No Benefit or Utility from Bankruptcy Order

Author: Simon Hill
In: Article Published: Wednesday 08 August 2018

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Where a bankruptcy petition is founded upon sufficient indebtedness (judgment debt or a sum ordered to be paid, or simply admitted liability), and the proper procedure for bringing the petition has been completed, the debtor/respondent to the petition will have only a limited selection of grounds upon which he/she can resist the Insolvency Court[1]adjudicating the debtor as bankrupt. 

This article will consider one ground for resisting the petition, namely, that the making of a bankruptcy order would be pointless/futile – an act in vain, in that there can be no expectation that the bankruptcy order will produce an identifiable utility or benefit[2], because the bankrupt estate will have no assets and no prospect of acquiring any assets, and no useful investigation of the debtor’s assets or affairs can be undertaken[3]. As Morgan J said in JSC Bank of Moscow v Kekhman [2015] 1 WLR 3737, at paragraph 62:

‘A court will not wish to make an order that is pointless. Therefore, a court will wish to be satisfied that there is a reasonable possibility of benefit resulting from its order.’requiring bankrupt estate assets or a prospect of such assets'

This article will consider briefly the governing statute, the early case law and the requirement for there to be bankrupt estate assets or a prospect of such assets, before turning to the more recent case law, and the important case of JSC Bank of Moscow v Kekhman [2014] BPIR 959, both before the Chief Registrar and then on appeal before Morgan J [2015] 1 WLR 3737.

The Governing Statute 

The Insolvency Act 1986 gives the Insolvency Court the power to adjourn or stay a petition for a bankruptcy order. Section 266(3) of the Insolvency Act 1986 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 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.’

As Arden J in Westminster City Council v Parkin [2001] BPIR 1156 says at 1157B, this ‘…gives the court an unusual but general power where there has been a contravention of the Rules or ‘for any reason’ to dismiss a petition or to stay proceedings on a petition.’ Peter Smith J in Re Micklethwait [2003] BPIR 101, at paragraph 6 described the power set out in the section as ‘quite unfettered’, and at paragraph 9 said ‘…the power can be exercised if the making of a bankruptcy order might cause an injustice.’

No Assets and No Prospect of Acquiring Any Assets

An early authority in this area is the case of In Re Betts [1897] 1 Q.B. 50. The case involved the making of a now obsolete type of order, called a ‘receiving order’[4]– a preliminary order for the protection of the estate, before a bankruptcy order was made. In Re Betts, Lord Esher MR in the Court of Appeal said at 52:

If the Court is clearly convinced, not merely by the statement of the debtor, but from all the circumstances of the case, that there cannot be any assets or any prospect of any coming into existence, and that, if a receiving order is made, the only effect will be a mere waste of money in costs, then in such a case the Court has a discretion in the matter, and will be justified in exercising that discretion by refusing to make the order.’

Re Betts involved a debtor who was already an undischarged bankrupt; the debtor had presented against him a second bankruptcy petition. The debtor had already lost an entitlement to an income from a trust fund (the first bankruptcy had caused that to determine). Any assets accumulated by the debtor since the first bankruptcy were already vulnerable to being acquired by the existing trustee in bankruptcy (‘TIB’). The petitioning creditor on the second bankruptcy petition was already a creditor in the first bankruptcy, and so, had there been any post first bankruptcy order accumulation of assets, the petitioning creditor could have prompted the existing TIB to acquire them. No such prompting had occurred. From this the Court inferred at 53 that the petitioning creditor ‘…must know that there are no assets, and no probability of any becoming available.’ As to this possibility of assets, Lord Esher MR said at 53:

It is said that there is a possibility of assets. But I think that a Court of justice ought not to take into consideration a possibility of which there is no probability. There does not appear to me to be in this case any possibility of assets in a business sense. There being no probability or even possibility in a business sense of the existence of assets which would pay off the debts under the first bankruptcy, and so become available for the purposes of the second, it appears to me that the result of making a receiving order would only be to cause a waste of money in costs which would be incurred uselessly.

Lopes LJ in Re Betts agreed with Lord Esher MR and said at 53:

‘…where from all the circumstances of the case it is perfectly clear that there is no asset and no reasonable probability of any asset coming into existence in the future, and that the only effect of making a receiving order would be a useless heaping up of costs, the right course is to refuse to make an order.

A similar situation, and outcome was reached in Ex parte Robinson  (1883) 22 Ch. D 816 where a earlier (and ongoing) Scottish sequestration and then bankruptcy against the debtor, led the English Court, at 818, to conclude that a bankruptcy in England ‘could be of no use to any one’ and would be ‘a vain thing’, there being no assets in England (and it seems, until the Scottish sequestration was closed, all the debtor’s assets vested in the Scottish trustee anyway). Baggallay LJ in Ex parte Robinson expressed himself in similar terms, noting, however, that if there were assets in England, the court would make an adjudication of bankruptcy[5]

A different result occurred in Re a Debtor (No.199 of 1922) [1922] 2 Ch 470, where a receiving order was held properly made in the exercise of the registrar’s discretion, at 474. Ex parte Robinson was distinguished because, unlike Ex parte Robinson, on the facts of Re a Debtor, there were assets in England. 

The developing ‘no assets and no prospects of acquiring any’ doctrine was held to be hedged with some important precautions. In Re Field (A Debtor) [1978] Ch 371, the Divisional Court heard an appeal against the imposition of a receiving order. Megarry VC summarised the basic doctrine, at 375, that:

‘…where it was established that the debtor had no assets and no prospects of acquiring any, the court should dismiss the petition; for to make a receiving order in such circumstances would merely increase the costs, and would do no good. In the present case, he said, the debtor fell within this doctrine, and so the receiving order should be set aside.

But Megarry VC continued, at 375:

Now it is plain that there is considerable support for some doctrine of this sort; but it is equally plain that the doctrine is hedged about by important precautions. After all, if it were open to a debtor to avoid having a receiving order made against him simply by alleging utter destitution, both present and future, such pleas of destitution might become popular; and prospective bankrupts might hasten to rid themselves of any assets or prospects which might hamper them in making such a plea. A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy.’

This heavy burden will not be satisfied merely by a debtor’s uncorroborated say-so. Megarry VC said at 376: 

‘…if a debtor merely swears an affidavit saying that it is no use making him a bankrupt because he has no assets and no prospects of having any, the court will not accept this as a ground for not making a receiving order, because at that stage the court is not in a position to know whether that statement is true. During the process of bankruptcy much that was unknown earlier becomes revealed.’

