Reaffirmation of bankruptcy as class remedy

Published on
2 min read

A bankruptcy petition was presented following non-satisfaction of a statutory demand which was based on a judgment debt. The petition debt was £135,244.90 plus interest but a number of other creditors supported the petition to the tune of £16m.

The debtor accepted there was no grounds on which to oppose the petition but contended the hearing should be adjourned so that he may pay the debt. It was argued, following Sekhon v Edgington [2015], that he need only show a reasonable prospect of paying the petition debt within a reasonable time.  However, the supporting creditors thought otherwise and argued that the hearing could only be adjourned if the debtor had a reasonable prospect of paying all of the debts not just the petition one.

The Court, unsurprisingly, preferred the supporting creditors’ argument and reaffirmed the principle that bankruptcy is a class remedy. 

In doing so it theorised a situation where the debtor was allowed to pay only the petition debt and the hearing was adjourned. The inevitable result would be for one or more of the supporting creditors to be substituted as the petitioner at the reconvened hearing where a bankruptcy order would no doubt be made because the debtor would be unable to pay the £16m debt. Therefore, payment of the petition debt only would itself constitute a void disposition. 

For those reasons, the debtor would have to provide credible evidence of his ability to pay within a reasonable time both the petition debt and the debts due to the supporting creditors. As he failed to do so, a bankruptcy order was made.

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