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22-10-2020

Robertson v Wojakovski - Bankruptcy Class Action - Adjournment 

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Whether to agree to an application to adjourn a bankruptcy petition is a routine decision for the court but often one of the most difficult to get right, especially where the petition has been adjourned once or more already. It is the subject of Zacaroli J’s recent judgment in Robertson v Wojakovski [2020] EWHC 2737 (Ch).

The debtor was the subject of a costs order arising out of proceedings in which he had become embroiled involving the Tonstate Group of companies and others which left him with debts in excess of £16m to the petitioner and supporting creditors.

Counsel for the debtor accepted that a petitioning creditor with an undisputed debt which remained unpaid was entitled ex debito justitiae to a bankruptcy order. He sought an adjournment of the petition, however, relying on the jurisdiction to adjourn to afford the debtor time to pay, the existence of which opposing counsel accepted.

The only authority cited to the judge in relation to the jurisdiction to adjourn was a passage from Muir Hunter on Personal Insolvency (7A-156 & 157), but that included commentary on a number of cases:  Re Gilmartin [1989] 1 WLR 513 Ch D;  Re Micklethwaite [2002] EWHC 1123 (Ch); Anderson v Kas Bank NV [2004] EWHC 532 (Ch); Harrison v Seggar [2005] BPIR 583; Nottingham City Council v Pennant [2009] EWHC 2437 (Ch); Ross v Revenue and Customs Comrs [2010] 2 All ER 126; and the Court of Appeal decision in Edginton v Sekhon and Sekhon [2015] EWCA Civ 816.

Counsel for the debtor contended that there was a reasonable prospect of his client’s being able to pay the petition debt within a reasonable time, but accepted that there was no such prospect of his paying the substantially larger debt due to the supporting creditors in a reasonable time. He submitted, on the case law, that it was sufficient to secure an adjournment to establish only that there was a reasonable prospect of paying the petition debt within a reasonable time. Opposing counsel, unsurprisingly, contended that the debtor had to demonstrate a reasonable prospect of paying the petition debt and any undisputed debt owed to supporting creditors.

The judge noted that the passage from Muir Hunter and the cases cited there referred to an adjournment by reference to the possibility of repaying “the petition debt” within a reasonable time; the position where there were undisputed debts owing to supporting creditors did not seem to have been considered. He thought, however, that the cases could not be regarded as authority against the proposition that debts owed to supporting creditors had to be taken into account when considering an application to adjourn on the basis of a reasonable prospect of payment.

In the alternative, counsel for the debtor contended that if it was necessary as a matter of law to show that there was a reasonable prospect of paying the debts due to the supporting creditors as well as the petition debt, there were special factors in the case which meant that the debtor should be given generous time to pay the latter by realising investments in companies which had featured directly or indirectly in earlier litigation.

The judge disposed of a number of issues of fact going to the debtor’s ability to raise funds to pay his debts and went on to conclude that that the legal arguments of counsel for the creditors was to be preferred:

“Bankruptcy is a class remedy. Where a creditor wishing to pursue bankruptcy proceedings against a debtor discovers that another bankruptcy petition has already been presented, then the usual course is for that creditor to give notice of intention to support the petition (under Rule 10.19) rather than to present its own petition. The giving of such notice entitles that creditor to be substituted as petitioner, in the event that the petitioning creditor is found to be not entitled to present the petition, or consents to withdraw it, fails to appear or seeks an adjournment (see Rule 10.27). If a debtor was able to pay the petitioning creditor, but not the supporting creditor, then the inevitable result of an adjournment to allow payment to be made to the former would be that the supporting creditor would apply to be substituted at the adjourned hearing. At that point (assuming there was no other defence as against the supporting creditor) a bankruptcy order would likely be made because the debtor could not pay the newly substituted petitioning creditor.”

He continued:

“In the event that a bankruptcy order was indeed made on the adjourned hearing, the payment made to the petitioning creditor would itself constitute a void disposition, unless consented to or ratified by the court, under s.284 of the Insolvency Act 1986. For these reasons, I consider that in order to justify an adjournment of the petition in this case, Mr Wojakovski would need to provide credible evidence of his ability to pay within a reasonable time both the petition debt and the debt due to the supporting creditors.”

The adjournment was thus refused and the judgment ended by foreshadowing the making of a bankruptcy order when it was handed down.

Zacaroli J’s reminder the class nature of insolvency proceedings is welcome and plainly correct. His judgment fills a small but important gap in the authorities.

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