Bankruptcy – creditors’ meetings – financial remedies – trustees in bankruptcy – removal – s.298(1), s.303, s.363(1), s.366, s.375, s.298, s.303(2) Insolvency Act 1986
The applicants were the joint trustees in bankruptcy of a former property entrepreneur who died in very public circumstances on 8 December 2014. The respondent, Mrs Young was the ex-wife of the bankrupt.
The bankrupt and Mrs Young divorced in 2007 and for the next six and half years contested extremely acrimonious ancillary relief proceedings in the full glare of the media spotlight. The case went to trial before Moor J (see [2013] EWHC 3637 (Fam)) who made an award in favour of the Mrs Young for approximately £26.5m.
The court made the bankruptcy order in April 2010 on HMRC’s petition. In 2012 Mrs Young applied for annulment of the bankruptcy order and an interim stay. The stay application was abandoned and the annulment application was discontinued by consent in June 2014 with a costs order in favour of the trustees and HMRC.
In December 2013 Mrs Young submitted a proof of debt in the bankruptcy for £26.5m and, in February 2014, requested a meeting of creditors be convened to consider replacing the trustees. The other creditors indicated they had no desire to replace the trustees and the trustees applied for a direction that they were not obliged to convene a creditors meeting. Mrs Young cross-applied to opposite effect.
The central arguments in favour of the trustees were: (i) the time and expense of replacing the trustees after four and half years in office; (ii) the inability of Mrs Young to substantiate her criticism of the trustees; (iii) the position of the other creditors; and, (iv) the conduct of Mrs Young to date. Against this the Court had to consider: (i) the democratic right of creditors to replace the trustees, particularly as Mrs Young did not participate in the original appointment; (ii) the status of Mrs Young as the largest creditor; and, (iii) the absence of progress made to date by the current trustees.
The court held that the circumstances were not such that Mrs Young should be deprived of the opportunity to make her case to other creditors. Therefore the trustees would be directed to convene a creditors’ meeting subject to Mrs Young paying the costs relating to the annulment application and the stay application, both of which remained outstanding.
While the court has a discretion to direct that no creditors’ meeting must be convened, if the requesting creditor is a substantial one and did not participate in the original appointment, and the cost and delay occasioned by appointing replacements would be proportionate and manageable, trustees are likely to face an uphill battle in persuading the court to prevent such a creditor making their case.