On the facts of Re Field, Megarry VC said, at 378:

‘…even if his own evidence is accepted at its full face value, I am, like Horridge and Rowlatt JJ. in In re Hay (1913) 110 L.T. 47, 48, far from being "clearly convinced that there are no assets and will be none." It is plain that the burden of proof in such matters is heavy, and rightly heavy; and here the debtor has not discharged it.’

This caution about being able to really tell the debtor’s financial position, existed in more pronounced form if one goes back before Re Betts, to the case of Re Leonard, Ex parte Leonard [1896] 1 Q.B. 473. When Ex parte Leonard was decided, the inability to properly judge what assets for distribution, the bankruptcy process might turn up, was an important issue - mere appearance of no assets was no ground for refusing to make a receiving order, because as Lord Esher said at 475, approving earlier dicta:

‘…at the time when the petition is presented and before a receiving order is made, it is impossible to tell whether there will prove to be any assets or not. All the petitioning creditor then knows or need know is that a debt is owing to him, and that, after taking the necessary steps to procure payment of that debt, he cannot get payment of it; and therefore he asks that the debtor may be made bankrupt. The Court cannot at that stage tell whether the proceedings in bankruptcy will have no result. If the debtor is made bankrupt, there will be a public examination of him, and then it may be ascertained whether he has any assets. At the time of the petition and adjudication the Court has not the proper materials for judging whether there are assets or not.

In Revenue and Customs Commissioners v Crossman [2008] 1 All E.R. 483, Rimer J at paragraph 42 did not question the principle from Re Field, that ‘A man may indeed be too poor to be made bankrupt: but the burden of proof is heavy.’ Reference to this heavy burden arose in the relatively recent case of re Thulin [1995] 1 WLR 165, where it was held, at 171, that ‘…the onus of proving “no assets here” is squarely on the shoulders of the debtor. It is a heavy onus and it is not ordinarily discharged by the debtor's uncorroborated say-so.’[6]

The asset need not be corporeal. It may be incorporeal, such as cause of action[7].

Insufficient assets to provide for a Pari Passu distribution. 

The notion of ‘no assets and no prospects of acquiring any’ does not simply apply to whether there will be a pot of money available for pari passu distribution to the unsecured creditors. It is only futile if there will be no assets at all, rather than insufficient assets to generate any distribution to the unsecured creditors. Merely because the available assets are likely to be absorbed further up the order of priorities by, for instance, the costs of administering the bankrupt estate, does not mean the bankruptcy order will be futile. 

In re Jubb, Ex parte Burman and Greenwood [1897] 1 QB 641, the debtor contended that a receiving order ought not to be made ‘…because at the hearing it appeared that there was a probability that the whole of the available assets would be absorbed by the costs of the bankruptcy proceedings…’ (see 645). But this contention was rejected. Vaughan Williams J stated, at 644:

The question for our decision is, why should there not be a receiving order? It is contended on behalf of the debtor that a receiving order ought not to be made, on the ground that in all probability the costs of the bankruptcy proceedings will exceed the sum of 20l., which is alleged to be about the amount of the available assets, and so nobody will get anything. It has never been decided that the mere fact that the costs of the proceedings appear likely to absorb the whole of the assets amounts to a sufficient ground for the refusal of a receiving order…. Sect. 7, sub-s. 3, of the Bankruptcy Act, 1883, provides that if the Court is satisfied that the debtor is able to pay his debts, or that for other sufficient cause no order ought to be made, the Court may dismiss the petition. In the present case the order was based on the ground that there was sufficient cause for dismissing the petition, because at the hearing it appeared that there was a probability that the whole of the available assets would be absorbed by the costs of the bankruptcy proceedings; but that is not a ground for refusing to make a receiving order. It is quite possible that it may turn out in the course of the bankruptcy proceedings that the assets available for distribution are in fact larger than appears to be the case at present.’

The Notion of Oppression

Where there are no assets and no probability of any becoming available, the court has a discretion to refuse to make a bankruptcy order. When exercising that discretion, the notion of oppression appears to be a factor at play. In In re Emma Somers, Ex parte Union Credit Bank Ltd. (1897) 4 Mans. 227, the brother of a barmaid sought to borrow £100 from a money-lending company which required sureties for the loan. The barmaid and her sister, at the solicitation of their brother, joined with him in signing a promissory note, and the loan was made to the brother; the barmaid received none of the money. There was default in paying an instalment, the company obtained judgment for the debt against all three. The company served bankruptcy notices (a concept now obsolete) and presented petitions in bankruptcy against all three. The barmaid contended that no receiving order should be made against her because she had no assets and was not likely to become possessed of any; and this was supported not only by her own affidavit, but also by her brother's. On appeal, the Divisional Court set aside a receiving order made at first instance against the barmaid. Wright J said at 230:

All the cases agree in saying that the evidence of the debtor alone as to no assets will not do; but in a case like this, where there are no assets and no probability of any becoming available, the court has a discretion to refuse to make a receiving order if, in its opinion, the proceedings are of an oppressive character. Here, in my opinion, they are of an oppressive character, and the court ought to exercise its discretion by refusing a receiving order.’

Kennedy J put matters with brevity:

I am of the same opinion. In this case there are no existing assets and no prospect of any becoming available. That is the effect of the debtor's affidavit, and though her affidavit alone would not be sufficient to establish a case of no assets, it is corroborated by the affidavit of her brother - a disinterested witness. Having regard to these and the other circumstances of the case, it appears to me that it would be oppressive to allow this receiving order to stand.’

Megarry VC in Re Field (A Debtor) [1978] Ch 371, considered In re Emma Somers and commented at 377:

I think it important to observe that both judges put their decisions on the basis of oppression. Neither makes it explicit what the circumstances of oppression were; but it is not hard to discern possible grounds for this conclusion. The petitioning creditor was a moneylender; the debtor was a barmaid; she was a sister who had sought to help her brother; she was a mere surety; and she had had none of the money herself.

On the facts of Re Field, there was no evidence of oppression and the debtor had not put forward any evidence, save his own, to support his contention that he had no assets, and that there was no prospect of him ever having any. Indeed, his evidence said nothing expressly about no future prospects of assets, and included a reference to some surplus income from a new job - evidence pointing in the other direction. 

Just and Equitable to make Bankruptcy Order so Investigation can take Place

Even where there are no assets and no prospects of acquiring any, the Insolvency Court may still make a bankruptcy order in order that an investigation might take place into the bankrupt’s assets and affairs. 

