Trustees Beware!

A recent unreported case before the High Court of Justice has held that a Trustee in Bankruptcy is not entitled to an Order suspending a Bankrupt’s automatic discharge from bankruptcy even if the Bankrupt failed to co-operate with the Trustee, assist him in administering his duties and supply to him all such information as he required. 

 

On 19 October 2011 the High Court of Justice, Chancery Division, handed down its Judgment in the case of Matthew Chadwick (Trustee in Bankruptcy) v Adrian Charles Nash. The case related to an application that was issued by the Trustee under s.279(3) Insolvency Act 1986 for an Order suspending the Bankrupt’s automatic discharge from bankruptcy until such time as the Bankrupt co-operated with the Trustee and provided to him all such information and documentation as he required to assist in the administration of the Bankrupt’s estate. The debtor had in fact been the subject of a Bankruptcy Order on 5 August 2010 and was therefore entitled as of right to be discharged from bankruptcy on 5 August 2011. The Trustee sought to have the discharge suspended and evidenced before the Court a number of lengthy witness statements setting out the grounds on which he believed he was entitled to a Suspension Order.

 

What is interesting about the case is that the question for the Court did not turn on whether the Bankrupt had failed to co-operate with the Trustee or abide by his duties under the Insolvency Act 1986. Instead, the question for the Court was whether the Trustee had left the issuing of the suspension application too late and whether the rights of the Bankrupt outweighed  the  rights  of  the Trustee. This was regardless of whether the Bankrupt had co-operated with his Trustee or abided by his duties. 

 

The basic facts of the case are that the Trustee was appointed on 21 January 2011. Shortly thereafter he wrote to the Bankrupt setting out a number of questions that he wanted the Bankrupt to answer. The Bankrupt subsequently instructed BHP Law who wrote to the Trustee in February 2011. Despite further letters, the Trustee failed to respond to the initial letter from BHP Law until mid July 2011, some five and a half months later. In his reply, the Trustee stated that he had further questions which needed to be answered by the Bankrupt and unless they were answered immediately a suspension application would be issued. Only a few days later, the Trustee instructed his solicitors to issue an application before the Court for an Order that the Bankrupt’s automatic discharge from bankruptcy be suspended. The application was issued on 3 August 2011, two days before the Bankrupt was to obtain his automatic discharge from bankruptcy. 

 

A number of hearings took place before the Court and a trial was eventually held. Both the Trustee and the Bankrupt were called to give evidence. In submissions on behalf of the Bankrupt, BHP Law relied upon the case of Bagnall v The Official Receiver [2004] in which Lady Justice Arden had heard a similar case. In her Judgment, Lady Justice Arden said:

 

“Trustees who leave it to the very last moment to issue a suspension application run the risk that the Court will not exercise its discretion to make the Suspension Order. It is a judicial discretion. The interests of the creditors have to be balanced with those of the Bankrupt and circumstances may arise where a Trustee has been so dilatory that the consequences for the Bankrupt are so unfair that the Court may decide it inappropriate to exercise its power under s.297(3) Insolvency Act 1986 despite the Bankrupt’s past or current failure to co-operate.”

 

Under cross examination, it was demonstrated to the Court that the Trustee had not only left the issuing of the suspension application until the eleventh hour but in fact had been so slow in dealing with the administration of the bankruptcy estate that his actions should fall within the Bagnall authority. 

 

On 19 October 2011 Mr Registrar Nicholls made an Order dismissing the Trustee’s application. In giving his Judgment, the Registrar was extremely critical of the Trustee and pointed to a number of his failings. Not only was the suspension application dismissed but the Trustee was left facing payment of the Bankrupt’s legal fees which amounted to more than £40,000. 

 

The outcome of the above case is that Trustees should be alert to the fact that an application for an Order suspending a Bankrupt’s automatic discharge from bankruptcy should not be left until the eleventh hour and should be issued well before the point at which the Bankrupt is to obtain his automatic discharge from bankruptcy. Furthermore, Trustees should act as quickly as possible in dealing with the administration of the Bankrupt’s estate and where the Bankrupt has failed to co-operate with the Trustee or provide to him all such information and documentation as he requires, the Trustee should not only correspond with the Bankrupt immediately but should consider using his other powers under the Insolvency Act 1986, for example, having the Bankrupt brought before the Court to answer questions on oath.