REUTERS | Ilya Naymushin

Insolvency round-up: January 2019

In Bayliss v Saxton, the Queen’s Bench Division of the High Court held that section 285(3)(b) of the Insolvency Act 1986 did not apply to committal proceedings for contempt of court on the grounds of interference with due justice.

Section 285(3)(b) prevents proceedings, including criminal proceedings, being brought against a bankrupt or insolvent company without the permission of the court.

Here, the proceedings for committal had been brought on the ground that the bankrupt had continued litigation on behalf of his deceased mother for several years maintaining that she was alive.

The court distinguished the decision of the House of Lords in Re Smith (a Bankrupt), where the court had held that the court could stay committal proceedings for non-payment of rates as a type of “legal process” under section 285(1) of the Insolvency Act 1986.

Here the court held that section 285(1) concerned the court’s discretion to stay existing proceedings against a bankrupt, whereas section 285(3) contains a precondition to the bringing of new proceedings against a bankrupt, and thus the subsections covered different areas. In Re Smith, the warrant of commitment was a direct means of enforcement of a debt, whereas the purpose of committal proceedings for contempt of court in the current case was very different.

This is believed to be the first authority on this point.

Unassessed intervention costs are liquidated sum for insolvency purposes

In The Law Society (Acting Through the Solicitors Regulation Authority) v Blavo, the Court of Appeal held that unassessed costs of a Solicitors Regulation Authority (SRA) intervention constituted a debt for a liquidated sum under section 267(2)(b) of the Insolvency Act 1986. Applying the approach adopted in McGuinness v Norwich and Peterborough Building Society, the Court Appeal held that paragraph 13, Part II, Schedule 1 to the Solicitors Act 1974, which permits recovery of intervention costs as a statutory debt, creates a pre-ascertained liability.

The fact that the liability was in relation to solicitors’ fees did not bring into play the general principle that a solicitor’s claim for remuneration is an unliquidated sum, being a reasonable and fair amount for the work done. An SRA intervention agent’s costs required no further act under the Solicitors Act 1974. Paragraph 13 provided the mechanism for determining the amount.

Consequently, the costs were a debt for a liquidated sum and the High Court should not have set aside the statutory demands under rule 6.5(4)(b) of the Insolvency Rules 1986.


In a separate High Court judgment on 21 December 2018, John Blavo was ordered to pay the government £22.1 million after the court found it more likely than not that systemic fraud had taken place in legal aid claims, and that there was an endemic culture of dishonesty.

An audit by the Legal Aid Agency in 2015 showed claims for representation in mental health hearings in 24,658 cases, but only 1,485 actual hearings. (See The Lord Chancellor v Blavo & Co Solictors Ltd and another.)

Stays and the Cross-border Insolvency Regulations 2006

In Bakhshiyeva v Sberbank of Russia and others, the Court of Appeal considered the jurisdiction of courts under the Cross-Border Insolvency Regulations 2006 (SI 2006/1030) to grant an indefinite stay on actions against a foreign debtor’s assets by creditors with English law claims.

It held, disagreeing with the High Court, that there was no absolute jurisdictional bar to it granting assistance to foreign insolvency proceedings where this would substantially affect the rights of creditors with English law claims under Article 21 of Schedule 1 to the Regulations. There could be circumstances where, to a limited extent, it may be appropriate to use the Regulations to achieve the discharge or variation of English law rights and uphold foreign law. For example, the court could remit assets back to a foreign liquidator under Article 21(1)(e).

However, it was wrong for the court to grant a permanent stay under Article 21, and thereby assist foreign insolvency proceedings, if it would:

  • Prevent English and Wales law creditors from enforcing English and Wales law rights as a result of a foreign insolvency process, as this would breach the common law rule that contractual obligations can only be discharged under the law applicable to that contract, known as the rule in Gibbs.
  • Purport to continue a stay beyond the end of the foreign restructuring proceedings.

The Court of Appeal considered the Regulations to be a procedural tool which was not to affect the rights of creditors, and it would not have been appropriate to grant relief under Article 21 as that would have overridden the rule in Gibbs, which is part of the common law of England and Wales.

