Bankruptcy – late application – adjournment – judicial discretion
Mr Edginton was Mr and Mrs Sekhon’s solicitor. Professional fees fell due to him under the terms of his retainer. However, his entitlement to fees became statute-barred. During the course of litigation over the fees, an order for costs was made against Mr Edginton. He failed to pay the sum, and Mr & Mrs Sekhon served a statutory demand and then presented a bankruptcy petition.
At the hearing of the petition, Mr Edginton relied on: (1) his entitlement to fees; and (2) an argument that Mr and Mrs Sekhon were estopped from relying on the costs order as the petition debt. The District Judge rejected those arguments. In the course of giving judgment Mr Edginton offered to settle the petition debt and sought an adjournment to pay. The District Judge considered and rejected the application on the basis it was made late and proceeded to make the bankruptcy order.
Mr Edginton appealed. The Court of Appeal observed that the power to adjourn a bankruptcy petition was to be found in CPR rule 3.1(2)(b). However, that rule fell to be considered in light of two basic principles of the insolvency legislation: (1) the primary purpose of insolvency proceedings is to allow the debtor’s assets to be ascertained and distributed pari passu; and (2) any delay in insolvency proceedings is prejudicial to the creditors as a class because dispositions of property without the permission of the court are void (section 284 of the Insolvency Act 1987). Therefore, the court should usually only grant an adjournment where there is credible evidence that there is reasonable prospect that the petition debt will be paid within a reasonable time.There had been no such evidence in this case. Further, the power to adjourn is discretionary. In modern litigation, delay was a serious factor which the District Judge had been entitled to take into account. Mr Edginton’s appeal was dismissed.
This is a welcome restatement of the principles applicable on a late application to adjourn a bankruptcy petition on the grounds that the debtor wishes time to pay. It is also a clear indication that the court’s policy is to look unfavourably on late applications unsupported by any clear evidence as to how the debtor will pay the petition debt.