In Shepherd v Legal Services Commission [2003] BCC 728 (‘Shepherd’), Mr Gabriel Moss QC, sitting as a deputy judge of the High Court, considered authorities ‘…from the field of corporate insolvency but it seems to me that the principles must be analogous.’ The authorities considered included Bell Group Finance (Pty) Ltd (in Liq.) v Bell Group (UK) Holdings Ltd Ltd [1996] BCC 505 (‘Bell Group’). The deputy judge in Shepherd, said of Bell Group, at 732:

‘This was the case of a winding-up petition by a creditor where one of the grounds of defence was that there were no assets. In relation to this ground of opposition Chadwick J said at p.509D–E:

‘The resistance to the making of a winding-up order in relation to this, admittedly, insolvent company is founded on two main grounds …

Secondly, it is said that even if BGF is treated as a creditor, the winding up of BG (UK) cannot lead to any legitimate advantage for the class of creditors of which BGF is a member, and, accordingly, the court ought, as a matter of discretion, to refuse a winding-up order.’

Subsequently in his judgment at p.512E Chadwick J pointed out that on the authorities, and indeed in the case of companies in the terms of the statute, a lack of assets cannot by itself be a ground for refusing an order:

‘… if there is some other reason to make one.’

He then went on to say at p.512F:

‘Mr Adkins's submission, when tested, amounts to this. That a court, faced with a winding-up petition presented by a creditor in circumstances where it is satisfied (a) that the company has no assets but (b) that it is in the public interest that the company should be wound up for the purpose of an investigation into its affairs, must nevertheless dismiss the petition, leaving it to the petitioner to persuade the Secretary of State, if he can, to present a further petition under s. 124A  .’

At p.513 Chadwick J, as he then was, went on to consider the relevant part of the Leigh Estates case to which I have already referred. He stated at pp.513–514:

‘On the facts of that case the judge was entitled to reach the conclusion that what the petitioner was seeking to do by its petition was to gain a preference over secured and unsecured creditors alike by transferring the burden of future rates to the receivers as a cost in the receivership. Taking that view, it was plainly right to refuse to make a winding-up order in the circumstances in which the order would achieve no benefit for unsecured creditors as a whole; a fortiori, where the making of a winding-up order would, on the evidence, be likely to give rise to a positive disadvantage in relation to the realisation of properties by the receivers. I do not, myself, think that the judge intended to lay down as a rule of law that no winding-up order should be made unless it can be shown that the petition is presented for the purpose of swelling the estate of the company or otherwise improving the lot of the unsecured creditors. If he did so intend, then I do not feel able to apply that rule; I think that such a proposition would be inconsistent with the approach of the Court of Appeal in Re Crigglestone Coal (supra, [1906] 2 Ch 327).

In my view the question which the court has to ask in each case in which there are no assets is whether it is indeed just and equitable to make a winding-up order? It may well be just and equitable to make such an order in order to enable an investigation to take place.’

In Shepherd, the deputy judge heard an appeal against a bankruptcy order based on debts arising from costs orders made in favour of the Legal Services Commission (‘LSC’). The costs orders had arisen in civil proceedings brought by the debtor against LSC, in which the debtor claimed to be entitled[8]to substantial payments. In the Insolvency Court, one ground of appeal was that bringing bankruptcy proceedings had been oppressive. Drawing together the notion of oppression above, and that an investigation of debtor’s affairs and assets can qualify as a benefit from a bankruptcy order, the deputy judge in Shepherd said at 733-734:

‘The real question in the present case in this regard appears to be whether it would be sensible to allow the debtor to continue with what so far has been futile litigation creating considerable liabilities for court costs which he has no prospects of paying and thereby causing the Legal Services Commission very considerable loss which it has no realistic prospect of recovering, or allowing an objective and independent officer of the court to consider the matter in a dispassionate way and see whether there can sensibly and properly be brought any further proceedings against the Legal Services Commission. It seems to me that that purpose, which appears to be the purpose for which the Legal Services Commission has brought these bankruptcy proceedings, is a proper purpose because it seeks ‘the proper administration’ of the debtor's assets within the meaning of that phrase as used by Harman J in the Re a Company No. 001573 of 1983 case I have referred to above. It also seems to me that a bankruptcy order is justifiable on the grounds that there is a proper reason other than simply the realisation and distribution of assets, namely an investigation by the trustee of the affairs of the debtor and in particular these very serious allegations against the conduct of the Legal Services Commission. That would seem to be a proper purpose for insolvency proceedings in terms of the approach of Chadwick J in the Bell Group case. Unlike the debtor, the trustee in bankruptcy has statutory powers of investigation, including the ability to ask the court, if appropriate, to require the production of documents and to examine relevant persons on oath. If the trustee, as an objective and independent officer of the court, considers that those steps are necessary to investigate the very serious allegations made by the debtor, then he is able to take those steps whereas the debtor himself can not.

I am satisfied that in seeking their goal the Legal Services Commission have not acted oppressively in bringing these bankruptcy proceedings.’

In Lock v Aylesbury Vale DC, unreported 9.7.18, HHJ Hodge QC sitting as Judge of the High Court decided that there was a heavy burden to demonstrate that an individual did not and would not have assets available for distribution in bankruptcy, and also to demonstrate that no useful investigation of the bankrupt's assets or affairs could be undertaken. After asking himself whether there was anything to indicate that any investigation of the debtor’s affairs would bring anything more to light, he concluded on that facts that there was not. Consequentially, the bankruptcy order was set aside. 

International Aspects, rather than just Domestic Situation 

Ancillary benefits to the making of an English bankruptcy Order can arise where the debtor operates on an international scale, which are not present where the debtor operates on a purely domestic scale. Where identifiable benefit, or utility on an international scale exists, this may prevent an English bankruptcy order being held to be futile/pointless. 

In Re Thulin [1995] 1 WLR 165, Mr Jules Sher QC, sitting as a Judge of the High Court, dismissed an appeal by a debtor against a registrar’s bankruptcy order. The appeal challenged the registrar’s decision to refuse to dismiss or stay the petition, arguing ‘that nothing could come of such a bankruptcy order and it would be a waste of money to make it because the debtor has already been bankrupted in Sweden and has no assets in England.’ (see 167). Naturally, this challenge involved the debtor attempting to draw parallels with the earlier authorities. 

