Our specialist insolvency lawyers regularly assist clients in applying to the court for annulment of their bankruptcy order. A common source of frustration they encounter is the debtor leaving it too long before considering an application for annulment. In this article, we explain the importance of applying for annulment of your bankruptcy promptly.
Main grounds for annulment
Before considering why it is important to apply for annulment of a bankruptcy order promptly, it is prudent to list the main grounds under which you can apply to the court to annul your bankruptcy. They are:
a) That on any grounds existing at the time the bankruptcy order was made it ought not to have been made.
b) The bankruptcy debts and expenses have been paid or secured to the satisfaction of the court.
c) Following the bankruptcy order being made and prior to being discharged from bankruptcy the debtor enters an insolvency voluntary arrangement (IVA) with their creditors
More detailed information relating to annulment applications can be found here.
Advantages of applying for annulment promptly
We set out some reasons why applying for annulment of a bankruptcy order promptly is advantageous below:
1. As soon as a bankruptcy order has been made, the Official Receiver (“OR”) or Trustee in Bankruptcy (“TIB”) can commence administering the bankruptcy estate, which includes realising a debtor’s assets (such as property). To avoid the OR or TIB from realising your assets, you should put them on notice of your intention to apply for annulment of your bankruptcy and make the annulment application to court promptly (whilst also ensuring that it contains the necessary evidence required). Otherwise, you may find that the OR or TIB has commenced realising your assets before the court has had the opportunity to consider your annulment application.
2. Following on from the point above, the OR or TIB is likely to incur significant fees and disbursements in administering your bankruptcy estate. The longer you leave it to apply for annulment, the higher those costs and disbursements are likely to be. Depending on which of the above grounds you are relying on, it can have the following consequences:
i. If you are applying for annulment based on ground A above and are successful in obtaining annulment of the bankruptcy order, the starting point is that the petitioning creditor is liable for the OR or TIB’s costs and disbursements. However, you could be held to be liable for the OR or TIB’s costs and disbursements, if the court finds that you unnecessarily delayed in making your annulment application.
ii. If you are applying for annulment based on ground B above, alongside demonstrating that the bankruptcy debts have been paid, you would be required to demonstrate to the court that you are able to satisfy the bankruptcy expenses too (i.e. the OR or TIB’s fees and disbursements). Therefore, you may find that shortly after your bankruptcy it was financially feasible to demonstrate this as the OR or TIB’s fees were not significant. However, if you leave it too long before considering annulment you may find it is no longer financially feasible owing to the OR or TIB’s fees being significantly higher. Our lawyers were recently instructed by a debtor who wished to annul his bankruptcy four years after his bankruptcy order. Although he as able to demonstrate that the bankruptcy debts had been paid, the TIB’s extensive costs proved to be an obstacle to seeking annulment.
iii. If you are applying for annulment based on Ground C above, the OR or TIB’s fees and disbursements are likely to be considered as part of the IVA proposal to creditors. The higher those fees and disbursements are, the less attractive an IVA proposal may become to creditors.
3. If the bankruptcy was based on a default judgment obtained against you and you wish to argue that the bankruptcy order ought not to have been made (i.e. under ground A above) because the default judgment should not have been made, it is fundamental to apply for annulment promptly. Case law suggests that although the court can look behind a judgment on an annulment application, it would not do so if the applicant had delayed unreasonably in challenging said judgment.
4. When considering an application under ground B above, although there is no fixed period by which you should apply for annulment of your bankruptcy, the longer you wait the more difficult it can be for contact to be made with creditors in order to repay them and seek confirmation of the same.
5. Once a bankruptcy order is made “post-bankruptcy” statutory interest payable to creditors continues to accrue. Whilst the court has discretion to waive statutory interest it is less inclined to do so if a debtor waits too long time before applying for annulment of their bankruptcy. In the case of Harper v Buchler (No.2) [2005] B.P.I.R. 577, the court stated that it would not be prepared to annul a bankruptcy order made a decade ago unless statutory interest was paid.
6. Save for Ground C above (whereby the court must annul a bankruptcy order where an IVA is in place) the courts have wide discretion when considering an application for annulment of a bankruptcy order. If there is an unreasonable delay in making an application for annulment, a court is less likely to exercise its discretion and grant an annulment application. The following cases are just some examples of instances where the court refused annulment of bankruptcy orders owing to delay:
i. In the case of Re Ruiz [2011] EWHC 913 (Fam); [2011] B.P.I.R. 1139, a wife was unsuccessful in securing annulment of her husband’s bankruptcy. One of the reasons was because the application was made 18 months after the bankruptcy order was granted.
ii. In the case of Taylor v The Macdonald Partnership [2015] EWCA Civ 921, the court refused to annul a bankruptcy order owing to the fact that it was made nine years after the debtor had been discharged from bankruptcy.
iii. In Ramsden v Official Receiver [2018] EWHC 1226 (Ch), the court dismissed the annulment application following a delay of 24 years before the annulment application was made.
Conclusion
For the reasons set out above, we recommend that debtors get in touch with us for legal advice immediately following a bankruptcy order being made against them so that we can work promptly to assist them in considering their options for annulment thus increasing the chances of a successful annulment application.
For more information, please email Adina-Leigh Collins or Bimal Kotecha or call the team on 020 8308 3610.