A creditor’s right to a bankruptcy order

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2 min read

In an appeal from the County Court at Medway, John Male QC (Deputy High Court Judge) found that the judge of first instance failed to take account of the creditor’s prima facie right to a bankruptcy order, and took no proper account of the limitation placed on a judge’s discretion to adjourn a petition.

Gravesham Borough Council (the "Creditor") had presented a bankruptcy petition against Miss Orebanwo (the "Debtor") as a result of her failure to pay council tax. The petition debt was £5,712.59.  The Debtor had offered to pay the petition debt by way of monthly instalments of £150, and she made three instalments prior to the hearing. 

The Creditor, having considered the Debtor’s income and expenditure, was not prepared to agree to the offer, especially as no security was offered. At the bankruptcy hearing on 3 June 2019, the District Judge ordered that: "This Petition be adjourned on the terms that the Debtor shall make a monthly payment of £150 commencing 1 July 2019 until the bankruptcy debt is cleared". The Creditor appealed this decision arguing that the effect of the Order was to adjourn the petition generally.

Whilst the District Judge appeared to be giving the Debtor an opportunity to clear the debt, the terms of the Order were held, on appeal, to be unacceptable. Notwithstanding that the Insolvency Rules envisage that a bankruptcy petition may be adjourned, there is a presumption that there is no general power to adjourn hearings indefinitely.

Male QC found that the Debtor’s total expenditure relative to her total income was such that she could not afford to pay £150 per month to reduce the debt. Further, it would take around three years for the debt to be repaid. Not only was this not a reasonable period but the failure to provide for what should happen in the event of default, was error of law.

Whilst a judicial practice has grown which accepts that adjournments may be granted to allow a debtor time to pay, the statutory starting point is that if the conditions of the bankruptcy petition are fulfilled, the creditor is entitled to a bankruptcy order. Adjournments should only be made where there is credible evidence that the debtor has a reasonable prospect of paying the petition debt. 

Gravesham Borough Council v Titilayo Orebanwo [2020] EWHC 107 (CH)

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