In England Wales, where a creditor starts (issues or attaches) a process of enforcement (execution or attachment) against an individual (i.e. natural person) debtor (the 'debtor'), but prior to completing that process of enforcement, the debtor is adjudged bankrupt, s.346(1) of the Insolvency Act 1986 ('IA 1986') is engaged. In such a scenario, section 346(1) IA 1986 has the effect of (and these are two sides of the same coin):

(a) dis-entitling the creditor, from retaining the benefit of his enforcement, as against the bankruptcy office-holder (official receiver/trustee in bankruptcy)(for convenience 'TIB'); by

(b) conferred rights on the debtor/bankrupt's TIB - a right to take the property (in a wide sense: good, land or debt) in the bankrupt estate, free from the creditors (incomplete) execution/attachment, despite the (incomplete) execution/attachment having been started against the property (again, in a wide sense: good, land or debt).

Section 346(1) is supplemented by the other subsections to s.346 (set out in a footnote[1]) - one of the most important of those supplementing provisions, is s.346(6), which, in essence, empowers the court, in its discretion, to set aside (amongst other things[2]) the effect of s.346(1) IA 1986. In other words, s.346(1) is vulnerable / susceptible to a contrary court order under s.346(6).  

This article will consider these subsections, in light of:

(1) Re Buckingham International plc (In Liquidation) (No. 2) (also known as Mitchell v Buckingham International Plc (In Liquidation), Mitchell v Carter (No.2)) [1998] 2 BCLC 369 ('Buckingham'), Court of Appeal (Lord Bingham LCJ; Judge LJ; Robert Walker LJ) on 16.2.98;

(2) Landau & Maddens v Purvis (unreported, 15 June 1999) ('Landau'), High Court (Sir Richard Scott V-C) on 15.6.1999;

(3) Société Eram Shipping Co Ltd v Cie Internationale de Navigation [2003] UKHL 30; [2004] 1 AC 260 ('Eram'), House of Lords (Lord Bingham; Lord Nicholls; Lord Hoffmann; Lord Hobhouse; Lord Millett) on 12.6.03;

(4) Tagore Investments SA v Official Receiver [2009] BPIR 392 ('Tagore'), High Court (Mann J) on 11.11.08;

(5) Nationwide Building Society v Wright [2009] BPIR 1047 ('Wright'); Court of Appeal (Maurice Kay LJ; Lloyd LJ; Sir John Chadwick) on 29.7.09;

(6) Monte Developments Ltd (In Administration) v Court Management Consultants Ltd [2010] EWHC 3071 (Ch) [2011] 1 W.L.R. 1579 ('Monte'), High Court (Floyd J) on 29.11.10;

(7) Michael Wilson v Sinclair [2021] EWCA Civ 505 [2021] 4 WLR 63 ('Wilson'), Court of Appeal (David Richards LJ; Simler LJ; Nugee LJ) on 15.4.21;

This article will first consider s.346(1) IA 1986 (along with s.346(5) which defines what 'completed' means), before moving on to s.346(6) IA 1986 and applications under that section, for an order, setting aside, in essence, the s.346(1) IA 1986 effects (to the extent and/or with such conditions, as the court thinks fit).

Few Points 

(1) s.346 IA 1986 only relates to personal insolvency (natural persons (i.e. humans) going bankrupt). It does not apply to corporate insolvency (legal persons). See s.183 of the Insolvency Act 1986, entitled 'Effect of execution or attachment (England and Wales)' for the corresponding provision in corporate insolvency.

(2) The section and this article use the label 'creditor' ('Creditor'). Sometimes the label used is more nuanced, such as 'execution creditor'. Typically the Creditor will be a judgment creditor and will be the applicant in the enforcement process/the party seeking to enforce.

(3) in the scenario under consideration, the debtor has subsequently been adjudged bankrupt. So he was initially, the debtor (only), and then later, became the bankrupt ('Debtor/Bankrupt'). Where the Debtor/Bankrupt is being referred to, in respect to a prior prior to being adjudged bankrupt, he will be referred to as the 'Debtor'.

(4) the phrase 'official receiver or trustee of the bankrupt's estate' is used. This office-holder role is that of a trustee in bankruptcy, so, as stated above, 'TIB' will be used as an appropriate abbreviation;

(5) an 'interim charging order' used to be called a 'charging order nisi'; a 'final charging order' used to be called 'charging order absolute'. It can be helpful to think of a charging order being made on an interim basis, then the same charging order being made to continue on a final basis. The same applies to third party debt orders ('TPDOs'; singular 'TPDO')) i.e. there are interim TPDOs and final TPDOs. 