In his judgment, Mr Sher QC distinguished Re Thulin from Re Field and Re Betts, stating at 170 that:

these cases deal with a purely domestic situation. The debtors were not people who collected art or vintage cars and wheeled and dealed on an international scale.’

In contrast to the factual scenario in Re Field and Re BettsRe Thulin involved a debtor who had been ‘…involved in business dealings in a very large way and spanning many countries. His wide interests …extended to vintage motor cars and art.’; he had been ‘…in ultimate control of over one hundred companies’. Overall,this gave his situation‘an international flavour.’ Furthermore, when referring to the bankruptcy in Sweden, Mr Sher QC said, at 167,  ‘[b]y all accounts it is a very large bankruptcy’

In argument, the debtor in Re Thulin had tried to rely on Ex parte Robinson in order to avoid an English bankruptcy order. Mr Sher QC said at 170 -171:

I am afraid that I derive little help from this case. …The Court of Appeal was satisfied that there were no assets anywhere which were not within the grasp of the Scottish sequestration. At any rate the creditor put forward no reason why he would not be adequately protected by proving in the Scottish sequestration. Furthermore, the relationship between Scotland and England in the context of mutual auxiliary support of bankruptcy proceedings was no doubt vastly different from the corresponding relationship today between England and Sweden. There is no treaty covering bankruptcy between Sweden and the United Kingdom. In fact no evidence is put in concerning the Swedish bankruptcy. There is no reason to assume, as did Jessel M.R. in relation to Scotland, that an adjudication here might embarrass the proceedings in Sweden. 

Ex parte Robinson is no more than a general guide.’

Mr Sher QC in Re Thulin continued:

‘Even assuming that there are no assets in England, the English bankruptcy may yield benefits by way of reaching assets in a foreign country through recognition of the English bankruptcy by, and assistance of, the courts of that foreign country. Such assets may not be capable of being recovered by the Swedish trustee in bankruptcy in the same way, or at all. Given the international connections of the debtor and the improvement since the days of Ex parte Robinson in international communications, and the capacity to move funds and assets across national boundaries and across the seas at the press of a button, I do not see why the petitioning creditor should be deprived of what would otherwise be its right to a bankruptcy order simply because there are, at the present time, no assets physically located in England, and I have seen nothing in the authorities cited to me to show that in such a case the court's discretion should be exercised by dismissing the petition.

On the facts, Mr Sher QC found that, on the burden of proving ‘no assets and no prospect of acquiring any', ‘…the debtor has not even begun to discharge this onus and this is fatal to his appeal.’ He continued:

However, even had I been satisfied that there were no assets in England, I would not have been satisfied on the evidence that there could be no point in a bankruptcy order, and I would have been disposed, in the absence of further evidence, to let the petitioning creditor have its order for what it was worth.’

The decision in Re Thulin demonstrates that the issue is whether anything might be achieved by making the bankruptcy order. In other words, it now must be appreciated that the question whether there will be ‘no assets and no prospects of acquiring any’ in the bankrupt estate, is but one part of a wider and important question. Where there is an international aspect to the petition, the Court will need to ask itself whether any benefit might arise from/on that international plane. The question at the heart is still though whether the order will be pointless/futile or not. The factual scenario surrounding the prospective bankrupt estate will change from case to case, but in each, the question whether any benefit might be gained from the imposition of the English bankruptcy order, must be asked. 

Although not referred to in Re Thulin, an early indication of this approach can be seen in Re a Debtor (No.199 of 1922) [1922] 2 Ch. 470, at 474, in a second ground given for upholding the registrar’s receiving order. In No.199 of 1922, the Court opined that:

‘…it was foreshadowed in this case that the question of a voluntary settlement would have to be dealt with, and the bankruptcy law of Scotland does not contain the specific provisions with regard to voluntary settlements which are contained in our law.’ 

In other words, there was an identifiable benefit to making the English bankruptcy order in that case, because the English Bankruptcy process could be used to fill a lacuna in Scottish bankruptcy law.

Parallel Jurisdiction of Winding Up Petitions 

As will be apparent from the above, a key driving factor in Re Thulin, was that to hold otherwise, would have made it too easy to avoid an English bankruptcy order. In the modern age, money can be transferred very easily across borders; in this age of near instantaneous electronic money transfers, international companies can manipulate the position to avoid petitions. As touched on in Shepherd and Bell Group, corporate insolvency law is similarly addressing these issues in the parallel jurisdiction of winding up petitions against companies. Given the closeness of the two jurisdictions, the approach of the law in respect to winding up petition, is illuminating. 

Where the company to be wound up is a foreign company, Megarry J in Re Compania Merabello San Nicholas SA [1973] Ch 75 (‘Merabello’) set down 6 ‘essentials’[9]for the making of a winding up order. The 6thessential is:

‘If it is shown that there is no reasonable possibility of benefit accruing to creditors from making the winding up order, the jurisdiction is excluded.’

In Stocznia Gdanska SA v Latreefers Inc (No 2)[2001] 2 BCLC 116, Latreefers were the judgment debtors/foreign company and Stocznia Gdanska were the judgment creditors/petitioning creditors. The Court of Appeal referred to a debate about whether 3 core requirements were pre-conditions, or principles to be observed in considering its exercise, and continued, at paragraphs 30 to 34:

The issue is whether…the petitioner must demonstrate that the company has sufficient assets within the jurisdiction to provide a reasonable possibility of benefit to either the petitioner or the general body of creditors.

Having considered the previously decided cases on the subject at some length we reject the submission for Latreefers that the presence of assets is essential. 

…we can see no reason why… the presence of assets should advance the presumed intention of Parliament. As counsel for [Stocznia Gdanska] observed liquid assets may be moved from one jurisdiction to another at the entry of a computer command anywhere in the world. An additional requirement for the presence of an asset would introduce an arbitrary element which Parliament cannot have intended. 

The facts of Re Eloc Electro-Optieck and Communicatie B.V. [1982] Ch. 43 (‘Re Eloc’) demonstrate the wide spectrum of benefits that will qualify for these purposes. Nourse J held that the court had jurisdiction to wind up a Dutch company which had no assets within the jurisdiction[10]. What is interesting about Re Eloc is the unrestricted approach to the nature and source of the benefit identified as would arise from a winding up order being made against the company. To explain, the petitioners were two employees that the Dutch company had dismissed. The petitioners had applied to the Department of Employment for payment out of a statutory redundancy fund[11], but under the statutory provisions, no payment could be made to the petitioners, qua former employees, until the company was wound up. Consequently, they sought a winding up order in order to qualify for a payment out of the statutory redundancy fund. 

