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Published On: July 27, 2021 | Blog | 0 comments

When is an offer not an offer in Bankruptcy proceedings?

s.271(3) Insolvency Act 1986 provides that:

“The court may dismiss the petition if it is satisfied that the debtor is able to pay all his debts or is satisfied—

(a)that the debtor has made an offer to secure or compound for a debt in respect of which the petition is presented,

(b)that the acceptance of that offer would have required the dismissal of the petition, and

(c)that the offer has been unreasonably refused..”

In Hughes v Howell the Court of Appeal dismissed a second appeal against a bankruptcy order, holding that where an uncertain amount of a debt was subject to a form of security an offer to pay an unspecified amount towards the remainder of the debt was too uncertain to be accepted by the petitioning creditors.

Mr Howell (“H”) was a beneficiary of an estate whose primary asset was a property. Following the presentation of a bankruptcy petition against him the petition was adjourned for 3 months to allow H to put in place an arrangement whereby he instructed the executors of the estate to pay his share of the proceeds of the estate to the petitioning creditors.

At the next hearing, it was apparent that the sale of the house and final distribution of the estate was still some way off, and that H’s share of the likely value of the estate was going to leave a significant shortfall of at least £10,000. H made an offer to pay £10,000 and then during the hearing said “if someone thought it ought to be more than £10,000 then I would go along with that but at the moment it seems to me that £10,000 would be more than adequate.”

ICC Judge Burton held that the creditors had been entitled to refuse the debtor’s offer and made a bankruptcy order.

H appealed to the High Court against the bankruptcy order. That appeal was dismissed by Birss J  [2020] EWHC 747 (Ch) who held that there had not been a concrete offer to pay more than £10,000 and the ICC Judge had been entitled to consider that this offer was insufficient.

H was granted permission to bring a second appeal on the ground that the High Court should have considered his offer to have been more than £10,000.

The Court of Appeal (The Master of the Rolls, Lewison LJ, and Coulson LJ) dismissed the appeal.

Lewison LJ gave the leading judgment, in which he approved the summary of the relevant principles concerning s.271(3) set out by Chief Registrar Baister in HMRC v Garwood [2012] BPIR 575.

Lewison LJ went on to say that in order to be an offer for the purposes of s.271(3), an offer must be a concrete offer capable of acceptance. It must be a present offer, not the possibility of a future offer. An offer simply to top up the shortfall was not enough. Nor was it up to the creditors to negotiate with the debtor before the debtor makes an offer. The offer that the debtor makes is one for him to make and him alone.

The court rejected the submission that if a debt is secured it does not matter how long the creditor will have to wait before being able to realise a security. Security is only of value if it enables the debt to be paid within a reasonable time. A creditor is not unreasonable in refusing to wait for an indeterminate time for an indeterminate amount before security can be realised.

The Court of Appeal also made a pro bono costs order in favour of the Access to Justice Foundation.

Robert Brown of Selborne Chambers appeared for the successful respondents, instructed by Clifford Tibber of Anthony Gold.

* Disclaimer: The information on the Anthony Gold website is for general information only and reflects the position at the date of publication. It does not constitute legal advice and should not be treated as such. It is provided without any representations or warranties, express or implied.*

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