(6) TPDOs used to be called 'garnishee orders'. The third party was known as the garnishee (and there used to be a 'garnishee order nisi' and a 'garnishee order absolute')

(7) this article will focus the application of s.346 IA 1986 where enforcement has been attempted through a TPDO or a charging order, rather than the seizure of goods (i.e. where land or a debt has been targeted, rather than goods) 

SECTION 346(1) INSOLVENCY ACT 1986

The Provision

Section 346 IA 1986 is entitled 'Enforcement procedures' and s.346(1) provides:

'Subject to section 285 in Chapter II (restrictions on proceedings and remedies) and to the following provisions of this section, where the creditor of any person who is made bankrupt has, before the commencement of the bankruptcy

(a) issued execution against the goods or land of that person, or

(b) attached a debt due to that person from another person,

that creditor is not entitled, as against the official receiver or trustee of the bankrupt’s estate, to retain the benefit of the execution or attachment, or any sums paid to avoid it, unless the execution or attachment was completed, or the sums were paid, before the commencement of the bankruptcy.'

Some pithy, but overly simplified summaries of this provision, were given in:

(a) Tagore (an execution, by way of a charging order, case), wherein Mann J, at paragraph 28, said:

'Section 346(1) avoids incomplete executions as against the trustee in bankruptcy.'; and

(b) Wilson (an attachment, by way of a third party debt order, case), wherein, Nugee LJ, at paragraph 3 said:

'a creditor cannot retain the benefit of an attachment as against the official receiver or trustee unless the attachment was completed before the commencement of the bankruptcy.'

Where though, completion (execution / attachment / payment) has occurred before the making of the bankruptcy order, Parliament's intention is said to be clear. Sir John Chadwick in Wright said, at paragraph 29 (in relation to charging orders, but there is no reason to think this does not have wider application):

'...the legislative intention which underlies section 346(1) of the 1986 Act is that a judgment creditor who has obtained a final charging order before the making of a bankruptcy order is not to be deprived of the benefit of his security by reason of the bankruptcy alone.'

Section 346(1) Insolvency Act 1986 - Structure and Ingredients 

4 Parts - Overview

Looking at the provision in more detail, as will be apparent, s.346(1) is structured in the following way (the labels given are my own):

(1) with some 'subject to's' ('Subject To's'); then

(2) the conditions for its application (the 'Conditions'); then

(3) the consequence imposed where the provision applies, is stipulated (the 'Consequence'), then there is

(4) an excepted circumstances identified (the 'Exception')

4 Parts - Closer Look

Taking those parts in turn:

Part 1 - The Subject To's are that, s.346(1) is subject to:

(a) the provisions in s.285 IA 1986 (see discussion on s.285(3) IA 1986 below); and

(b) the rest of the subsections in s.346, namely s.346(2) to (9) (set out in a footnote[1]); 

These will be returned to after a discussion of the main s.346(1) provisions. 

Part 2 - the Conditions are that:

(a) a creditor (i.e. the Creditor) has, against an individual (i.e. the Debtor):

'(a) issued execution against the goods or land of that person, or

(b) attached a debt due to that person from another person,'

(b) then the Debtor was adjudged bankrupt;

Note - the Conditions just stipulate what must have been started (issued / attached) - the Conditions say nothing about the stage such processes may have got to, or (more importantly) not got to. To perhaps repeat the point: the Conditions are satisfied simply by the commencement of these legal processes.

Part 3 - Where the Conditions exist (and subject to the Exception, discussed below), s.346(1) IA 1986 stipulates that the Creditor '... is not entitled, as against the official receiver or trustee of the bankrupt’s estate, to retain the benefit of the execution or attachment, or any sums paid to avoid it...'. In other words, the Creditor cannot keep: (a) the benefit of the execution or attachment, or (b) money received by the Creditor, as payment to avoid execution or attachment, as the case maybe, as against the claim of the official receiver or trustee in bankruptcy, to the land, goods or debt, for the bankrupt's insolvent bankrupt estate. The benefit (e.g the effect of the interim charging order, or interim TPDO, or whatever)) is lost; statute requires that, where there are court orders bestowing that benefit, those court orders be released/discharged. So, where the Conditions are satisfied (and subject to the Exception, discussed below):

(i) no final charging order or final TPDO can be made;

(ii) should any final charging order or final TPDO have inadvertently been made (i.e. inadvertently made, after the bankruptcy order, in contravention of s.346(1), like in Tagore - see below), such order cannot be retained.

Existing interim court orders, will need to be released/discharged, and relevant enforcement proceedings (i.e. the charging order proceedings / TPDO proceedings etc.) will need to be dismissed. 

Part 4 - The Exception - the excepted circumstance - is a prescribed circumstance, which if found to exist, dis-applies the otherwise applicable Consequence set out in Part 3 above. The Exception's prescribed circumstance, is where '...the execution or attachment was completed, or the sums were paid, before the commencement of the bankruptcy'.

Attachment and 'attached at debt'

It may be helpful to interpose here some assistance as to what 'attached a debt' or 'attachment' is (or 'attachment of a debt' - s.346(5) IA 1986 - discussed below).

