The Bankruptcy Level at Date of Hearing in Bankruptcy Court

Author: Simon Hill
In: Article Published: Saturday 04 November 2017


It is well known that a creditor’s bankruptcy petition cannot be presented (i.e. commenced) unless the proposed petitioning creditor is a creditor of the debtor1 for at least £5,000. Or, where there is more than one proposed petitioning creditor, the petition sum will aggregate to more than £5,000. Section 267(4) of the Insolvency Act 19862 lays down this statutory fiscal minimum for presenting a creditor’s petition, labelling it as ‘the bankruptcy level’3.

What is less understood is whether the petitioning creditor must also be owed at least the bankruptcy level, so at least £5,000, at the date of the hearing – i.e. when the Bankruptcy Court is asked to make the bankruptcy order. 

The leading authority is Lilley v American Express Europe Ltd [2000] BPIR 70, a decision of John Jarvis QC sitting as a deputy judge of the High Court. It is a case decided in part on the now superseded Insolvency Rules 1986, r.6.25, but the rule that supersedes it, r.10.244 of the Insolvency Rules 2016, is essentially worded the same5

The question, as posed by the deputy judge in Lilley at 71A, was ‘whether a subsequent payment by the bankrupt after the presentation of the petition which brings the level of debt below the bankruptcy level effectively ousts the jurisdiction of the court to make a bankruptcy order.’

Turning to the Insolvency Act 1986 and Insolvency Rules 1986, the deputy judge noted that it was ‘common ground between the parties that there is no specific provision in either the Insolvency Act 1986 or the Insolvency Rules 1986 which deals with the situation, as is apparent in this case, where a creditor accepts a part payment of the debt after the presentation of the petition and which reduces the bankruptcy debt below the bankruptcy level.’ Section 271 of the Insolvency Act 1986 did not express a definitive answer6.

The deputy judge went on to distinguished an earlier authority, Re Patel (A Debtor) 1 WLR 221 on the now repealed Bankruptcy Act 1914 (discussed in more detail later), and set to one side obiter dicta from Vinelott J in Re a debtor (No.2389 of 1989) [1990] 3 All ER 984, before holding at 74E:

‘It seems to me that I have to look at and construe the Act and the Rules, and in my judgment r.6.25 plainly confers on the court which hears the petition a discretion whether or not to make a bankruptcy order because the wording is: 

‘…the court may make a bankruptcy order if satisfied that the statements in the petition are true, and the debt on which it is founded has not been paid, or secured or compounded for.’

That rule, it seems to me, mirrors the principles set out in s 271 of the Insolvency Act 1986. It seems to me clear that the court cannot make a bankruptcy order if the whole of the debt has been paid by the time it comes for hearing, but the Act says nothing to prevent a court from making an order if only part of the debt has been paid. 

In my judgment a court must retain a discretion as to whether or not it is proper to make an order in these circumstances.’ 

In order to illustrate how this discretion ought, or might, be exercised in the range of circumstances that may come before a Bankruptcy Court, the deputy judge in Lilley, went on, at 74H:

‘One can imagine a case where a debtor has played a cat and mouse game with the petitioning creditor and has paid off just under the bankruptcy level on a number of petitions, and one can imagine in those circumstances that a court will be reluctant to permit a bankrupt to behave in that way. It seems to me that the court would retain a discretion then to make an order in those circumstances. If, on the other hand, the case were one where there were genuine difficulties for the debtor and the debtor had made efforts to pay moneys in and it was not a cat and mouse game, then the court would consider carefully whether or not it should exercise its discretion to make a bankruptcy order.

In my judgment, a court should always be careful to see that a person is not bankrupted when the debt does, in fact, fall below the bankruptcy level; indeed, I gave the example in argument of someone who had been petitioned in relation to a debt of £1000 and had paid off £999 of it by the time of the hearing. It seems to me inconceivable that in those circumstances a court would make a bankruptcy order. Therefore at the end of the day it must be a matter for discretion whether it is proper to do so.’

In practice, the Bankruptcy Court will not normally make a bankruptcy order when the sum due on the petition is less than the bankruptcy level at the date of the hearing of the petition (see Adetula v Barking and Dagenham LBC [2017] EWHC 2279 (Ch), where £30 under the then applicable £750 bankruptcy level was conceded as a ground to annul the bankruptcy order).