At 47, Nourse J made the basic point that there was a ‘…fundamental principle that the court will not wind up a company if there is no likelihood that any advantage will be achieved by the petitioner.[12]And that because there would be nothing which could be realised for the benefit of the creditors in a ‘normal case’[13]involving a foreign company which had no assets within the jurisdiction, there would be no point in the court's making a winding up order. 

Nourse J in Re Eloc then identified that, on the facts, there was a reasonable possibility of benefit accruing to the petitioner from the making of a winding up order. Nourse J stated, at 48:

‘The benefit would consist of assets coming into the hands of the petitioners not from the company but from an outside source which can only be tapped if an order is made. In the light of that consideration and of the facts, first, that the company did carry on business in England and Wales, secondly, that it employed the petitioners in that business, and, thirdly, that the potential source of assets is directly related to that employment, there is, in my judgment, sufficient to found the jurisdiction of the court. To put it another way, it would, in my judgment, be a lamentable state of affairs if the court's jurisdiction was excluded by the mere technicality that the assets, in respect of which the reasonable possibility of benefit accruing to the petitioners derived, belonged not to the company but to an outside source.’

Nourse J in Re Eloc obtained support for his view, from Merabello and its fourth and fifth essentials’, before stating that:

‘That shows, first, that the assets can be of any nature and, secondly, that the consequential benefit accruing to a creditor or creditors need not be channelled through the hands of the liquidator. To my mind that confirms that the ownership of the assets by the company is not a matter of crucial importance. I must again observe that Megarry J.'s summary of the essentials was directed to normal cases.

On the facts, the Insolvency Court in Re Eloc found that the Insolvency Court had jurisdiction to wind up the Dutch Company, and, that it ought to exercise its discretion and make the winding up order[14]

The upshot is that, this line of authorities, though about jurisdiction and foreign companies, strongly indicates that the benefit from making a bankruptcy order may be of ‘any nature’, and that it need not come via the office holder.

Debtor’s Own Bankruptcy Petition

In view of the fact that debtors bankruptcy petitions now operate under a new and separate scheme (see sections 263H-263O of the Insolvency Act 1986, in force since 6.4.16), and that creditors are not involved in the presentation of the debtors bankruptcy petition or consideration process before the adjudicator (see Budniok v Adjudicator, Insolvency Service [2017] EWHC 368 (Ch), Registrar Baister, paragraphs 65-67), the issue of dismissing the petition as pointless is very unlikely to now arise. Consequently, given it is now of significance only to those interested in legal history, a short summary of the position is provided only as a footnote[15]

Principles Distilled in Kekhman

In JSC Bank of Moscow v Kekhman [2014] BPIR 959 and [2015] 1 WLR 3737 (‘Kekhman’), the Insolvency Court had the opportunity to thoroughly consider this branch of the law, first by Chief Registrar Baister and then, on appeal, by Morgan J. On appeal, Morgan J dismissed the appeal, finding that the Chief Registrar was correct to dismiss the application for an order annulling the bankruptcy order, though Morgan J said that the Chief Registrar had failed to answer certain critical questions when arriving at that correct conclusion[16]

The Kekhman case involved a debtor’s bankruptcy petition but the judgment and principles distilled in it have wide application (Kekhman was decided before the change to the separate scheme for debtor’s bankruptcy petitions in 2016).

Briefly, the facts of Kekhman were that Mr Kekhman, a Russian citizen and resident of Russia, travelled to the UK for the purpose of presenting a debtor’s bankruptcy petition as soon as he arrived in the UK. He brought £200,00 with him to make available to the Official Recevier. Upon arrival in the UK, he presented a debtor’s bankruptcy petition and was duly adjudged bankrupt.  A creditor of Mr Kekhman, a Russian bank (JSC), applied to annul/rescind the bankruptcy order on various grounds. JSC contended that Mr Kekhman was a "bankruptcy tourist" who had tried to evade Russian law, which did not permit him to bankrupt himself, by "forum shopping" on a fleeting visit to the UK. JSC acknowledged the English Insolvency Court’s jurisdiction to make the order, but submitted that it should be annulled or rescinded because of material non-disclosure, in that the £200,000 had been subject to an arrest order and should never have been brought into the UK, and that the order lacked utility since, contrary to what the court had been told when the order was made, there was no prospect of its recognition in Russia. 

In dismissing JSC’s application in Kekham, Chief Registrar Baister gave a judgment comprehensively reviewing the relevant law, including Micklewait, Ex parte Robinson, Re Betts, Re Field, Re Jubb, Re Leonard, Re Thulin, amongst others, from paragraph 40 onwards. On appeal, Morgan J in Kekham noted the review at paragraph 37 of his judgment, without demur. The review is too substantial to quote here, and so readers are directed to read Chief Registrar’s review in full in his judgment. The Chief Registrar did however set down a summary of the relevant principles, distilled from his review of the case law, at paragraph 105. To the extent directly relevant, he summarised the principles as follows: 

(c) the presence of assets in the jurisdiction may once have been an important factor (Lord Jessell MR and Baggallay LJ in Ex parte Robinson) as may be the fact that there is a prospect of there being assets in the jurisdiction (Re Betts, Ex parte Painter and Re Thulin); however, the absence of assets never has been an absolute bar to making an order (In re Field; Re Thulin, where the judge talked of letting the petitioner have its order for what it is worth); it is plainly not now essential that there be assets (International Westminster Bank plc v Okeanos Maritime Corp and Stocznia Gdanska SA v Latreefers Inc);

(d) a claim may be an asset (International Westminster Bank plc v Okeanos Corp; Shepherd v Legal Services Commission);

(f) however, there is a need to show some benefit (Stocznia Gdanska SA v Latreefers SA; Re Magyar Telecom BV); the court will not make an order where there is no purpose or it would be a waste of costs (Ex parte Robinson; Re Betts);

(g) the presence of debts and debtor here may be a consideration (In re a Debtor (No 737 of 1928);

(j) the need for investigation is a relevant factor in considering whether or not to make an order (In re Field, Re Betts, Re Thulin; Shepherd v Legal Services Commission);

(k) there must be a benefit to someone from making the order (Stocznia Gdanska SA v Latreefers Inc et passim);

(l) the rehabilitation of the debtor or preservation of something for his benefit may be taken into account (Ex parte Painter).