There are at least two instances of this:

(a) as a result of a TPDO; and

(b) where HMRC has commenced an action under Part 1 of Schedule 8 to the Finance (No. 2) Act 2015 (enforcement by deduction from accounts) as a result of which an amount standing to the credit of an account held by that person is (i) subject to arrangements made under paragraph 6(3) of that Schedule, or (ii) the subject of a deduction notice under paragraph 13 of that Schedule.

Focusing on TPDOs (the more frequent to arise), where the Debtor/Bankrupt (the judgment debtor) is owed money by a third party, that debt[2a] owed by the third party to the Debtor/Bankrupt (the Debtor/Bankrupt being a creditor vis a vis the third party debtor) is a thing in action. The thing in action is the debt held by the judgment debtor - and what the judgment debtor holds is the obligee end of the debt - the creditor end - of the debt relationship/legal tie[3]). This thing in action is an asset of the Debtor/Bankrupt's estate (everyone has an estate, whether it is solvent or insolvent being irrelevant to that fact). As an asset in the Debtor/Bankrupt's estate, it is available to be made subject to a form of security. Where the court grants a Creditor, a TPDO, against a Debtor/Bankrupt and the debt in his estate, it can be said that the debt/thing in action in the Debtor/Bankrupt's estate is 'attached' (or that the TPDO binds the debt, or the TPDO has creating a equitable charge over the debt). In paragraphs 25 and 26 of Wilson[4], Nugee LJ, referred to Eram, as explaining the 'effect of a TPDO...' - that Lord Bingham in Eram:

(a) at paragraph 14 '...explained the effect of an interim order by reference to decided cases as “attaching” the debt owing from the third party to the judgment debtor, or as “binding” the debt in his hands, or as creating an equitable charge on it.

(b) at paragraph 15, '... explained the effect of a final order, again by reference to authority, as binding the debt attached, and giving the judgment creditor a right to receive payment of it...'[5]

Eram also contains Lord Millett's explanation as to the nature of the order:

(a) at paragraph 87, Lord Millett said:

'A third party debt order ‘attaches’, that is to say appropriates, the debt owing to the judgment debtor to answer the judgment debt. This is the classic method of creating an equitable charge over a debt or fund. It creates a proprietary interest by way of security in the debt or fund and gives priority to the claim of the judgment creditor to have his debt paid out of the fund before all other claims against it including that of the judgment debtor himself.'

(b) at paragraph 88, Lord Millett said that two things followed:

'First, a third party debt order is not an in personam order against the third party; it has proprietary consequences and takes effect as an order in rem against the debt owed by the third party to the judgment debtor. Secondly, the discharge of the debt is an integral part of the scheme of the order, which first creates and then realises a proprietary interest in the debt and makes the proceeds available to the judgment creditor.'

Later, at paragraph 40, Nugee LJ in Wilson stated:

'As explained in [Eram] it creates an equitable charge on the debt. That is a proprietary remedy against the property of the bankrupt. Once the TPDO has been made, the debt is not available to the general body of creditors but is payable in priority to the judgment creditor. I do not see it as analogous to a money judgment'[6]

Section 346(5) Insolvency Act 1986 - the Exception - Completion of execution and attachment

Where the prescribed circumstance for the Exception in s.346(1) IA 1986 is satisfied, the s.346(1) IA 1986 Consequence does not apply.

Turning then to the prescribed circumstance, there are two key concepts/requirements:

(1) 'execution' or 'attachment' must have been 'completed', or the sums 'paid'; and

(2) that that completion/payment (as the case maybe), must have occurred 'before the commencement of the bankruptcy'.

Taking these in turn:

(1) 'completed'

Section 346(5) IA 1986 is relevant here, as it provides definitions for when: (i) an execution; and (ii) an attachment, is 'completed'. However, section 346(5) does not define, or provide a gloss, to what the word 'paid' means.

As will be seen shortly, the word 'completed' has different definitions, depending on the what:

(a) type of asset of the Debtor/Bankrupt, the enforcement process targeted (i.e. made subject to the enforcement process), whether: (i) goods; (ii) land; or (iii) debt.

(b) type of execution (but not attachment (there is a separate issue with attachment - dealt with below)), has been utilised.

The points when an enforcement process can be said to have been 'completed' include:

(i) seizure;

(ii) seizure and sale;

(iii) appointment of a receiver, and

(iv) by the making of a charging order under section 1 of the Charging Orders Act 1979

(not all are applicable to execution against goods and land).

Turning now to the wording of subsection 346(5) IA 1986, that subsection reads:

'For the purposes of this section

(a) an execution against goods is completed by seizure and sale or by the making of a charging order under section 1 of the Charging Orders Act 1979;

(b) an execution against land is completed by seizure, by the appointment of a receiver or by the making of a charging order under that section;

(c) an attachment of a debt is completed by the receipt of the debt.'

