Bankruptcy – lower court rescinding order made on appeal – section 375 Insolvency Act 1986 – validity of bankruptcy order – standing of a trustee in bankruptcy
The Council successfully petitioned in the County Court for Mr Layne’s bankruptcy on the basis that his offer of security was unreasonable. Mr Layne appealed to the High Court contending the offer was reasonable. By consent, the Council and Mr Layne compromised the appeal on terms rescinding his bankruptcy order and granting the Council a charge over his property.
Mr Sands, Mr Layne’s trustee in bankruptcy, applied to the High Court for an order under section 375(1) of the Insolvency Act 1986 rescinding the consent order citing the prejudice caused to unsecured creditors. The Court dismissed the application on three grounds.
First, section 375(1) gave a court exercising insolvency jurisdiction power to “review, rescind or vary” an order made by it. However, this did not permit the High Court, at first instance, to rescind an order made by it exercising its appellate jurisdiction, applying the dictum of Briggs J in Appleyard v Wewelwala [2013] 1 WLR 752. Although the court held that this reasoning was not wholly consistent with the literal words of the statute, Briggs J was not obviously wrong and should be followed.
Second, the interests of unsecured creditors were not important when considering whether to dismiss a bankruptcy petition on the grounds that an offer of security was reasonable under section 273(3) of the Insolvency Act 1986. The insolvency legislation already provided them with remedies. If dissatisfied, unsecured creditors could either: (1) seek substitution on the petition; or (2) present a fresh petition and, if a bankruptcy order were made, seek to have the grant of security set aside as a preference.
Third, in any event, the trustee in bankruptcy had no standing to make the application as he would have had no standing to appear at the appeal of the original bankruptcy order. Mr Sands’ status depended entirely upon the outcome of the hearing. If the bankruptcy order were set aside, his trusteeship would disappear. The question of its validity was a matter between the creditor and debtor on the petition.
The case is significant for its discussion of the jurisdiction under section 375(1) Insolvency Act 1986, however it should be approached with caution in light of the decision in Re Cahillane, discussed below. Nevertheless, it remains important for its consideration of a trustee in bankruptcy’s standing on applications that go to the validity of the trusteeship.