Not all will be relevant in every case…’

Then at paragraph 106, the Chief Registrar said:

It is perhaps unsurprising that the cases take such varying approaches and throw up apparently contradictory (or perhaps complementary) propositions, since connection and utility can take many forms. In his closing submissions, [counsel for the JSC bank] recognised that it was difficult to identify a “formulaic approach to discretion”. I think he is right…. the principles change over time. I note here too Morritt LJ's reference in para 31 of his judgment in Stocznia Gdanska SA v Latreefers Inc (No 2) to the way the judgment in Banque des Marchands de Moscou v Kindersley should be viewed, namely as laying down what was sufficient ‘in that case’ as opposed to in all cases. (Something of the same thinking may arguably be discerned in David Richards J's point in In re Magyar Telecom BV about the link between questions of connection and effect.) It seems to me, if that is right, that the cases should be approached on that footing and not on the footing that they set out hard and fast rules that must be adhered to in all cases and in all circumstances. That is not to say that the discretion may be exercised capriciously or wantonly. The common thread in the authorities appears to me to be that there must be some purpose in making the order that is sought and that such purpose may arise in various ways, for example as a result of the presence of assets, or some contractual connection to the jurisdiction; it may arise where there is need to fill a lacuna in the law of other jurisdictions, or where there is some other benefit for the creditors and/or the debtor or some combination of the foregoing. The approach has been characterised by a degree of pragmatism, albeit principled pragmatism. Thus the courts here will probably not exercise the discretion to wind up a foreign company or bankrupt a foreign individual where there are no assets, there is no connection to the jurisdiction and there is no purpose to be fulfilled (at one end of the scale); but they probably will if there is an obvious benefit, a strong connection and something to administer (at the other end of the scale). There is necessarily a wide spectrum between those two polarities.

On appeal, Morgan J addressed the issue that the Insolvency Court needs to be satisfied that there is a reasonable possibility of a benefit resulting from an order. At paragraph 62, he noted that there is an ‘…obvious overlap between the question of connection with this jurisdiction and the benefit flowing from an order made in this jurisdiction’, before stating:

However, I also consider that there are separate reasons why the court needs to be satisfied that there is a reasonable possibility of a benefit resulting from a bankruptcy order. A court will not wish to make an order that is pointless. Therefore, a court will wish to be satisfied that there is a reasonable possibility of benefit resulting from its order.’

At paragraph 63, Morgan J continued: 

When the court considers the possibility of benefit resulting from an order, the normal starting point is to consider any possible benefit to the petitioner, whether it be a debtor or a creditor. In many cases, showing benefit to the petitioner will be sufficient to persuade the court to make the order. I am not persuaded that anything in In re Painter or in In re Dunn establishes that the court should leave out of account the position of creditors when it considers whether to exercise its discretion to make a bankruptcy order on a debtor's petition. I do not see why a consideration of benefit should be restricted to the possibility of benefit to the petitioner; benefit to others should also be relevant. Conversely, disadvantages or unfairness to others may also be relevant. After all, the court is exercising a discretion and is surely required to consider the effect of the proposed order on all relevant persons. In such a case, as is normal, the court will consider the effect of making the order and the effect of not making the order and will then consider what to do, having regard to all relevant considerations, including the legitimate aspirations of all potentially affected persons.’

Later, at paragraph 110, Morgan J in Kekhman said:

As explained earlier, it is natural first to ask whether the order would be of benefit to Mr Kekhman. However, it will also be relevant to ask whether an order would be of benefit to others.’

On the facts of Kekhman, Morgan J answered in the affirmative, the question he posed, at paragraph 110, ‘…whether there was a reasonable possibility of benefit accruing from the making of a bankruptcy order’, finding, at paragraph 120, that a ‘…bankruptcy order …would be of some benefit to Mr Kekhman…’. Morgan J, in Kekhman, said at paragraphs 111 and 112:

‘Prima facie, Mr Kekhman would benefit from the making of a bankruptcy order. In theory, his debts worldwide would be discharged. The discharge of the debts of an insolvent debtor is an important part of the policy of English bankruptcy law. The discharge of debt allows the debtor to start afresh, to be rehabilitated. In the ordinary case, the discharge of debt and the possibility of rehabilitation of the debtor is a clear benefit to the debtor and a sufficient reason to make a bankruptcy order on a debtor's petition. In the ordinary case, the creditors cannot complain about this. They are treated equally and there is an orderly administration of the bankrupt's estate rather than a free-for-all.

‘However, it would be wrong in this case to stop the assessment with this theoretical position. The court must consider the consequences of an order in practice. Viewed that way, prima facie, Mr Kekhman would benefit to the extent of his liability to pay £86m under the guarantees governed by English law. Those debts would be discharged.’

Morgan J then recognized that, the remainder of Mr Kekhman’s debts were governed by Russian law, and Russian Law was very unlikely to recognise the English bankruptcy order. That this would, in practice, mean that Mr Kekhman would not be released from those other debts. While there was force in the submission that because Mr Kekhman’s total indebtedness was £316m, he would still be overwhelmed by his debts, even if released from £86m upon discharge from bankruptcy, Morgan J still held Mr Kekhman would gain some benefit from the bankruptcy order. After noting the submission that Mr Kekhman would be overwhelmed notwithstanding the £86m release, Morgan J said, at paragraph 113:

‘…but I consider that it does not entirely obliterate the fact of benefit to Mr Kekhman by the discharge of a liability to pay £86m. The discharge to that extent will be real and effective. Mr Kekhman will not have to pay that debt. Whatever happens in the future as regards pressure from creditors or action taken by creditors, the creditors who are owed that £86m cannot apply pressure and their actions will be restricted to proving for their debt in the bankruptcy. Of course, the practical effect of the bankruptcy in this case is a very long way short of the beneficial effect of a worldwide discharge but I am not able to find that a discharge of a liability to pay £86m is of no benefit to Mr Kekhman.’

This then was the principal benefit identified, justifying the bankruptcy order, but there was an additional benefit to the bankruptcy order identified, though it was given only ‘little weight’ (paragraph 134) - that was, a benefit would be obtained from a trustee in bankruptcy investigating the debtor Mr Kekhman’s affairs. Identifying this as a recognized source of benefit, Morgan J in Kekhman said, at paragraph 133:

‘It is right that the ability of a trustee to investigate a debtor's affairs is often regarded by creditors, and by the court, as a reason for making a bankruptcy order. Accordingly, if a debtor contended that he had no assets so that a bankruptcy order would not be of benefit to anyone, his creditors might say, and the court might agree, that it was not appropriate to accept the debtor's say so on that matter and his affairs ought to be investigated by a trustee in bankruptcy.’