A few observations can be made:

(a) s.346(5)(a) and s.346(5)(b) IA 1986 contain the phrase 'by the making of a charging order under section 1 of the Charging Orders Act 1979' and 'by the making of a charging order under that section' (meaning, of course, under section 1 of the Charging Orders Act 1979) respectively. In Tagore, Mann J noted that the creditor in that case, who was making a s.346(6) application, made the s.346(6) application on the '...supposition that the ‘making of a charging order’ means the making of a charging order absolute.' (paragraph 29). Mann J's decision seems to assume this is correct. 

(b) s.346(5)(c) IA 1986 defines completion, in respect to an attachment of a debt, as when there is '...the receipt of the debt'. Perhaps not adding much, In Wilson, Nugee LJ noted that 'By section 346(5)(c), an attachment of a debt is not completed until the debt has been received.' (paragraph 28). Quite what 'received' here means is not very clear[7]. Logically, there seems little reason why it would be different point/stage to that which is used for charging orders (which is, Tagore assumed, the obtaining of a final charging order). 

(c) In Wright, Sir John Chadwick, at paragraph 18, said:

'...it is...clear that the legislature did intend that a creditor who had completed execution before the bankruptcy order was made was not to be deprived of his security by reason of the bankruptcy order alone.'[8] 

(2) 'paid'

As stated above, section 346(5) IA 1986 does not define, or provide a gloss, to what the word 'paid' means. Paid must be given its ordinary and natural meaning.

(3) 'commencement of the bankruptcy' 

Section 278 IA 1986, is entitled ‘Commencement and continuance’, and reads:

‘The bankruptcy of an individual against whom a bankruptcy order has been made-

(a) commences with the day on which the order is made...'

In other words, bankruptcy commences at the date of the bankruptcy order (not from the day when the petition was presented), so 'commencement of the bankruptcy' means the day the bankruptcy order is made.

SECTION 285(3)(A) INSOLVENCY ACT 1986

One of the 'Subject To's' is section 285 IA 1986. That section contains s.285(3)(a) IA 1986, but, to put that subsection in its context, it is helpful to set out s.285(3) IA 1986 in full. Section 285(3) IA 1986 reads:

'After the making of a bankruptcy order no person who is a creditor of the bankrupt in respect of a debt provable in the bankruptcy shall

(a) have any remedy against the property or person of the bankrupt in respect of that debt, or

(b) before the discharge of the bankrupt, commence any action or other legal proceedings against the bankrupt except with the leave of the court and on such terms as the court may impose.

This is subject to sections 346 (enforcement procedures) and 347 (limited right to distress).'[9].

Section 285(3)(b) IA 1986 is not relevant for present purposes. It prohibits (except with leave of the court) the commencement of any action or legal proceedings against the bankrupt before the bankrupt is discharged from bankruptcy. But, in the scenario under consideration in this article, the legal procedure - the enforcement procedure commenced before the Debtor is adjudged bankrupt. The sequence of events in our scenario is not, bankruptcy first, then the commencement of the enforcement procedure. 

Our scenario, with the start of the enforcement procedure, then the bankruptcy, engages s.285(3)(a) IA 1986. As per s.285(3)(a), the creditor with a debt provable in the bankruptcy (which shall be assumed for present purposes), shall not 'have any remedy against the property or person of the bankrupt in respect of that debt;'. The question therefore is: does the next/final stage of the incomplete enforcement procedure, amount to a 'remedy against the property or person of the bankrupt' - in respect of that debt? 

One type of enforcement process, is an application for a TPDO and the next/final stage of an incomplete TPDO application - is to obtain of a final TPDO. In Wilson, the obtaining of a final TPDO was characterised as obtaining a '...remedy against the property...' of the Debtor/Bankrupt for the purposes of r s.285(3)(a) IA 1986. In Wilson, after considering the nature of a TPDO application, Nugee LJ said that there was '...no doubt that a creditor who obtains a final TPDO obtains a remedy against the property of his debtor in the shape of a charge on the debt.' (paragraph 27). The result being, that the Creditor/TPDO applicant was prevented from obtaining a final TPDO '...after a bankruptcy order has been made in respect of his debtor by section 285(3)(a) IA 1986.' (paragraph 27)

However, s.285(3) is expressly stated to be 'subject to sections 346 (enforcement procedures)...'. And it is to be noted, for the Subject To component - s.346(1) commences 'Subject to section 285 in Chapter II (restrictions on proceedings and remedies)...'. While very far from clear, it seems that a successful s.346(6) application disapplies both: (a) s.346(1)'s prohibition; (b) s.285(3)(a)'s prohibition - see Wilson. 

SECTION 346(6) INSOLVENCY ACT 1986 - COURT'S POWER TO SET ASIDE EFFECT OF SECTION 346(1)

Section 346(6) IA 1986

Section 346(6) IA 1986 reads:

'The rights conferred by subsections (1) to (3) on the official receiver or the trustee may, to such extent and on such terms as it thinks fit, be set aside by the court in favour of the creditor who has issued the execution or attached the debt.'

