Re Maud; Maud v AABAR Block Sarl

Bankruptcy– principles for exercising discretion – motive and purpose of petition

In short summary, the (extremely complex) facts were as follows. M, the debtor, owned 50% of a corporate group holding a substantial office complex in Madrid (the ‘asset’). The group is now subject to insolvency proceedings in Spain, the liquidation plan of which involves selling the asset to the highest bidder. M had also incurred a number of personal liabilities in connection with the asset. The petitioners (P), who hoped ultimately to acquire the asset, purchased those latter debts, on the basis of which they petitioned for M’s bankruptcy.

By the third hearing of the petition it was apparent that at least one of P’s purposes in petitioning was extraneous i.e. to facilitate their acquisition of the asset. However, the Registrar made the bankruptcy order, rejecting the contention of M and certain other creditors that the petition was abusive and/or should be further adjourned. In so doing he applied some novel evidential ‘presumptions’ derived from Irish case law.

Snowden J allowed M’s appeal. Ulterior purposes engage at least two potential considerations: (i) is the petition abusive and (ii) should any bankruptcy order be made immediately. The bar is set high for the former. However, and contrary to P’s submissions, even if the ulterior purpose is insufficient to found an abuse it remains relevant to the court’s discretion generally. This derives from the “collective nature of the remedy” and involves the court “addressing the interests of the class and weighing the views of the creditors who supported and opposed”. In the instant case the Registrar was wrong to rely on the Irish authorities and to focus only on whether M had established a reasonable prospect that creditors would be paid within a reasonable time

The Registrar ought to have assessed the interests of the class more fully. The exercise “is not a simple counting of heads or value of debts”; in particular the Registrar should have given weight to the fact that “[M’s] creditors as a class might legitimately take the view that they had a better chance of getting something by abstaining from making [M] bankrupt than if he was made bankrupt immediately”. The order was set aside and the petition re-listed following updated evidence from all interested parties.

A novel and welcome consideration in the bankruptcy (as opposed to corporate insolvency) context of the principles relevant to petitioners’ ulterior purposes and their interaction with the court’s general discretion, as well as a helpful restatement of the principles generally applying on the hearing of a petition.