What is a reasonable offer of security?

The creditors obtained judgment against the debtor and petitioned for the debtor’s bankruptcy on the back of that judgment. The debtor part paid the debt post presentation of the petition and claimed that the balance would be paid out of inheritance expected from his aunt’s estate and that he had offered security over that interest.

The ICCJ disagreed and made a bankruptcy order. The debtor appealed to the High Court, who dismissed his appeal and he appealed that decision to The Court of Appeal.

The Court of Appeal found, on the evidence, that the debtor had miscalculated the amount he was due from his aunt’s estate and that the amount he was actually due was insufficient to repay the balance of the petition debt in full, notwithstanding that it had not yet been received in any event.

On the question of security, the debtor argued that he had provided irrevocable instructions to the executors’ solicitors to pay all amounts due to him from his aunt’s estate to the creditors.

The Court of Appeal decided that this promise constituted a form of security, which sets an interesting precedent.

However, by the time that the appeal reached the High Court, no payment had been received by the creditors from the estate, and any amount received was insufficient to repay the petition debt.

At that time, the debtor had agreed to repay the unsecured balance of the debt, but there was no certainty around that offer and the High Court concluded that no reasonable creditor would accept that offer.

The Court of Appeal agreed and dismissed the appeal.

Hughes & Hughes v Howell [2021] EWCA Civ 1431

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