As will be apparent, this provision empowers the Court to set aside, to the extent and on such terms of the Court thinks fit, the rights conferred by s.346(1) to (3) (namely, subsections (1A), (2) and (3)[10]). Of the rights conferred by subsections s.346(1) to (3), the most significant, and the focus of this article, is (of course) the s.346(1) 'right' (as the statute characterises it) in the TIB, to have the creditor dis-entitled from the benefit of his enforcement process. In other words, the court has the power to set aside the Creditor's dis-entitlement of the creditor's (incomplete) enforcement benefit under s.346(1). In short, the court can dis-apply s.346(1)(the extent and on such terms of the Court thinks fit), with the effect that:

(a) the rights of the TIB in the property are curtailed (or otherwise altered). The TIB has the property in the bankrupt estate, but (typically) it is subject to the incomplete execution/attachment; 

(b) the creditor's incomplete execution/attachment is valid and effective, and is allowed to stand. In Tagore (execution by way of a charging order case), Mann J said, at paragraph 31:

'In other words, the court, if it thinks it right to do so, can allow the execution to stand, notwithstanding the intervening bankruptcy.'

Wilson 

It is convenient to start with an extract from Nugee LJ's decision in Wilson, wherein he puts s.346(1) IA 1986 into its wider insolvency context. Nugee LJ in Wilson said, paragraphs 48 - 49:

'The fundamental principle of bankruptcy is that it enables a pari passu distribution of the bankrupt's assets among his creditors. Creditors who are already secured before the bankruptcy commences are entitled to keep the benefit of their security; but creditors who are not secured are only entitled to a pari passu distribution. For these purposes a creditor who has obtained an order nisi or interim order is regarded as only having a provisional (or “revocable” or “defeasible”) interest, and hence when a creditor had obtained a charging order nisi over assets of a company, the House of Lords held that the intervening liquidation of the company was a good reason not to make the charging order final: Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192. The same policy is of course reflected in section 346(1) IA 1986 which prevents a creditor from retaining the benefit of an attachment unless it has been completed before the commencement of the bankruptcy.

In these circumstances to allow one creditor to obtain priority over others by completing an attachment after the bankruptcy order has been made is a significant inroad into the pari passu principle. It is not surprising therefore that it has been held that it requires something exceptional before this should be permitted.'

Tagore's summary of the law 

In Tagore, Mann J discussed the law in respect to a s.346(6) applications, a discussion that includes helpful summaries of (a) Buckingham; and (b) Landau; and consideration of the importance of: (a) reprehensible conduct leading up to the obtaining of the judgment; and (b) conduct which has had the effect of frustrating the attempt of a judgment creditor to enforce the judgment that has been obtained. Mann J in Tagore, at paragraphs 32 to 39, said:

'[32] The operation of that jurisdiction has been the subject of a number of decided cases, both in relation to s 346 itself and in relation to prior and parallel provisions in previous insolvency legislation. It is necessary for me to refer to only a small number of those cases. They are summarised in Williams and Muir Hunter on Bankruptcy (Sweet and Maxwell) and in Halsbury’s volume on bankruptcy. Muir Hunter deals with them in a paragraph appearing at 3249–3250 of the current version of that work. It reads as follows:

‘In [Buckingham] the Court of Appeal had to consider s 183(2)(c) of the IA 1986 in a case where the judgment creditors had “been badly treated by the company” (ibid. at 394d) and where “delaying tactics adopted in the litigation by the company and its solicitors may have amounted to … abuse of process” (ibid. at 393i). The Court of Appeal refused to interfere with the judge’s refusal to exercise the court’s discretion in favour of the judgment creditors, notwithstanding its conclusion that the plight of the judgment creditors was “even worse than the judge thought” (ibid. at 394e). The judge had held, following Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192, HL(E), that “the statutory scheme of pari passu distribution amongst all creditors of the same class at the date of liquidation [is] the overriding principle” (ibid. at 381d-e). The judge had referred to Re Grosvenor Metal Co Ltd, above, and Re Suidair International Airways Ltd [1951] Ch. 165, as examples of the exercise by the court of its discretion in favour of judgment creditors on the basis that the company had by fraud, trickery, or some other illegal act prevented the creditor from completing an execution before the start of the winding up (ibid. at 381h). The judge, however, had found that there was no evidence of such, post-judgment, conduct on the part of the company. The Court of Appeal expressly endorsed this finding. It appears, therefore, that evidence of such conduct, may, in a proper case, and notwithstanding the overriding principle of pari passu distribution amongst creditors, induce the court to exercise its discretion in favour of the judgment creditor. The Court of Appeal noted that all three members of the Court in Re Caribbean Products (Yam Importers) Ltd [1966] Ch. 331, CA (a case concerned with s 325(1)(c) of the 1948 Act), had made clear that there had to be strong reasons for disturbing the general statutory scheme for pari passu distribution: ‘the court has a discretion which is expressed in wide terms, but is to be exercised with caution, and only in special circumstances’ (Re Buckingham International Plc (No. 2), above, at 393g).’