The facts and outcome in Lilley

The facts in Lilley were that the petitioning creditor had presented a bankruptcy petition against the debtor, founded on two costs orders totalling £1,062 (so above the then applicable bankruptcy level of £750). About 6 weeks later, the debtor paid £500 to the petitioning creditor, bringing the sum outstanding and founding the petition down to £562. That sum remained outstanding at the date of the hearing in the Bankruptcy Court, and the DJ made a bankruptcy order. The debtor appealed. At the appeal, the deputy judge concluded that the DJ had not asked the right question, consequentially, the deputy judge had to decide the question ‘…de nova, as to whether or not the discretion should be exercised.’ (75E). The deputy judge concluded that a bankruptcy order was appropriate, having regard to the history of the debtor’s conduct. The appeal was dismissed. 

What then was the debtor’s conduct? Well this was the third petition presented by the petitioning creditor against this debtor. The first petition, presented 22.11.94, was dismissed on payment of the petition debt, and the court ordered the debtor to pay the petitioning creditor’s costs to be taxed if not agreed. Following taxation (i.e. assessment of the quantum of the costs to pay), a statutory demand was served 12.5.97 when the debtor did not pay. The debtor did not respond, and the second petition was presented on 27.8.97, founded on non-payment of the costs orders. Just prior to the date of the hearing of the second petition on 4.11.97, agreement was reached between the petitioning creditor and debtor, that the second petition be dismissed and the debtor pay the petitioning creditor £1000 before 4.11.97, and the balance of £1062 be paid by 31.1.98. The first payment of £1000 was paid, the balancing payment was not paid. Petitioning creditor’s attempts to contact the debtor failed; nothing happened. The petitioning creditor presented the third petition on 14.4.98. 

The deputy judge summarised the history, and his exercise of discretion thereon, as follows, at 76C:

‘This is a sorry tale which has forced the petitioning creditor to issue a number of bankruptcy petitions, this being the third. There have undoubtedly been promises made that have not been kept. In my judgment, this is a wholly unsatisfactory position, and the fact of the matter is that at the date of presentation of the petition the debt exceeded the bankruptcy level, and it seems to me that a time has to come when a firm decision has to be made. There is a history of non-payment, and in this regard I agree with the judgment of the district judge that it cannot go on. In my judgment as a matter of discretion, this is a case where a bankruptcy order should be made.’

Departure from the law under Bankruptcy Act 1914

For those interested in legal history, the decision in Lilley represents a departure from the law as set down in the Bankruptcy Act 1914, as construed by the Divisional Court7 in Re Patel (A Debtor) 1 WLR 221. This is not necessarily unexpected, given that the Bankruptcy Act 1914 was a different regime to the Insolvency Act 1986; the subsequent Insolvency Act 1986 was not a consolidating Act8

In Patel, the Divisional Court held that, properly construed, section 5(2) of the Bankruptcy Act 19149 required that the sum due and owing to the petitioning creditor was above the statutory minimum both at the date of presentation of the petition, and crucially, at the date of the hearing of the petition. Where a payment had been made to the petitioning creditor, after presentation, but before the date of the hearing, bringing the sum due and outstanding to the petitioning creditor below the statutory minimum, the court had no jurisdiction to make a receiving order (a now obsolete type of order, formerly made in advance of a bankruptcy order)10.

The deputy judge in Lilley distinguished Patel, on the basis that Patel was based on a different regime, with different statutory provisions - in particular, section 5(5) of the Bankruptcy Act 1914. The deputy judge said that provision was ‘…not mirrored in any way in the 1986 Act’. The deputy judge concluded at 74B, that Patel ‘…is a decision based on that Act and cannot provide any great assistance in the construction of the new Act and Rules.’

Appealing against an adverse decision

Given that the decision to make a bankruptcy order, or not (as the case maybe), is an exercise of the Bankruptcy Court’s discretion (the word is ‘may’ in r.10.24), a party seeking to appeal the decision will have a difficult and unenviable hurdle to get over. Appellant courts are acutely aware of the need not to rob the first instance judge of the width of his discretion. The Appellant Court will not simply substitute its view for that of the first instance judge. The observations of Lord Fraser in G v G (Minors: Custody Appeal) [1985] 1 WLR 647 at 652 are relevant here, where he emphasized the point:

‘that the appellate court should only interfere when they consider that the judge of first instance has not merely preferred an imperfect solution which is different from an alternative imperfect solution which the [appellate court] might or would have adopted, but has exceeded the generous ambit within which a reasonable disagreement is possible.’

