Ciddy v Natalia – ICC judgment on bankruptcy petition

This case concerned a secured loan made by the petitioner in the amount of £562,500 which was to be repaid within 12 months.The loan was provided at the instigation of the debtor’s then husband but the debtor admitted that she had signed the loan and mortgage agreement and obtained legal advice when entering into them.

Under the loan, interest was to be charged at the rate of 10% per year and default interest would thereafter apply at a rate of 2% per month (24% per year) with anything unpaid, compounded.

The loan was not repaid on the due date and receivers were appointed to sell the mortgage property. The petitioner realised £563,471.93 from this sale and thereafter petitioned for the debtor’s bankruptcy. The proceeds of sale were not used to reduce the capital owed but instead placed against the outstanding interest. A very considerable principal sum still remained owing on which default interest continued to accrue after the sale notwithstanding that the sale proceeds received by the petition exceeded the principal. The petitioner was entitled to appropriate in this way under a term of the loan.

The debtor disputed the petition debt on two grounds:

1. The debtor was not liable to pay the debt because it reflected a default interest provision which was an unenforceable penalty.
2. The loan was unenforceable because the relationship between the parties was unfair within the meaning of sections 140A-140C of the Consumer Credit Act 1974 (CCA).

The judge found, as regards (1), there was a dispute on substantial grounds, in particular in light of the fact, inter alia, that this was a loan for which significant security had been provided. As regards (2), the judge found the issues raised by the debtor demonstrated a good argument that the relationship was beyond that of a normal borrower-creditor relationship.

The petitioner, relying on the case of in re Field, submitted that even if the default interest was determined as a penalty clause, there would remain a substantial sum outstanding for standard interest as well as costs and the receivership expenses, and that these sums undoubtedly well exceeded the bankruptcy level of £5,000.

Furthermore, it was clear from case law that a debtor was not to receive a windfall from a section 1240A-140C order so even if that argument went in the debtor’s favour she would still owe sums in excess of the bankruptcy level.

The judge held that that was the incorrect approach in this case: having determined that the debtor had established substantial grounds relating to her section 140A-C CCA claim, any sum which remained outstanding should be determined in those proceedings; unlike in re Field there was no liquidated debt due because the actual sum of what, if anything, was due still needed to be determined by the County Court. What the petitioner was effectively inviting the bankruptcy court to do was to quantify what sum the County Court would determine was due but that that type of assessment formed no part of the bankruptcy jurisdiction.

Accordingly, the petition was dismissed.

Ciddy Ltd v Natalia, ICC Judge Agnello KC [2025] EWHC 1616 (Ch)