Co-workers and whistleblowing

In Timis and another v Osipov, the Court of Appeal held that co-workers’ liabilities for damages for detriment suffered by a whistleblower, within the meaning of section 47B of the Employment Rights Act 1996, included loss suffered as a result of dismissal within section 103A of the Act.

Generally damages for detriment do not include damages flowing from dismissal, as there is a separate cause of action against the employer for dismissal. However, there is no cause of action against a fellow worker for unfair dismissal.

Consequently, the Court of Appeal upheld the decision of the Employment Tribunal and the Employment Appeal Tribunal that the liability of a co-worker for detriment did extend to detriment and damages flowing from dismissal.

The liability will generally be joint and several as between the co-worker and the employer, as here, and, in any event, the employer will generally be vicariously liable for the co-worker’s actions as well. However, where the employer is insolvent this gives the victim of whistleblowing the ability to enforce the whole damages award against the co-worker, who will of course not enjoy the limited liability that most companies have. Thus an insolvent employer avoids the debt, which becomes the sole responsibility of the fellow worker, although there is no liability for the basic award in unfair dismissal cases.

The same applies in relation to all forms of discrimination claim under the Equality Act 2010.

I suspect that this is not quite what Parliament had in mind.

No bankruptcy against person with no assets

In Lock v Aylesbury Vale District Council, the Chancery Division of the High Court held that a bankruptcy petition should not have been granted where the bankrupt had nothing, as the court should not make orders that serve no useful purpose, and thus allowed an appeal against the decision of the district judge.

Section 266(3) of the Insolvency Act 1986 gives the court a general power, where appropriate, to dismiss a bankruptcy petition for any reason. Here, the bankrupt had no income, and, due to ill health, no ability to earn income, and had capital of less than £100 and rented her home from a social landlord. The petitioner was well aware of her position.

In Re Betts, the Court of Appeal said that where there were no assets, and no prospect of any coming into existence, the court had a discretion to refuse to make a bankruptcy order if the only effect will be a waste of money and costs. In Re Field, the Chancery Division of the High Court said that a person may indeed be too poor to be made bankrupt.

The petitioner submitted that the court had jurisdiction to make a bankruptcy order in circumstances where a bankrupt had no assets and where the only purpose of the order was to enable an investigation to take place into the bankruptcy affairs (see Bell Group Finance (Pty) Limited v The Bell Group (UK) Holdings Limited). Furthermore, if there were no assets, then the court could rescind the bankruptcy order. However, the court here said:

“In bankruptcy petitions of the present kind, however, founded upon unpaid council tax, it does seem to me that there is a burden upon a public authority, petitioning for a debtor’s bankruptcy, to at least raise a prima facie case that a bankruptcy order will achieve some useful purpose.”

The district judge had failed properly to exercise his discretion, which meant it fell to the appeal court to exercise it, by virtue of CPR 52.21(3):

“The appeal court will allow an appeal where the decision of the lower court was—
(a) wrong; or
(b) unjust because of a serious procedural or other irregularity in the proceedings in the lower court.”

The Chancery Division held that the bankruptcy order was unjust because the district judge did not consider whether any useful purpose would be served by making it:

“Everything in evidence about the bankrupt and her financial affairs indicated that she was not worth powder or shot, and that a bankruptcy order would achieve no useful purpose.”

Chancery Guide

A revised Chancery Guide was published on 21 January 2019.

Amendments to the insolvency appeals section reflects the fact that all appeals in individual insolvency proceedings from a district judge, whether in the county court or the High Court, and from an Insolvency and Companies Court (ICC) judge, are to a High Court Judge in the Business and Property Courts (see paragraph 24.14).

Amendments are also made to chapter 25 (Insolvency and Companies List), reflecting changes introduced in the Practice Direction on Insolvency Proceedings (July 2018), including dealing with the distribution of insolvency between High Court judges, ICC judges and district judges, and what constitutes local business for the county court.

Hearing bundles must be lodged for all hearings before all judges and ICC judges, but no bundle is needed in winding up proceedings unless ordered by the court (see paragraph 25.27).

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