[33] That summarises the principles. They are summarised more shortly in Halsbury’s Laws of England (Butterworths, vol 3.2), at para 681, footnote 2, which reads as follows,

‘The discretionary powers of the court under section 346(6) are extremely wide and of an undefined character. Under the corresponding provisions in sections 183 and 184 (formerly the Companies Act 1985, sections 62(1) and 62(2) repealed) the following principles have emerged:

1. It is intended that all creditors, including prima facie all execution creditors who have not “completed” their execution should share pari passu in the distribution of the debtor’s assets.

2. An execution creditor who is unable to prove that he was unfairly, though not necessarily fraudulently, obstructed in putting in train or bringing to a conclusion a process of execution may qualify for favourable consideration by way of exception to the general rule.

3. In general, however, such a creditor will have to show an extremely strong case before the court will intervene.’

Then a number of cases are set out which are said enshrine those principles. Because those are accurate summaries of the law, I do not need to go into those cases. I can confine myself to a consideration of two of the later, if not the latest, cases on the topic because they deal with a point that [the judgment creditor's counsel] has sought to overcome.

[34] The first is [Buckingham] The details of that case do not matter. For present purposes it is sufficient to observe that it is a case in which the creditors were obviously given the run-around in proceedings prior to judgment, and because of the delays inherent in that they lost an opportunity to execute that they would otherwise have had because of an intervening insolvency. They sought to say that the equivalent discretion to that which I am asked to operate should be made to operate in their favour; their principal complaint was in respect of pre-judgment behaviour.

[35] Harman J declined to exercise the jurisdiction, and his decision was upheld in the Court of Appeal. In the course of his judgment, Robert Walker LJ dealt with the effect, for the purposes of the section, of pre-judgment conduct. At 393 he set out the principle, that is to say that the court has a free hand to do what is right and fair but not operating as a matter of ‘palm tree justice’, and acknowledged the importance of the general statutory scheme for distribution. I apply all those principles in this judgment.

[36] He then goes on to record the submissions of counsel for the applicant (and the appellant) and counsel’s reliance on, ‘The company’s delaying tactics in the litigation’ which, ‘Can and should now be seen as an abuse of process’. He did not see much force in that point in the case before him. He said this, at the foot of 393:

‘The delaying tactics adopted in the litigation by the company and its solicitors may have amounted to, or come close to, abuse of process, but the appellants did eventually emerge with an enforceable judgment. That may have come as a considerable shock to the company and its advisers but there was no lack of probity on their part in their conduct after judgment.’

[37] It seems that Robert Walker LJ is making an assumption in favour of the appellant that the pre-judgment conduct was an abuse of process and that there were delays which were, in effect, giving the defendants the run-around, but he was declining to take that into account as being a factor which would operate in favour of the exercise of the jurisdiction which he was considering. In other words, his judgment supports a distinction between pre-judgment acts which contributed to the frustration of a post-judgment execution, and post-judgment acts. That distinction was apparently upheld by Sir Richard Scott V-C in ]Landau] (an unreported case in which judgment was given on 15 June 1999). That case involved a very, very long history of an incomplete bit of execution – I think a garnishee order. The history of that case is quite extraordinary and nothing like the history of this case. It is not necessary for me to go into that history.

[38] It was urged on the Vice-Chancellor in that case that the pre-judgment history was highly relevant in the exercise of the discretion which the Vice-Chancellor was invited to exercise, which was the same as the discretion as I am invited to exercise. He rejected that submission, and at p 19 of the transcript said:

‘In my judgment, there is all the difference in the world between reprehensible conduct leading up to the obtaining of the judgment and conduct which has had the effect of frustrating the attempt of a judgment creditor to enforce the judgment that has been obtained. The point made by Pennycuick J in Re Redman Builders requiring uniformity in the manner in which the discretion is exercised is, if I may respectfully say so, plainly right. In Re Buckingham International is a guide which first instance judges should follow when considering reprehensible pre-judgment conduct. The case does not, however, in my opinion, constitute a guide to a case where what is relied on is reprehensible post-judgment conduct which has the effect of preventing completion of the execution. The general principle, of course, namely that there must be a strong reason for departing from the statutory scheme, is applicable in each and every case but, in my view, in considering how the subsection (6) discretion should be exercised, particular attention should be paid to what has been done by the judgment creditor to obtain execution of the judgment that has been obtained. If failure to complete execution has been in any respect the fault of the judgment creditor, due to any delay on his part, or due to any other factor for which he is responsible, then it seems to me that it would be very difficult indeed to justify the exercise of discretion in his favour. But where the judgment creditor has acted with reasonable promptitude in seeking execution, and where the bringing of the execution to completion has been frustrated by delay entirely outside the control of the judgment creditor, and particularly if it has been caused or contributed to by the judgment debtor, then the position seems to be quite different.’

