to pay not only the petitioner’s debt but also the debt owed to all supporting creditors. That said, bankruptcy respondents should also take heart from this decision in that the court will exercise its discretion to adjourn if it believes that it is correct to do so in the circumstances.
Should you have any questions in respect of the above or require more information about bankruptcy proceedings generally, then please contact James Thornton or Anna Barfield from our Litigation and Dispute Resolution Team.
James Thornton – Head of Litigation and Dispute Resolution
Email: jthornton@fionabruce.co.uk
Tel: 01925 217026
Anna Barfield – Trainee Solicitor
Email: abarfield@fionabruce.co.uk
Tel: 01925 263273
The contents of this article do not constitute legal advice and are provided for general information purposes only.