Morgan J identified that there was an area of Mr Kekhman’s affairs which might benefit from an investigation by a trustee in bankruptcy appointed following a bankruptcy order. Morgan J said, at paragraph 134, that he could not dismiss the benefit that might arise from a trustee in bankrupt’s investigation into Mr Kekham’s affairs, given that there was ‘…a possibility that a trustee might be able to investigate a gift of $1m to Mr Kekhman’s son.’. Morgan J went on to say ‘I consider that the possibility of benefit to creditors, resulting from an investigation into Mr Kekhman's dealings with others, is not inadmissible but I would give it little weight.’

Wide Application to Judicial Aversion to Making Orders in Vain 

Judicial aversion to making an order that will be pointless is of very wide application – its application to bankruptcy orders is but one example of it. By way of further example, an additional instance of it arises when the Insolvency Court is considering an application to annul a bankruptcy order. In Kekhman, Morgan J said, at paragraph 74:

The power to annul under section 282 is discretionary (“the court may annul”). Thus, even if the court is satisfied that on the grounds existing at the date of the bankruptcy order, the order ought not to have been made, the court can still decide not to annul the order. An obvious example would be where the annulment would be pointless, for example, where the circumstances were such that a new bankruptcy order would certainly be made.’

Conclusion

The Insolvency Court will not make a bankruptcy order where there is no benefit or utility from the order can be identified. What will amount to a sufficient benefit or utility has evolved over time as the Insolvency Court has had to adapt the law to encompass not just domestic debtors but also debtors with international lifestyles. Fortunately, the various aspects to this area have been distilled down by Chief Registrar Baister in Kekhman, to a useful summary at paragraph 105.  No doubt there will be further developments in this interesting area of the law to come. 

SIMON HILL © 2018

BARRISTER

33 BEDFORD ROW

NOTICE: This article is provided free of charge for information purposes only; it does not constitute legal advice and should not be relied on as such. No responsibility for the accuracy and/or correctness of the information and commentary set out in the article, or for any consequences of relying on it, is assumed or accepted by any member of Chambers or by Chambers as a whole.


[1] Use of the term ‘Insolvency Court’ is a convenient label. It is used along with 'Bankruptcy Court' as a easy shorthand term, to indicate the jurisdiction being exercised by the court in question. Strictly speaking, there is no court called the ‘Insolvency Court’.  Bankruptcy issues will be dealt with in the High Court, in the Business and Property Court, Insolvency and Companies Court list, or the District Registries of the High Court. Alternatively, in the County Court.

[2]In re Thulin [1995] 1 WLR 165, Mr Sher QC sitting as a Judge of the High Court, formulated the test, at 171 as, whether he was ‘…satisfied on the evidence that there could be no point in a bankruptcy order…’ In the analogous corporate insolvency field, Nourse J stated in Re Eloc Electro-Optieck and Communicatie B.V. [1982] Ch. 43, at 47, that there was a ‘…fundamental principle that the court will not wind up a company if there is no likelihood that any advantage will be achieved by the petitioner.’

[3] See Shepherd v Legal Services Commission [2003] BCC 728 and Lock v Aylesbury Vale DC, unreported, 9.7.18 HHJ Hodge QC sitting as a Judge of the High Court.

[4] Receiving orders were made under s4 and s7 Bankruptcy Act 1883; and s3 and s7 of Bankruptcy Act 1914. These Acts have since been repealed. 

[5] There is an international aspect to Ex parte Robinson, which will be addressed later, given that it was recast by the later case of re Thulin [1995] 1 WLR 165.

[6] On the facts of re Thulin [1995] 1 WLR 165, this burden of proof proved important, because Mr Sher QC said he could not rely on the debtor’s earlier sweeping generalisations about his lack of connection to England and lack of assets within this jurisdiction, in light of later, admitted evidence, that cast serious doubt on them. He said, at 171, ‘In my judgment, the debtor has not even begun to discharge this onus and this is fatal to his appeal.

[7] For instance, see Re Ross (a bankrupt) (No. 2) [2000] BPIR 636.

[8] As to the debtor’s claims to be entitled to substantial payments from the LSC, Mr Moss QC in Shepherd v Legal Services Commission[2003] BCC 728 said, at 729:

‘The petition was based on debts in respect of orders for costs given against the debtor during civil proceedings in which he had sought payment of substantial moneys from the Legal Services Commission There were a number of hearings in those civil proceedings. The debtor was unsuccessful in all of them. He appears to have attempted to pursue potential rights of appeal as far as humanly possible, without any success. The petition debts are not in reality disputed. However, the debtor considers, notwithstanding his reverses in the civil proceedings, that he is owed a substantially greater sum of money by the Legal Services Commission than the debts which form the basis of the petition.’

[9] The ‘essentials’, as they were so called, were a list of 6 essential requirements for the making of a winding up order in respect of a foreign company, in, it was emphasized (twice, at 46 and 48) in Re Eloc Electro-Optieck and Communicatie B.V.[1982] Ch. 43, ‘normal cases’. Megarry J in Re Compania Merabello San Nicholas SA[1973] Ch 75, at 91-92 stated:

‘I would accordingly attempt to summarise the essentials of the relevant law relating to the existence of jurisdiction to make a winding up order in normal cases in respect of a foreign company as follows.

(1) There is no need to establish that the company ever had a place of business here.

(2) There is no need to establish that the company ever carried on business here, unless perhaps the petition is based upon the company carrying on or having carried on business.

(3) A proper connection with the jurisdiction must be established by sufficient evidence to show (a) that the company has some asset or assets within the jurisdiction, and (b) that there are one or more persons concerned in the proper distribution of the assets over whom the jurisdiction is exercisable.

(4) It suffices if the assets of the company within the jurisdiction are of any nature; they need not be "commercial" assets, or assets which indicate that the company formerly carried on business here.

(5) The assets need not be assets which will be distributable to creditors by the liquidator in the winding up: it suffices if by the making of the winding up order they will be of benefit to a creditor or creditors in some other way.

(6) If it is shown that there is no reasonable possibility of benefit accruing to creditors from making the winding up order, the jurisdiction is excluded.’

[10] In International Westminster Bank plc v Okeanos Maritime Corp [1988] Ch. 210, Peter Gibson J reached the same conclusion, when he said, at 225:

‘‘I am prepared consistently with the Eloc case [1982] Ch. 43 to hold that the presence of assets in this country is not an essential condition for the court to have jurisdiction in relation to the winding up of a foreign company.’ 