In A. E. I. Rediffusion Music Ltd v Phonographic Performance Ltd [1999] 1 WLR 1507, Lord Woolf MR, at 1523, endorsed an earlier description of the conventional approach in the following terms:

‘Before the court can interfere it must be shown that the judge has either erred in principle in his approach, or has left out of account, or taken into account, some feature that he should, or should not, have considered, or that his decision is wholly wrong because the court is forced to the conclusion that he has not balanced the various factors fairly in the scale.’

In Lilley, the deputy judge said, at 75C, that he had jurisdiction to set aside the DJ’s decision if he ‘…thought he had acted on some wholly erroneous basis.’ See Bloomsbury Law Solicitors (Formerly Ahmud & Co Solicitors) v MacPherson [2017] EWHC 2708 (QB)11.

Final hearing petitioning creditor’s costs cannot supplement petition sum

A second point was decided in Lilley, which is not the focus of this article, but is worth mentioning briefly, because it is a point that can come up. The petitioning creditor's costs of pursuing the pending petition against the debtor, cannot form part of the petitioning debt upon which a bankruptcy order is sought. In other words, should the petitioning sum drop below the bankruptcy level by the date of the hearing, the petitioning creditor cannot supplement the debt in the pending petition by adding to it his costs of the pending petition, in order to bring the petition sum above the £5,000 bankruptcy level. The petitioning creditor's costs are not been awarded until the end of the hearing (if at all) and they are an unliquidated sum in any event (so section 267(2) is not satisfied) until they are assessed (also at the end of the hearing, or later).

The deputy judge in Lilley quoted from Re a debtor (No.20 of 1953) [1954] 1 WLR 1190, where Lord Evershed MR said about untaxed costs ‘…since these costs had not been finally taxed and the amount had not been inserted in the order until on or after July 17, it was impossible for the petitioner creditor to say that the whole of the debt upon which she founded her claim had existed as a debt available for bankruptcy purposes…’

The deputy judge then said, at 77E:

‘In my judgment, that represents the position under the present law, and in this case it is an even stronger situation, since the costs which are being sought to be put into the balance are the costs of the very petition itself. It seems to me fundamentally wrong that those matters can be taken into account. A moment’s reflection would show that this would run a coach and horses through the bankruptcy level if a petitioning creditor were always able to take into account the costs of the petition; indeed, on the evidence in this case that would in almost any case exceed the bankruptcy level so that effectively a petition could be presented on the basis of a £1 debt, and that cannot be right. Therefore, in my judgment, it would be wrong to add the costs in this case on to the debt so as to bring the level up to the bankruptcy level.’ 


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] Section 267(1)(1) of the Insolvency Act 1986 provides: ‘A creditor’s petition must be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors must be a person to whom the debt or (as the case may be) at least one of the debts is owed.’ And section 267(2) reads: ‘Subject to the next three sections, a creditor’s petition may be presented to the court in respect of a debt or debts only if, at the time the petition is presented – (a) the amount of the debt, or the aggregate amount of the debts, is equal to or exceeds the bankruptcy level,…’

[2] Section 267(4) of the Insolvency Act 1986 reads ‘”The bankruptcy level” is £5,000; but the Secretary of State may by order in a statutory instrument substitute any amount specified in the order for that amount or (as the case may be) for the amount which by virtue of such an order is for the time being the amount of the bankruptcy level.’

[3] The ‘bankruptcy level’ is the level set down as being a sufficient level of insolvency to warrant intervention and judicial process, instigated through presentation of a petition. The ‘bankruptcy level’ sum has changed over time. From 1869 until 1976 the minimum level of a petitioning creditor’s debt was £50. It then increased to £200 in 1976, and then in 1984 it increased again to £750 (see Insolvency Proceedings (Increase in Monetary Limits) Regulations 1984 (SI 1984/119), amending section 4 and 5 of the Bankruptcy Act 1914). Between 1984 and 31.9.15 the bankruptcy level was £750. From 1.10.15 the bankruptcy level has been £5,000, as brought into force by Insolvency Act 1986 (Amendment) Order 2015 (SI 2015/922).

