Bankruptcy – annulment – s.282(1)(a) Insolvency Act 1986 – bankruptcy orders – setting aside statutory demands
The petitioning creditor, Mr Woolsey, had loaned money to the respondents, Mr and Mrs Payne. He served statutory demands upon both of them and subsequently obtained a bankruptcy order against Mrs Payne but not against Mr Payne, against whom a petition had been presented by another creditor (which was subsequently dismissed). Mrs Payne applied for annulment of the bankruptcy order and Mr Payne for the statutory demand against him to be set aside.
At first instance, Chief Registrar Baister held that the loan did not fall within the business exemption provision in s.16B(2) of the Consumer Credit Act 1974, and was therefore a regulated agreement, on the grounds that the creditor had reasonable cause to suspect, for the purposes of s.16B(3), that the purpose of the loan was not for a business carried on by Mrs Payne but was for use in the couple’s company, which had its own legal personality. Thus he held that the borrowers’ challenges to the enforceability of the loan were “substantial” and that the tests both to set aside the statutory demand and for the annulment of the bankruptcy order under s.282(1)(a) of the Insolvency Act 1986 were met.
The petitioning creditor appealed against both orders. In respect of the annulment he alleged, relying upon Flett v Revenue and Customs Commissioners [2010] EWHC 2662 (Ch), that the test for setting aside a statutory demand and for annulment of a bankruptcy order were different and that in order to have her bankruptcy order annulled Mrs Payne had to show not that the debt might not be enforceable, but that it was not due on the balance of probabilities.
The court rejected this argument and dismissed the appeal, applying the decision in Guinan III v Caldwell Associates [2004] BPIR 531 in which Neuberger J, as he then was, had held there to be no distinction between the two tests. That case had not been referred to in Flett. The Judge’s reasoning, (applying that of Neuberger J) was that if there was a genuinely triable issue, it should not matter at which stage the challenge was raised.
This case considered the conflicting High Court authorities as to the tests to be applied on annulment applications and contains a convincing explanation of why Guinan is the authority to follow.