[11] The employees petitioned for the winding up of the company in order to qualify for a payment by the Secretary of State under the Employment Protection (Consolidation) Act 1978 s.122 (now repealed). For an equivalent scheme now, see section 182 of the Employment Rights Act 1996, for a National Insurance Fund, offering a stop gap solution, to meet employee hardship between: (a) an employee being made unemployed, and (b) an insolvent employer’s office holder administering the insolvent estate, and making a distribution by dividend to creditors holding debts categorised as preferential debts, including employee remuneration/holiday remuneration, under Schedule 6 of the Enterprise Act 2002, Category 5 (paragraphs 9 to 12 inclusive, together with interpretative provisions contained in paragraphs 13 to 15). 

[12] Nourse J also drew on Megarry’s 6th essential, at 47. Nourse J said ‘In Megarry J.'s summary of the essentials that is the sixth, and it is expressed in this way [1973] Ch. 75, 92: ‘(6) If it is shown that there is no reasonable possibility of benefit accruing to creditors from making the winding up order, the jurisdiction is excluded.’’

[13] It was emphasized, twice, at 46 and 48, in Re Eloc Electro-Optieck and Communicatie B.V. [1982] Ch. 43, that this applied to ‘normal cases’. In International Westminster Bank plc v Okeanos Maritime Corp[1988] Ch. 210, Peter Gibson J said, at 225, that Re Elocwas anabnormal case’.

[14] See Re Eloc Electro-Optieck and Communicatie B.V. [1982] Ch. 43, at 48-49;

[15] Formerly, a question could arise was as to whether this ground for dismissing a petition could arise if the petition was presented by the debtor rather than by one of his creditors.

In Ex parte Painter (1895) 1 QB 85, the debtor petitioned for his own bankruptcy. The debtor was also a retiree, who was entitled to a weekly pensions income. He was subject to an adverse money judgment, and he was ordered to pay the adverse money judgment by instalments, an order backed up with the threat of committal to prison for non-compliance. Statute however made his entitlement to the pension income inalienable (it did not pass to any trustee or other person acting on behalf of the creditors). He therefore reasoned that he could continue to receive the full fruits of his weekly pension income if he made himself bankrupt (i.e. on his bankruptcy, the adverse judgment would go but he would thereafter receive the full fruits of his pension, unthreatened with committal if he didn’t forward on his pension income to his creditor). He duly petitioned and he was adjudicated bankrupt. However, the creditor applied for annulment of the bankruptcy on the basis it ought not to have been made. The judge annulled the order but this was overturned on appeal. 

The decision in Painter turns on a finding that the legislature left untrammelled a debtor’s entitlement to petition for his own bankruptcy. The relevant section was from the Bankruptcy Act 1883 (now repealed), which read ‘A debtor's petition shall allege that a debtor is unable to pay his debts … and the Court shall thereupon make a receiving order.’ When those words were enacted in earlier legislation, the Bankruptcy Act 1861, they amounted to a ‘perfectly general power to any debtor to petition for adjudication of bankruptcy against himself’. As to the provision in the Bankruptcy Act 1861 Vaughan Williams J said at 86:

‘…from an early period, the legislature recognised the interest that the State had in a debtor being relieved from the overwhelming pressure of his debts, and that it was undesirable that a citizen should be so weighed down by his debts as to be incapacitated from performing the ordinary duties of citizenship.’

Vaughan Williams J in Painter said at 91:

‘…we are not entitled to annul an adjudication made on a debtor's own petition merely because the debtor has no assets, nor because he is possessed of an inalienable pension, nor because, having no assets and being in possession of such a pension, he has presented his petition for the express purpose of preventing the application of the Debtors Act to compel him to pay this debt out of his pension.’

The result then, was that the creditor’s annulment application was unsuccessful, because, although there may have been no assets to fall into the bankrupt estate, upon the bankruptcy order being made, the bankruptcy order itself was not pointless, since the bankrupt gained the utility, as was his wish (crucially, one could speculate), of being released from the overwhelming pressure of his own debts. That was the identifiable benefit that meant a bankruptcy order was not a futile act.

One could add, that since all debtor’s bankruptcy petitions contained a debtor that wished for release from his debts, this benefit would always exist and so prevent the argument that the bankruptcy order was pointless. 

In JSC Bank of Moscow v Kekhman [2014] BPIR 959, Chief Registrar Baister recognised at paragraphs 49 and 50 that Ex parte Painter was a case ‘great importance’ and that ‘…it is…the only no assets bankruptcy case.

Kekhman was a debtor's bankruptcy petition case. The facts in Kekham were that a Russian citizen had flown to England specifically to petition for his own bankruptcy, and on his own petition, an English bankruptcy order had been made. It was common ground between the parties, at 76, that: 

‘…the court should only make a bankruptcy order or grant similar relief in respect of a foreign individual or an overseas corporation if there is utility or some benefit in doing so.’

[16] Morgan J in JSC Bank of Moscow v Kekhman [2015] 1 W.L.R. 3737 stated, at paragraphs 88, 98-99:

‘…when dealing with an application to annul the court normally needs to decide: (1) what were the grounds existing at the time the order was made (question 1): whether on those grounds, the order ought not to have been made (question 2); and (2) if the answer to question 2 is: “the order ought not to have been made”, whether it should annul the order: question 3…

My conclusion is that the chief registrar did not answer the questions which he needed to answer to determine the annulment application. He ought to have decided what I have described as “question 2” above: did it appear to him that the bankruptcy order “ought not to have been made”? It was not sufficient for him to leave that question undecided and then to say that the order “probably” would have been made. If he had held that the order ought to have been made, then he had no discretion to exercise under section 282 but instead he would be bound to dismiss the annulment application. He only had that discretion if he held that the bankruptcy order ought not to have been made and he should then have exercised his discretion in the light of that finding and any other relevant circumstances.

…the wording in paras 144 to 145 does appear, clearly enough, to differ from a correct statement of the law and the chief registrar started his discussion with a wrong self-direction at para 107. Although I am not able to hold that he applied that self-direction to the letter, his ultimate decision appears to have been influenced by it, particularly the part of it where he referred to the court “not lightly” annulling a bankruptcy order. Accordingly, I hold that the chief registrar erred in principle in his approach to his jurisdiction to annul the bankruptcy order.’