[39] In my view, it can plainly be seen in that case that the Vice-Chancellor is drawing a distinction between pre-judgment conduct and post-judgment conduct. For pre-judgment conduct he says, ‘Look at Buckingham’, and that indicates that you do not take that into account in exercising the discretion under subs (6). Post-judgment conduct, however, is a different matter.'[10a]

Tagore's 6 Principles 

Mann J in Tagore, then set out 6 principles which he extracted from the authorities (Buckingham; Landau (particularly) and unspecified others). Mann J said, at paragraphs 43 to 48:

'...I can extract the following principles.

First, I have a discretion under subs (6). I can and should do what is fair but not in a ‘palm tree justice’ sense. Fairness has to be judged by reference to appropriate criteria, some of which are dealt with in the cases.

Secondly, in judging fairness, the prime circumstances to which I should advert are those going to the enforcement of the judgment and the extent to which, and the reasons for which, the enforcement of the judgment has been frustrated. In [Landua], and, so far as is relevant, in Buckingham, there was considerable delay and it was delay that was said to make the avoidance of the execution unfair. In each case that plea failed, but delay lay at the heart of the matter. The remarks of Sir Richard Scott V-C about delay which I have already read must be read in that context. He is not confining the exercise of the jurisdiction to cases of delay but the cases where there is delay will obviously be cases where the jurisdiction is perhaps most frequently invoked.

Thirdly ... the emphasis should be on post-judgment events.

Fourthly, however, and despite what I have said about the direct relevance of pre-judgment events, it seems to me it must be open to me to look at pre-judgment events for a limited purpose. It seems to me to be entirely proper to look at pre-judgment events so far as they reflect on the quality of post-judgment events so as to enable the court to draw an inference as to the motivation behind post-judgment events that might otherwise not be a proper inference to draw.

Fifthly, the jurisdiction under subs (6) must be exercised with great caution and should only be exercised in an exceptional case. I must have regard to the normal primacy of the pari passu rule. It must be afforded great weight and should not be lightly displaced. That is a theme which runs through several of the cases.

Sixthly, it is for the applicant to fulfil the burden, and it is a heavy burden to fulfil. The applicant must establish that the events which have happened have generated a sufficient unfairness, if the execution is not allowed to stand, so as to generate an exception in his favour.'[11]

Later in Tagore, when determining the s.346(6) application, at paragraph 61, Mann J said:

'It must be borne in mind that this is not just a competition between [the Debtor/Bankrupt] on the one hand and the [creditor] on the other. It is in essence a competition between the interests of [the Creditor], on the one hand, and the unsecured creditors, other than [the Creditor], on the other. It is those creditors who will be affected by the success of this application.'

On the facts[12] of Tagore, the s.346(6) application was successful. But, Mann J held that his decision on the facts did '...not establish any general principles about the relative weight of creditors’ interests or any principles that charges can be set aside if brought about by the bankrupt just before a charging order absolute is made, or anything like that.' (paragraph 65) (the Debtor/Bankrupt in Tagore had obtained an adjudication of bankruptcy against himself, the day before the charging order was made final). Mann J said of Tagore, that  '[i]t is a case which turns on its own particular and rather extraordinary facts and which generates its own case for fairness.' (paragraph 65).

In Wilson, Nugee LJ had to consider whether a Creditor had (at least) reasonable prospect of obtaining an order on a prospective section 346(6) application. Nugee LJ went through the submissions (discussed below) before concluding that 'none of the matters relied on by [Creditor's counsel] ... give rise to any realistic prospect that [the Creditor] would be able successfully to invoke section 346(6) IA 1986' (paragraph 57). Those submissions were that:

(a) the Creditor was due 'substantial sums' (paragraph 51). Nugee LJ rejected this - holding that 'this does not seem to me to affect the question of fairness one way or the other.' (paragraph 51) (see also, paragraph 68(2));

(b) the Debtor/Bankrupt had, before bankruptcy, been willing for payments to be made from the third party come to the Debtor/Bankrupt and then go off to the Creditor. Nugee LJ rejected this as influencing the matter. Nugee LJ, at paragraph 52, said '...the willingness of [the Debtor/Bankrupt] to see this happen is no longer here or there. On his bankruptcy it is no longer a matter for him how his liabilities are met. It is a matter for the trustee in bankruptcy. If there are any other creditors, the trustee would prima facie have no reason to see one creditor preferred, necessarily at the expense of others.'

(c) the Creditor should have had a final TPDO long before the bankruptcy order (9.3.21), but the Creditor had been wrongly denied a final TPDO before the bankruptcy order was made, due to: (i) an erroneous decision at first instance (14.6.18); (ii) which was wrongly upheld on appeal (22.5.20). However, while this would be a consideration, where the bankruptcy order was due to: (I) some other creditor's bankruptcy petition; or (II) where the debtor himself sought his own bankruptcy (as happened in Tagore), the situation was different where, as in Wilson, it was the Creditor who petitioned (11.12.18) and it was the Creditor who obtained (9.3.21) the bankruptcy order against the Debtor/Bankrupt.

