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If a bankrupt enters an IPA, can the trustee obtain a further income payment order? In Re Edmondson, the court had to decide this issue.

The bankrupt had entered into a five-month Nil Tax only IPA with the Official Receiver. One issue which did not seem to give rise to any problem was that this IPA was entered into by the Official Receiver one day after trustees had been appointed. The Trustees wished to seek an Income Payments Order of some £10,000 per month for three years from the date of the order.

The bankrupt argued that under the Insolvency Act 1986, the section 310 (the order route) and section 310A (the agreement route) were mutually exclusive. It was not possible to have both he said.

The District Judge considered they were not entitled to an order in addition to an agreement. The trustees appealed with the additional safety amendment of seeking an order in the alternative to varying the income payment agreement. A very wise back-up plan.

The High Court listened to clearly very able arguments put forward by both sides on legislative interpretation as to whether the two regimes of IPO and IPA’s were mutually exclusive. One key argument raised by the bankrupt was that, if each could be allowed, there would be the potential situation whereby a bankrupt could enter into an IPA and then be subject to an IPO extending the time period for payment beyond three years.

The court had some sympathy with this argument but concluded that the two regimes were not mutually exclusive. There was no reason to interpret the implementation of section 310A by the Enterprise Act 2002 as amending or limiting the jurisdiction under section 310. The only amendment to section 310 by the 2002 Act had been to limit the period of the order to a maximum of three years.

The argument that treating the sections as independent could lead to payments lasting for longer than three years could easily be dealt with. If it was the intention that bankrupts should only make payments for a period of three years and no more, the court when exercising its discretion upon making an income payments order could ensure that the length of time for which payments would be made would not exceed three years.

Although the court did not say so, presumably as the debtor has already made five months of payments, the IPO should be for a term of no longer than two years seven months so that the three-year payment limit was not breached.

The decision is useful for clarification that a trustee can apply for an income payments order when there has been a prior income payments agreement. This is particularly so when the Official Receiver is keen to implement NT only IPAs within the first tax year after bankruptcy and it would have been unfortunate for creditors if this NT only IPA prevented a further Order from being obtained.

If you wish to discuss this issue please contact Frances Coulson; or Graham McPhie  

This is intended for general information only and should not be considered as giving advice in relation to any individual case nor be taken as applying to any particular case. No liability is accepted for any such use of the information contained here.


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