company is wound up, any dissipation of assets, or enforcement
proceedings completed after the date of the presentation of the
petition are liable to be set aside (s346 Insolvency Act 1986
IA).
the company or individual remain available for the benefit of
creditors. The court does however have a discretion not to set
aside such transactions if it considers substantial unfairness will
be suffered by an individual creditor – s346(6) IA.
In Tagore Investments SA v Official Receiver,
the claimant obtained an interim charging order over the debtor’s
property. The charging order was made final one day after the
debtor was made bankrupt on his own petition which was presented
that same day. The claimant had not known of the debtor’s petition
for bankruptcy when applying for the charging order. The debtor
however knew of the charging order.
The claimant alleged the debtor’s decision to petition for
bankruptcy had been made in a deliberate attempt to frustrate the
charge.
It relied on the debtor’s conduct before and during the
litigation and the judge’s findings as to the debtor’s dishonest
behaviour in support of the application for relief from the
provisions of s346 IA.
The court found the debtor’s conduct before and during the
litigation led to the conclusion his decision to petition was
deliberate and intended to disadvantage the claimant.
He had not given notice of his intention to present the petition
and had no pressing creditors apart from the claimant and hardly
any unsecured creditors.
It was unlikely the decision to petition had been taken for the
benefit of his creditors, or to relieve himself of a debt burden,
but more likely to manipulate the situation and frustrate the
charging order. On the other hand, the claimant had acted properly
and timeously.
The court’s discretion can only be exercised in exceptional
cases and with great caution where the applicant can show there
would otherwise be unfairness sufficient to justify an
exception.
The court found that the appropriate degree of unfairness had
been established in this case. The final charging order was allowed
to stand and the claimant would be a secured creditor in the
debtor’s bankruptcy, thereby having some degree of priority.
Comment
Cases where enforcement will be allowed to stand,
notwithstanding the intervening bankruptcy, will be exceptional and
each case will depend upon its own facts.
However, if the debtor’s actions throughout the period of
dispute, particularly following a judgment that has been obtained
against him, can be seen as a cynical attempt to avoid enforcement
and thwart a creditor’s security, then an application should be
considered.
This is particularly so where there are a number of unsecured
creditors and the bankrupt’s assets available for distribution are
unlikely to be substantial.
Greg Standing, a partner in Wragge & Co LLP’s Finance,
Insolvency, Recoveries and Sales team