Nugee LJ reasoned that, it '...was not necessarily improper...' for the Creditor to commence both: (a) TPDO application proceedings; and, in parallel, (b) presented and pursued bankruptcy proceedings, against the same Debtor, but in doing so, the Creditor had introduced a risk that, in the end, eventuated. That is, that a bankruptcy order was made before a final TPDO was made. Nugee LJ said 'I do not think [the Creditor] can then complain that it is unfair that his bankruptcy intervened before the TPDO was made final.' (paragraph 54). On the facts in Wilson, the Creditor's decision to pursue, and crucially, obtain a bankruptcy order against the Debtor (when the Creditor could have sought an adjournment of the petition), before the Creditor had exhausted its rights of appeal against the decision to refuse to make the TPDO final, meant it could not complain about the impact the bankruptcy order had, on its TPDO application. Nugee LJ, at paragraph 55 said:

'In my judgment it can scarcely complain that the intervening insolvency before its TPDO can be made final has caused it unfairness when the insolvency was brought about by its own act. There may be nothing improper in [the Creditor] pursuing two parallel sets of proceedings against [the Debtor] at the same time, but once one of those proceedings has resulted, at [the Creditor's] request, in his bankruptcy, it is difficult to see that it can complain of the impact of that on its other proceedings.'[13]

Nugee LJ in Wilson gave a Postscript to this judgment. In it, he dealt with (amongst others) two Creditor submission, that:

(a) 'the relevant history of the litigation shows that both [Debtor/Bankrupt] and [third party] have behaved very badly...' (paragaph 68(2)) and that the Creditor 'has many judgments in [the Creditor's] favour that demonstrate the abusive litigation behaviour' (paragraph 68(2) by the Debtor/Bankrupt and the third party. Nugee LJ, assuming this to be true, held it was irrelevant to a s.346(6) application anyway: 'I do not see the relevance of it to an application under section 346(6). The question on such an application is whether the pari passu principle should be displaced. That is not an issue that turns on the behaviour of the bankrupt (Mr Sinclair) let alone that of the third party debtor (Mr Emmott) but on whether there is anything exceptional which justifies promoting the interests of one creditor (MWP) above the others.' (paragraph 68(2)[14])

(b) a TIB would likely, in time, assign the benefit of the Debtor/Bankrupt's claim against the third party, to the Creditor. Nugee LJ could see that, while a TIB might agreed to such an assignment, as the best way to realise the claim, Nugee LJ could not see '...why a [TIB] would agree to [the Creditor] having the sole benefit of such a claim to the exclusion of other creditors which is what a section 346(6) application would mean.' (paragraph 68(3)). It did not follow. The bankrupt estate had other (undisputed) creditors, and '...no reason has been given why the other creditors should have their rights to a pari passu distribution disturbed.' (paragraph 68(3)). 'It is far more likely that a [TIB] would only agree to such an assignment on terms that an appropriate part of the value was made available to the other creditors. That does not need the [TIB] to consent to an application under section 346(6), and indeed would be inconsistent with him doing so.' (paragraph 68(3)).

On the facts in Wilson, Nugee LJ reiterated that '...no good reason is advanced why it is unfair to [the Creditor] to allow the ordinary pari passu distribution to apply in [the Debtor/Bankrupt's] bankruptcy.' (paragraph 69).

Monte

It might be helpful to note some observations by Floyd J in Monte, a corporate insolvency case which involved (amongst other things) the Court considering whether it should, under s.3(5) of the Charging Orders Act 1979, discharge a charging order made over a company's asset (paragraph 39) - the company had, at the date of the charging order, been both: (i) cash flow insolvent (paragraph 45); and (ii) balance sheet insolvent (paragraph 71). Between the interim charging order being made and final charging order being made, the debtor company: (a) had filed at Court a notice of intention to appoint administrators; (b) had its solicitors notify the Creditors of the notice of intention / the effects of the moratorium. Floyd J said, at paragraph 39:

'There is, in principle, nothing improper for a company, acting on professional advice, to seek to initiate an insolvency process in the hope of preventing a creditor from gaining an advantage over other creditors of the company. Nor is there anything improper in the step of seeking to obtain a charging order in the hope of gaining an advantage over unsecured creditors. In Roberts Petroleum Ltd v Bernard Kenny Ltd [1983] 2 AC 192, 206 Lord Brightman said in this context:

“A person who has the misfortune to have given credit to a company which runs into financial difficulties has every right to seek to secure himself. And such company or its other creditors have every right to hasten liquidation in order to thwart such a purpose.”'[15]

Where Creditor is/remains dis-entitled to the benefit of his enforcement

Where the Creditor is/remains dis-entitled to the benefit of enforcement, the enforcement will be given up:

(1) an interim charging order will need to be discharged; 

(2) an interim TPDO will need to be discharged; 

(3) in respect to goods/money seized/recovered from the Debtor/Bankrupt, see subsections 346(2), (3) and (7) IA 1986, which, generally speaking, make provision (in certain circumstances) for goods/money to be delivered to the TIB. 

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