[4] Insolvency Rules 2016, r.10.24 is entitled ‘Decision on the hearing’ and reads: ‘10.24.—(1) On the hearing of the petition, 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. (2) If the petition is brought in relation to a judgment debt, or a sum ordered by any court to be paid, the court may stay or dismiss the petition on the ground that an appeal is pending from the judgment or order, or that execution of the judgment has been stayed.

[5] There is only one discernable difference between r.6.25 (1) and (2), and r.10.24 (1) and (2) (see footnote above for the wording of both sub-rules), and that is that in r.10.24(1), the first sub-rule concludes without the word ‘for’ at the end: ‘On the hearing of the petition, 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.’ This difference should have no impact on how the provision is construed.

[6] Section 271 of the Insolvency Act 1986 reads ‘The court shall not make a bankruptcy order on a creditor’s petition unless it is satisfied that the debt, or one of the debts, in respect of which the petition was presented is either – (a) a debt which, having been payable at the date of the petition or having since become payable, has been neither paid nor secured or compounded for; or (b) a debt which the debtor has no reasonable prospect of being able to pay when it falls due.’

[7] Consisting of Sir Nicolas Browne-Wilkinson VC and Gibson J

[8] See the deputy judge in Lilley, at 73F

[9] Section 5(2) of the Bankruptcy Act 1914, now repealed, read: ‘At the hearing the court shall require proof of the debt of the petitioning creditor, of the service of the petition, and of the act of bankruptcy, or, if more than one act of bankruptcy is alleged in the petition, of some one of the alleged acts of bankruptcy, and, if satisfied with the proof, may make a receiving order in pursuance of the petition.’

[10] Sir Nicolas Browne-Wilkinson VC said at 224: ‘In my judgment, therefore, both as a matter of construction and by reference to authority, s 5 (2) does require proof that at the date of the hearing of the petition the debt on which the petition is founded must not have been reduced to less than £750, and I so hold. The consequence is that in the present case the registrar had no jurisdiction to make the receiving order on 30 May 1985. The words in s 5 (2) state preconditions which have to be satisfied before there is any statutory jurisdiction to make the receiving orders. It follows from that decision that petitioning creditors should be careful how they accept part tender of a debt pending the hearing of a petition.’ See also 223.

[11] Warby J in a costs case, Bloomsbury Law Solicitors (Formerly Ahmud & Co Solicitors) v MacPherson [2017] EWHC 2708 (QB) recently summarised the law on appealing against exercises of discretion, and interestingly, for evalutive judgment also. The whole passage pays quoting: 

'12. The applicable principles are well-established and uncontroversial. An appeal such as this is a review, not a rehearing: CPR 52.21(1). To succeed, the appellant must persuade the appeal court either that the decision of the lower court was wrong, or that it was unjust because of some procedural or other irregularity: CPR 52.21(3). Only the first of these criteria is relevant here.

13. An appeal court will not upset a discretionary decision unless it is shown that the lower Court has either erred in principle in its approach, or ignored a relevant factor or taken account of an irrelevance, or reached a decision that was so wholly wrong that the Court is driven to conclude that it has failed to carry out a fair and proper balancing exercise: see, for instance, AEI Rediffusion Music Limited v Phonographic Performance Ltd [1999] 1 WLR 1507, 1523 (Lord Woolf MR).

14. A somewhat similar approach is to be taken to decisions which require the court to take into account, weigh, and balance multiple factors in order to arrive at an overall evaluative decision Such a decision is not a discretionary one, but the nature of the exercise means it is one with which an appeal court will be reluctant to interfere; though it will do so if there are circumstances which would invalidate the exercise of discretion: Aldi Stores Ltd v WSP Group plc [2007] EWCA Civ 1260 [2008] 1 WLR 748 [16].

15. The appeal court will accord due weight to any advantages possessed by the lower court. Factors that are often given weight in this context include the experience of the Judge involved and the benefit of having examined detailed material before, during, and sometimes after a lengthy hearing over a period of several days. Both those factors are relevant here. Master Simons was a very experienced costs Judge. Unusually the proceedings, the costs of which he was assessing, had been conducted before him over a period of seven days.

16. Finally, when considering whether a decision of the lower court was "wrong" the appeal court must have regard to the way the parties argued their cases before the lower court: King v Telegraph Group Ltd [2004] EWCA Civ 613 [2005] 1 WLR 2282 [54].'